Prepare a business plan

As part of your plan you will need to provide a set of financial projections which translate what you have said about your business into numbers.

You will need to look carefully at:

• How much capital you need if you are looking for external funding
• The security you can offer lenders
• How you plan to repay any borrowings
• Sources of revenue and income

You may also want to include your personal finances as part of the plan at this stage.

Financial planning

Your forecasts should run for the next three (or even five) years and their level of sophistication should reflect the sophistication of your business.

The first 12 months' forecasts should have the most detail associated with them.

Include the assumptions behind your projection with your figures, both in terms of costs and revenues so investors can clearly see the thinking behind the numbers.

What your forecasts should include

• Sales forecast
  The amount of money you expect to raise from sales.
• Cashflow statements
  Your cash balance and monthly cashflow patterns for at least the first 12 to 18 months. The aim is to show that your business will have enough working capital to survive so make sure you have considered the key factors such as the timing of sales and salaries.
• Profit and loss forecast
  A statement of the trading position of the business: the level of profit you expect to make, given your projected sales and the costs of providing goods and services and your overheads.

Your forecasts should cover a range of scenarios.

New businesses often forecast over-optimistic sales and most external readers will take this into account.

It is sensible to include subsidiary forecasts based on sales being significantly slower than you are actually predicting, with one for sales starting three months later expected, and another forecasting a 20 per cent lower level of sales.

Risk analysis

Alongside your financial forecasts, it is good practice to show that you have:

• reviewed the risks your business could be faced with
• looked at contingencies and insurance to cover these

Risks can include:

• Competitor action
• Commercial issues - sales, prices, deliveries
• Operations - IT, technology or production failure
• Staff - skills, availability and costs
• Acts of God - fire or flood