The financials section is one of the most important parts of your business plan.
It doesn’t matter whether you are presenting your business plan to investors, for a grant, or a business plan competition.
Investors and facilitators want to see your financial statements and cash flow projections because it gives an indication of the health of your business.
The way money flows in and out of a business determines how well or how bad the business is doing.
For this reason, it is important that entrepreneurs record and document every transaction for their existing businesses.
For new businesses, it is important that entrepreneurs estimate what their expenditures and income would be in the immediate future.
In this article, we’ll take a look at how to create a simple cash flow Projection for any business plan.
The Business Financial Projection
The image below is a sample business cash flow Projection which can be edited to reflect your business financials.
How to Update the Business Financials
No two cash flow Projections are the same, hence you have to update the above financials to reflect the realities of your business.
On the top row, is the business financial period from startup to the end of the first year.
A cash flow Projection is always done in the short-term, preferably in a 12-month period so as to capture the current realities of the business without going too far into the future, which may be unpredictable.
On the first column of the financials table, you have all the financial activities of the business. The Income, the expenses, the cash flow and the cash balance.
Under the income Section is where you would put all the income of your business, including your receivables.
Grant financing is any grant that you receive, such as the TEF grant. Personal funds represent any money put into the business by the owners or founders of the business.
Loans represent any money coming into the business via loans or other financial pledges.
Sales is any income earned from the business operations, while equity funding represents funds received by the business in exchange for a stake or equity of the business.
If an investor invests 5 million Naira into your business in exchange for 20% equity of your business, the funds would be recorded under equity funding.
The total income is a sum of all the income earned by the business within a particular period. If you want to check your total Income for a particular month, you have to add up all the income earned by the business for that month.
The expenses Section is where you will record all the money going out of your business in the form of expenditures. Whatever you spend money on would have to be recorded in this section.
Inventory are the items you buy for sale or the raw materials purchased for use in manufacturing. Many businesses dedicate funds to this section at the start of their business period.
Machinery is any tool or equipment purchased for business operations. Most manufacturing businesses have to purchase machineries to kickstart their business.
Rent & utilities are essential for any business operations. While rent in Nigeria is mostly paid on a yearly basis, utilities can be paid for on a month-by-month basis.
Wages & Taxes are unavoidable expenses for every business. Staff must be paid as well as the government. While wages are paid on a monthly or weekly basis, taxes are paid annually. Some businesses that accrue value added taxes and service charges may record their taxes on a month-by-month basis.
Marketing & Distribution are important steps taken by a business to grow its sales and revenue. Marketing and distribution costs are recorded in the financial statement on a monthly basis.
Insurance is paid for mostly by manufacturing businesses that have a lot of product risks or personnel risk. It is important that businesses insure parts of their business that are exposed to damage, loss of business, or debt. Insurance can be paid on a yearly basis.
Software could be an integral cost for many businesses today, especially those that are technology inclined. However, businesses looking to automate parts of their processes such as accounting or customer acquisition can utilize software. Software costs can be paid on a monthly or yearly basis.
Consulting is a high-end business expense that businesses utilize to gain advantage. Consulting could be in the area of legal, business expansion, funding, investing, contracts or government partnerships. Consulting costs are paid per consulting terms, which are mostly on a use case basis.
The total expenses of a business is the sum of all the expenses incurred by the business within a particular period. If you want to check the total business expenses for a particular month, you have to add up all the expenses incurred by the business for that month.
The business cash flow is the balancing of the inflow and outflow of cash in the business. Cash flow is calculated by adding the total income of the business, and subtracting the total expenses of the business. To get the actual cash flow of your business, simply subtract your total expenses from your total income.
The cash balance of a business is the actual cash that a business has on ground, or cash in the bank. The cash balance is calculated by adding the cash flow to any cash in hand. At the start of the business where the cash at hand is used to fund the business startup, the cash balance = cash flow. In the first month, cash balance = cash flow for that month + cash balance of the previous month or recorded period.
In the financial sample above, we assumed that the business is a new business and has received grant funding.
Under the “start” column and “grant financing” row, we put the grant amount received, which is N2,050,000.
In the same column on the “personal funds” row, we add any personal funds invested by the owners or founders of the business. In this case, we assume that the business owner invested the sum of N500,000 into the business.
The business didn’t receive any loans or equity financing, and has not made a sale since it is still in preparation to start operations. This brings the total/net income of the business at the start to N2,550,000.
On the expenses Section, the business spends on inventory, machinery, rent, utilities, insurance, software, consulting and staff training. It doesn’t spend any money yet on wages, taxes, marketing and distribution because the business operation is yet to start. That brings the total expenses to N1,280,000.
In the cash flow section, we calculate the business cash flow by subtracting the total expenses from the total income. This gives us a cash flow of N1,270,000.
In the cash balance section, because the cash at hand at the start of the business is the same as the business total income, the cash balance is equal to the cash flow. So, the cash balance is recorded as N1,270,000.
Month 1 – Cash Flow Projection
In the first month of the business, we already have everything set up, so operations can begin properly.
In the first month, we expect the business to make a sale of N200,000. We do not expect any external funding for this month. So, the total income for January is N200,000.
In the expenses Section, we expect to make expenses for the month of January in the areas of utilities, wages, taxes, marketing and distribution, which totals to N104,000.
The cash flow of the business is then calculated by subtracting the total expenses for January(N104,000) from the total income for January (N200,000). This brings the business cash flow to N96,000.
To calculate the cash balance for the month of January, we will add the cash flow for the month of January to the cash balance of the previous period. So, the cash balance for January would be N96,000 + N1,270,000. This brings our cash balance or cash at hand for the month end of January to N1,366,000.
Month 2 – Cash Flow Projection
In the second month of operation, which is February, we plan on taking a zero-interest government-backed loan of N500,000 and expecting sales to the tune of N600,000. This brings our total income for the month of February to N1,100,000.
In the expenses Section, we expect to procure more inventory costing N200,000 while still incurring other business expenses such utilities, wages, taxes, marketing and distribution. This brings our total expenses to N532,000.
Our cash flow for the month of February would then be N1,100,000 minus N532,000. This gives us a cash flow of N568,000.
Our cash balance for the month of February would then be the summation of the current cash flow with the previous cash balance. N568,000 + N1,366,000 = N1,934,000.
Month 3 – Cash Flow Projection
In the third month, which is March, we expect to make sales in the tune of N800,000. We do not expect any further injection of funds from external sources. So, our net income for March would be N800,000.
In the expenses Section, for March, we continue to incur the normal business expenses in the areas of utilities, wages, taxes, marketing and distribution. This brings our total expenses for the month of March to N266,000.
The cash flow for March would then be N800,000 minus N266,000, which equals N534,000.
Now, to calculate the cash balance at the month end of March, we will add the cash flow for March to the previous cash at hand. Our current cash balance would then be N534,000 + 1,934,000 = N2,468,000.
Subsequent Months – Cash Flow Projection
Now, over to you.
This article has guided you on creating a simple cash flow Projection for your business.
You can download the financial template of the sample used in this article through the link provided above, and then edit the rows and columns according to your business financial projection.
Remember that no two business cash flows are the same. So, think about your business processes, the cost of delivering your products and services, and the projected income you expect to earn within the next 12 months. That would make a good financial document for your business plan.