Business Plan Financials - Virtual Chairman

Time and again I have seen entrepreneurs start businesses with not only insufficient capital but also no idea it was insufficient capital until the cash crunch bites and the Balance Sheet turns negative. I can help.

“The financials” are the measure of all business plans. The three main documents are twelve months of profit and loss, balance sheets and cashflow. My business plan methods are particularly rigorous, leading clients through the year month by month – more like a rehearsal than twelve columns of guessed numbers.

If you can write two lists, you can do accounts using Virtual Chairman Accounts (VCA) – it really is that simple. Those two lists are your list of sales invoices and your list of purchase invoices.

To prepare business plan forecasts, we start by thinking about those two lists for every month of the year. During completion of these lists, VCA will be creating the 12 month Profit & Loss forecast (below). As you add numbers to your lists, all these figures update accordingly. It is a much more robust way to generate a forecast – thinking about what you might earn or spend, and when you might get paid or pay, is much easier than trying to directly generate P&L forecasts.

The next stage is to think about when all those invoices will be paid. One by one, we will go through and mark payment dates against the lists. These will typically be the day of the purchase/sale, or the following month if a credit account is anticipated. On completion of this process you will have accounted for where all the cash has come from and gone. VCA will also have created twelve months of Balance Sheets:

…and calculated how much cash (capital) you need for the business to work according to your input lists.

As you might imagine, this revelation can go one of two ways… But we can explore this number by returning to the original lists, and the payment dates, to see if prices, sales/purchases and receipts/payments can be altered to change the amount of capital required. Probably THE MOST VALUABLE THING about this exercise is this: by now even someone who started as a complete accounting novice can suddenly see how accounts work and how cashflow is affected by timings of payments. The importance of this cannot be overstated.

Time and again I have seen entrepreneurs start businesses with not only insufficient capital but also no idea it was insufficient capital until the cash crunch bites and the Balance Sheet turns negative.

There is another significant benefit of Virtual Chairman Accounts. Having prepared a year of forecasts, you will also have trained yourself to keep accounts. When you begin trading the lists of invoices are REAL ones this time around, which will generate the real accounts for the business.

Naturally, you will want to compare the forecast against what is actually happening – or make sure what happens meets or beats your forecast. Virtual Chairman Accounts makes this easy – it compares the live figures directly against the forecasts, automatically. Green means the forecast has been met or beaten, red indicates revenue/profit are lower than expected, or costs higher than expected.