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"Small business financials - cash flow, balance sheet, break-even, profit and loss (P&L)"


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Your business plan financials are one of most important aspects of starting and operating your business. They are projections made largely on assumptions and market research. They’re important to investors, lenders, suppliers and you as the owner to determine the financial feasibility of your business. Your financial statements (or “financial plan”) includes: a Cash Flow statement, a Balance Sheet, a Break-Even Analysis and an Income or Profit and Loss (P&L) statement.

These statements are one of the most closely scrutinized sections of your business plan. To judge the merit of your business plan, lenders and investors have been known to go from the executive summary straight to the financial statements. The following are general descriptions of the statements and analysis:

Cash Flow Statement
This statement shows how much money or cash flows into and out of your business by the month, quarter or year. In deciding whether a business will be viable, many lenders view cash flow as where the rubber meets the road.
Net Cash Flow = Total Cash Inflow - Total Cash Outflow

Balance Sheet
A balance sheet is a snapshot of your business’ financial condition at a specific moment in time. It includes your business assets, liabilities, and owners’ or stockholders’ equity.
Assets = Liability + Equity

Break-Even Analysis
A break-even analysis determines when your business’ total sales or revenues will equal its’ total expenses. Your understanding of what it takes to break-even is critical to making your business profitable.
Break-Even = Total Fixed Costs divided by Price - Average Variable Costs

Income or Profit and Loss (P&L) Statement
Your P&L statement gives you an idea about how much profit or loss you expect to have over time usually on a yearly basis. It analyzes how much money (revenue) you generated, how much you spent (expenses) and the difference between the two (profit) over a given time period. The P&L contrasts with the balance statement which represents a single moment in time.
Net Profit/Loss = Income - Expenses

And finally
Don't feel overwhelmed if developing these statements isn't your strong point -- there are many convenient free and low coast ways to learn how, including working with a Certified Public Accountant (CPA); attending seminars at local colleges and Small Business Development Centers; reading do-it-yourself books; and purchasing computer programs. Pay special attention to the resources I’ve listed.

List of Resources
The Ten Rules of Cash Flow 101

SBA Glossary of Financial terms

Cash Flow Statement 12 month (Source: Service Corps of Retired Executives aka SCORE - Excel template)

Balance sheet (Source: SCORE - Excel template)

Break-even analysis (Source: SCORE - Excel template)

P&L Statement 12 months (Source: SCORE - Excel template)

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Quote Corner

"The entrepreneur always searches for change, responds to it, and exploits it as an opportunity." - Peter Drucker

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