It is important to remember that the financial sections are not the same as accounting. Some people tend to get confused and mix up the two since they both have some similar qualities. For example, the profit and loss report, balance sheet and the cash flow declarations can be found in both accounting and finance. However, while accounting is supposed to look back on figures and recount what has already happened, the business financial forecast looks to the future and makes predictions. While accounting starts today and looks back, the finance section starts today and looks forward.
While a business owner or entrepreneur gets help with business plan for the financial section, it is advisable to know the main purpose of the mentioned section. First and foremost, the section is needed if one needs investors, especially if they require larger start-up capital. Investors will need to see whether the business is going to grow and they will want to see quickly increasing profits. Likewise, they wouldneed to make sure that a practical exit strategy is a possibility and reality in the industry they are investing in.
However, the real importance of the business plan and the financial forecasts are for the entrepreneur himself. The financial section is a tool to judge how the owners and/or managers believe the project will fair and where it will be in 5 years time. It will help in the decision making process and will reduce the investor risk factors. According to business plan experts, the financial section is a living document; a work-in-progress that the owners continue to improve as the business runs.
Lastly, one needs to remember to be practical and somewhat conservative while compiling the forecasted numbers. One must never be overly pessimistic or too hopeful about the entire endeavor and one needs to be honest with the predictions and Company valuation.
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