Financial Model for Business Plans

Financial Model for Business Plans:

Financial Model for Business Plans

Definition:

Definition Business Plan: Formal statement of a set of business goals. Background information of organization or team attempting to reach those goals. Financial Model: Analysis Formulas – calculations – predictions “What-if” – inputs change

Financial Model Menu:

Financial Model Menu Objectives Methodology Assumptions Results Preliminary Conclusions

Financial Models – Business Plan Projections :

Financial Models – Business Plan Projections Critical activity – irrespective of size & age S ales minus C osts equals P rofits (i.e. S - C = P ) Comprehensive Model

Using a Computer for Financial Projections :

Using a Computer for Financial Projections PC – appropriate software Can utilize a spreadsheet to build a model Drawbacks: Time for development Testing – financial expertise Distraction from real task

How Financial Planning Models Work:

How Financial Planning Models Work Electronic equivalent of large sheet – 10 to 20 sqft Model utilizes: Assumptions for: Sales volumes Prices Operating costs & Funding Balance sheets Profit & loss accounts Cash flow statements

Planning – Business Plan Projections:

Planning – Business Plan Projections Invaluable tool Lack of confusion Before using model – Entrepreneur should: Decide on central purpose of: Planning exercise Target audience Time horizon Identify critical assumptions Prepare outline projections

Contd….:

Contd…. Strategic issues Sales Profitability Funding Check all key assumptions Sales forecasts Data

Traps:

Traps Ignoring historic trends or performances at company Overstating market shares and growth, sales forecasts, and profit levels Insufficient consideration to working capital requirements Underestimating costs and delays Disregarding industry performance norms and competitors' responses Unduly optimistic assumptions about the availability of loans, trade credit, grants, equity etc… Example Projection

References:

References http://www.google.com http://www.wikipedia.com http://www.planware.org/financialprojections.htm http://drupal.icstars.org/node/126 http://www.restaurantowner.com/public/511.cfm http://company.financial-projections.com/

Slide 12:

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