Financial Plan: Components of financial plan
A) Proforma investment decisions: This part of financial plan relates to how the enterprise's funds are invested in different assets so that the enterprise is able to earn the highest possible returns on investment. An estimate of various components of capital nature.
B) Proforma financing decisions: In this component This section summarizes all the projected sources of funds available to the venture to raise finance from. Typically, sources of funds are: i) owners i.e. Owner's funds ii) outsiders i.e. Borrowed funds
C) Proforma income statement: The proforma income statement is the projected net profit calculated from projected revenue minus projected costs and expenses. It summarizes all the profit data during the first year of operations of the new enterprises. In preparing the proforma income statement, 'sales by month' must be calculated first, making use of forecasting techniques as the basis.
D) Proforma cash flow: Profit and cash flow are not the same, when from sales we subtract expenses, the result is profit and when from cash receipts we subtract cash payments, the resultant figure is the cash flow. Proforma cash flow reflects the projected cash available with the enterprise as a result of subtracting projected cash disbursements from projected cash accumulations. Cash flows only when actual payments are received or made. Mere sale which might be on credit, will not generate cash.
E) Proforma balance sheet: This document helps the enterprise to reflect the position of the business at the end of its first year. A summary of the projected assets, liabilities and net worth of the entrepreneur is depicted through proforma balance sheet.
F) Break even point: Every firm wants to maximise its profits. The Breakeven point is that level of volume of production at which firm neither makes a profit nor a loss. Here, the total revenue is equal to the total cost of a firm, at the given level of capacity.
G) Economic and social variables: In view of the social responsibility of business, the abatement costs, i.e. the cost of controlling the environmental damage should also be stated in the plan. It's always advisable to mention in the business plan, the socio-economic benefits expected to acquire from the proposed investment.
