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Importance of Financial Analysis in Business Plans – Overview of Main Components of Financial Forecast

Business planning is vital for the survival of any business.  The business plan is a strategic tool for an entrepreneur.  A well drafted business plan helps to focus on vital activities of an enterprise in order to make it succeed.  A good business plan will have both short-term and long-term objectives.  The management needs to focus on those objectives per the defined time scale.

Appropriate financial planning and forecasting give life to business plan.  The financial planning includes various financial statements that show where the enterprise currently stands, and where it expects to invest in the near future.  This information determines how much financing the enterprise needs to run per the defined objectives.  Further, it helps outsiders to determine whether lending money or investing in the business is a wise deployment of their funds.

Overall, financial planning assesses how a business will afford to achieve its strategic goals and objectives.  The financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the timeframes involved.

Importance of Financial Analysis in Business Plans – Overview of Main Components of Financial Forecast

In a financial plan, we can easily understand revenue, cash flow, financial ratio, and all other important components as associated with the enterprise.  Mostly, the financial plan will be done based on the clients’ requirement which can be projected for 3 or 5 years.  The following list out the main contents which need to be listed under the financial forecasting of a business plan.

  • Start-up estimations
  • Market assumptions
  • Revenue of the business
  • Financial ratio
  • Balance sheet
  • Profit and loss statement
  • Deprecation and tax
  • Exit strategies

 

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