Updated: 17 May 2015 06:41. By, Melkisedeck Shine.

Completing a thorough financial analysis of your business will help you determine whether or not this business is viable. Can you make enough money in this business for your personal needs, to run the business and make a profit? Knowing your monthly sales and expenses helps you make good decisions such as when to purchase equipment, hire staff or use your line of credit.

There are six key elements to consider in the financial plan:

1) First, compile a list of all your start-up costs. Include all the money you will spend getting the business set-up for opening day.

2) Your cash flow projections are shown on a chart that outlines the revenue you expect to earn each month and the money you must spend each month (expenses). This lets you know if you can pay your bills each month. You must be prepared to justify your sales projections and expenses.

3) A projected income/profit and loss (P/L) statement shows the projected profit/loss for your business for a given year and shows the “health” of the business. It is an estimate of all sales revenues, direct, indirect and administrative expenses (including depreciation, interest expenses and taxes payable) and subsequent profit or losses for the first five years.

4) Your opening balance sheet statement is a “snapshot” of what the business owes and owns at a particular moment in time. It consists of a projected statement of assets, liabilities, and equity for the first five years. Assets include cash, inventory, accounts receivable, buildings and equipment. Liabilities include short-term debt, accounts payable, taxes payable, and long term debt.

5) If you require money to start your business, detail your financing requirements: the amount of money required, what the money is for, and your repayment plan. Owner’s Equity or Shareholders Capital is the total investment by the owners or shareholder’s of the business.

6) Risk analysis can be shown using scenarios based on best/worst case occurrences. Often, three different cash flow statements are included in a plan. You can do an optimistic, pessimistic, and realistic cash flow to show how your company would adjust to different market scenarios. Be sure to include information, or assumptions, you made for each scenario.

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