Financial Analysis of A Business Plan

Financial Analysis of a
Business Plan
Chapter 9
Introduction
A financial plan is simply an overview of your current business financials and

projections for growth.
financial analysis is a review framework where you analyze performance, assess your
goals, and make adjustments to your forecasts and strategy based on actual results
The intention is to identify any potential problems or opportunities within your

financials and turn them into strategic steps for growth.
evaluating businesses, projects, budgets, and other finance-related transactions to

determine their performance and suitability.
• Sources of Financing for small businesses or startups can be divided
into two parts: Equity Financing and Debt Financing.
• Other financing sources are a personal investment, business angels,
the assistance of the government, commercial bank loans, and
financial bootstrapping.
Sources Of Financing Business

Sources of Sources of Financing for Your Business or Startup are
Finance • Personal Investment or Personal Savings

• Venture Capital
• Business Angels
• Assistant of Government
• Commercial Bank Loans and Overdraft
• Financial Bootstrapping
• Buyouts
• funds invest in these early-stage companies
in exchange for equity, or an ownership stake
• Venture capital (VC) is a form of private
equity and a type of financing that investors
Venture provide to startup companies and small
capital businesses that are believed to have long-
term growth potential. Venture capital
generally comes from well-off investors,
investment banks, and any other financial
institutions.
• A business angel is a private individual, often
with a high net worth, and usually with business
experience, who directly invests part of their
assets in new and growing private businesses.
• They invest their own money into the project,
typically less than would be invested by a
Business venture capitalist
Angel • They make their own decisions concerning
investments
• They invest according to the viability of the
project, with expectations of future gains
• Their main objective is to receive a return on
their investment
Financial
Bootstrapping
• Bootstrapping describes a situation in which an
entrepreneur starts a company with little capital,
relying on money other than outside
investments.
• Bootstrapping refers to the process of starting a
company with only personal savings,
• Including borrowed or invested funds from family
or friends and income from initial sales.
• Self-funded businesses do not rely on traditional
financing methods, such as the support of
investors, crowdfunding or bank loans. Rather, as
the name suggests, entrepreneurs must “pull
themselves up by their bootstraps'' by using their
own capital to launch.
Buyouts
• A buyout refers to an investment
transaction where one party acquires
control of a company, either through
an outright purchase or by obtaining a
controlling equity interest (at least
51% of the company’s voting shares).
• Usually, a buyout also includes the
purchase of the target’s outstanding
debt, which is also known as assumed
debt by the acquirer.
Types of Buyouts
1. Management Buyouts (MBO)
• A management buyout occurs when the existing
management team of a company acquires all or a
significant part of the company from the private
owners or the parent company.
2. Leveraged Buyout (LBO)
• A leveraged buyout occurs when the purchaser
uses a huge loan to gain control of another
company, with the assets of the firm under
acquisition often acting as collateral for the loan.
• Leveraged buyouts allow purchasers to acquire
large companies without the need to commit
huge amounts of capital.
Financial Analysis of a
Business Plan
The financial analysis section should be based on estimates for new
businesses or recent data for established businesses. It should
include these elements:
• Balance sheet: Your assumed and anticipated business financials,

including assets, liabilities, and equity.
• Cash-flow analysis: An overview of the cash you anticipate will be
coming into your business based on sales forecasts minus the
anticipated cash expenses of running the business.
• Profit-and-loss analysis: Your income statement that subtracts the
costs of the business from the earnings over a specific period of
time, typically a quarter or a year.
• Break-even analysis: Demonstrates the point when the cost of
doing business is fully covered by sales.
• Personnel-expense forecast: The expenses of your team, as
outlined in a management summary section.
Profit and loss statement
• profit and loss statements include

Your revenue (also called sales)
Your “cost of sale” or “cost of goods sold” (COGS)—keep in mind, some types of
companies, such as a services firm, may not have COGS
Your gross margin, which is your revenue less your COGS
These three components (revenue, COGS, and gross margin) are the backbone of your
business model — i.e., how you make money.
How to find operating income
• Gross Margin – Operating Expenses = Operating Income

• Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income
Balance sheet
Your balance sheet is a snapshot of your business’s financial position—at a particular moment in time, how are you doing? How much cash do you have in the
bank, how much do your customers owe you, and how much do you owe your vendors?
• What include in the balance sheet

• Assets: Your accounts receivable, money in the bank, inventory, etc.
• Liabilities: Your accounts payable, credit card balances, loan repayments, etc.
• Equity: For most small businesses, this is just the owner’s equity, but it could include investors’ shares, retained earnings, stock proceeds, etc.
• It’s called a balance sheet because it’s an equation that needs to balance out:
Assets = Liabilities + Equity

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Financial Analysis of a

A financial plan is simply an overview of your current business financials and

The intention is to identify any potential problems or opportunities within your

evaluating businesses, projects, budgets, and other finance-related transactions to

Sources Of Financing Business

Finance • Personal Investment or Personal Savings

• Balance sheet: Your assumed and anticipated business financials,

• profit and loss statements include

• Gross Margin – Operating Expenses = Operating Income

• What include in the balance sheet

Assets = Liabilities + Equity

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