Your friend is getting ready to write a business plan for a new business. Your friend told you the plans are to prepare the financial statements first to get that job out of the way before the rest of the plan is developed. Explain the flaw in this approach. What value does it provide the entrepreneur to write the financial section as the last part of the business plan?
1) The financial statements portion of a business plan is always at the back of the document, but is arguably the most important section. According to a recent article in Entrepreneur magazine online most prospective investors and lenders scrutinize this portion the hardest to determine the actual viability of a business. The article compares the charts, tables and spreadsheets found in this section to the pulse, respiration, and blood pressure of a patient. Like a doctor uses those vital signs to determine the survivability of a human being so do investors determine the survivability of a business proposal.
3) Respond to your friend’s question: “How in the world do you project income and expenses for a business that doesn’t exist?” Respond to at least two of your classmates’ postings.
I actually asked myself the same question when I was creating my own business plan. That is when I started to do some research. I researched companies that were in the same business or similar. I looked for my competition and called and requested quotes. Some were high and some were low. I decided to average them out and use that price as a base. The problem was that my company was very niche. We specialize in Sterilization Departments, Operating Room and Materials Management. Most of our competition does not offer these services so it was a little easier to price out. What I would tell my friend is that part of the business plan is the market analysis as well as the products and services. There is really no specific order in which you should do research, so I suggest you start there. This will give you an idea of the direction you want to take. In the article How to Forecast Revenue and Growth,It recommends to start with the expenses. I never thought of starting with that but it makes sense. It will give you an idea as to how much things are going to cost there fore you can start thinking how much you want to charge to cover these expenses.
4) I think forecasting expenses such as fixed cost and overhead which can be rent, utility bills, phone bills and communication cost, marketing, licensing fees; and salaries. Then there the variable cost which is the cost of Goods Sold. Materials and supplies. Direct Labor Cost as in customer service, direct sales and direct marketing. Then the next step would be to forecast my revenues what is my low price point for the product, and what higher price for my premium product. How many products introduce for the first year? This is new to me but I am learning a lot on writing a good business plan.