Writing a Business Plan Series: Week 6: The Financials: The Income and Cash Flow Statements

Macy's Fireworks NYC 2013 - Empire State Building Color, a photo by Bob Jagendorf on Flickr.

Happy Independence Day! I hope you all had one of celebration and reflection, but it's back to work and back to the our business plans.

Garrett Sutton, Esq. breaks down the important financial components of a business plan in his book, making it easier for entrepreneurs to add details to their bigger picture dreams. WIBO gives them the practice of actually doing the math, creating the tables and putting in the mental work to fulfilling their dreams. Both provide samples of what an Income Statement and Cash Flow Statement ought to look like.

"The Income Statement or Profit and Loss Statement or Statement of Operations reveals business profitability at a set point in time. It shows what a business has spent and on what, plus what the business has brought in and from where, to tell whether the business made money

 or not. It needs to be prepared monthly AND yearly; with the data coming from company records."

It has basically five main components:

• Income which includes net sales, costs of goods sold, gross profit, and other.
• Expenses which includes direct (or controllable or variable), indirect (or fixed or office or overhead) and other.
• Net profit/loss before income taxes
• Income Taxes
• Net profit/loss after income taxes

"The Income Statement helps you track the effectiveness of your plans by showing how expenses and sales are affecting profits or losses and helping you to plan for variations in sales volumes from month to month."

The Cash Flow Statement shows "the difference between the money coming in and the money going out along a timeline. [Create a table that shows how] much money you expect from whom (by category, such as sales) and when (by date, week, etc.), plus how much money you'll need to pay out (expense) to whom and when." Sutton quotes Robert Kiyosaki:

"Many small business owners fail because they don't know the difference between profit and cash flow."

Make it easier by preparing "separate budgets for revenues, cost of sales, fixed expenses and variable expenses. Also create separate tables of all sources of incoming and outgoing cash (these don't have to be in the actual plan).... The timeline can be for any stretch of time you want, but the further out you go, the less accurate your numbers will be. Stick to one fiscal year and work month to month to reflect reality and your ever increasing expertise. Use the traditional format and break categories into subcategories:"

Totals                                            Beginning Cash Balance               Cash Receipts                                Total Cash Available                     Cash Payments                              
Total Cash Paid Out
Balance
Incoming Loans
Equity Deposits
Ending Balance 

I like spreadsheets, so this portion will be more enjoyable. Which portion has been your favorite so far? Until next week.