Creating your financial package: here are the best ways to showcase your bottom line.

To some entrepreneurs, the financial plan is the most difficult and important part of the business plan writing process.

After all, the data in this portion of your document can make or break fortunes. And since the bottom line for virtually any business is to make money, you will want to carefully prepare this section. Lenders often turn to this part of the plan first.

While some business owners create a financial plan simply to secure a loan, this document serves many other purposes as well, according to Kimberly Johnson, a business management consultant in San Diego.

It can help you create and manage budgets, file your tax returns and make sound financial decisions such as hiring additional staff and making major purchases. The financial plan is also critical during audits.

Eight to 10 pages in length, the financial plan includes a series of financial statements: a balance sheet, income or profit-and-loss statement, operating budget, cash-flow analysis and break-even analysis.

These documents become particularly important for new businesses trying to secure capital, says David Aiken, vice president of Chase Business Resource Center in Brooklyn, New York. "A business that has been around for a while would you need to include in its plan fiscal statements or tax returns," says Aiken. "And generally, we ask for two years of financial projections."

Johnson warns against giving unrealistic projections. "Some business owners may pad their numbers because they want to seem more attractive to a bank," she says. "But this is to their detriment because once you start to overstate numbers, you tend to lose credibility and so does the financial plan itself"

The first statement presented in your financial package is the balance sheet. Also known as the statement of financial position, the balance sheet is a snapshot of the company's current assets (inventory, accounts receivable and cash), liabilities (accounts payable, loans and expenses) and equity ownership. It can be updated quarterly or yearly.

The income statement, also known as the profit-and-loss statement, illustrates the results of operations over a specific period of time. This document calculates your company's net income by subtracting your expenses (advertising, salaries, supplies, insurance, etc.) from revenues (sales). These documents are organized according to fiscal year and should be updated at least annually.

The operating budget provides an estimate of your sales and expenses for one year. With this data, you can anticipate changes that may need to be made within your company (e.g., increase/decrease in staff or production).

Your cash-flow analysis helps you create and manage your budget. It also documents the movement of cash in and out of the company and alerts you to when credit or cash is needed to carry out particular tasks.

The break-even analysis indicates how long it will take for your company to make a profit. This document becomes particularly important to venture capitalists and other investment groups that have claimed a stake in your business.

When forming your financial plan, work with an accountant or CPA. "I generally recommend doing this because when an accountant's name appears on documentation, it adds value," says Aiken. "An accountant can also lend insight to the owner in matters that he or she may not clearly understand," he says. This professional can also flag potentially troublesome numbers.

Since numbers by themselves do not always give a complete picture of your operation's financial position, you should also include accounting notes at the end of your financial plan. These brief summaries provide further details about the methods used to calculate the figures.

For help in creating and interpreting your financial plan, attend seminars and workshops at your local chamber of commerce or business resource center. You can also visit your local library and bookstore for publications on how to put together a financial package.

Next month, in Part 7 of our business plan writing series, we will help you outline your long-term goals and revise existing strategies in the long-range plan.

To obtain back issues containing other parts of this series, please call our circulation department at 212-886-9568.

Cash Flow Analysis
January 1 - December 31, 19--
(Pro forma)
In thousands

                                Feb 19--
Beginning balance               $  62,299

Projected receipts:
 Cash sales                     $  42,900
 Credit proceeds                   17,100
 Loan proceeds                     20,000
 Other income                       5,000
  Total cash in                 $  85,000

TOTAL CASH                      $ 147,299

Projected cash payments:
 Raw material                      $2,350
 Merchandise                        3,425
 Administrative salaries           12,125
 Employee salaries                 15,325
 Administrative fees                  475
 Payroll & other taxes                900
 Professional fees                    700
 Rent                               2,075
 Utilities                            175
 Telephone                            325
 Supplies                           1,500
 Advertising                        8,000
 Selling & commission expense       9,500
 Interest                             750
 Insurance                            600
 Repayment of loan                    775
 Miscellaneous                      6,825
  Total cash out                $  65,825

NET CASH INCR (DECR)            $  81,474