How to Write a Financial Analysis

Know what to include in important section of business plan

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Table of Contents

ALYSSA GREGORY

Updated August 19, 2019

The financial analysis section of a business plan should contain the data for financing your business for the present, what will be needed for future growth, and an estimation of your operating expenses.

The financial analysis section of your business plan may be the most challenging for you to complete on your own, but it also could be the deal-maker or deal-breaker when you are searching for funding.

Because of the structured, in-depth financial data required for this section, you should consult your accountant or other trusted and qualified financial professional before writing this section.

Financial Analysis of a Business Plan

The financial analysis section should be based on estimates for new businesses or recent data for established businesses. It should include these elements:

Balance sheet: Your assumed and anticipated business financials, including assets, liabilities, and equity.
Cash-flow analysis: An overview of the cash you anticipate will be coming into your business based on sales forecasts, minus the anticipated cash expenses of running the business.
Profit-and-loss analysis: Your income statement that subtracts the costs of the business from the earnings over a specific period of time, typically a quarter or a year.
Break-even analysis: Demonstrates the point when the cost of doing business is fully covered by sales.
Personnel-expense forecast: The expenses of your team, as outlined in a management summary section.

Assumptions

Completing a financial analysis section for a business that hasn't been started yet requires some assumptions. However, these aren't guesses. What you expect from the business needs to be based on detailed research and data.

Go back to the other sections of your business plan and write down any financial assumptions you made while drafting those sections. You then can use those assumptions in your financial analysis section. The most important factor is ensuring that the data in the financial analysis section is consistent with the assumptions made in other sections of your business plan.

Get Help

There may be no section of your business plan where you need help as much as you do with your financial analysis section. The assumptions, forecasting, and specific numbers can be complicated and generally difficult to wrap your head around, especially if you don’t have a financial background. This financial information, though, is exactly the data your audience will be looking for.

You can avoid the stress and uncertainty by getting help from a qualified financial professional early in the process.

Know the Ground Rules

When it comes to the financial analysis of your business plan, have a basic idea of what each element should include, where the data comes from, and what the numbers mean. This stands even if you have help developing the financial analysis section because you will be the one left to explain and expand on the financial data in face-to-face situations.

GAAP (generally accepted accounting principles), a collection of rules, procedures, and conventions that define accepted accounting practices should be followed throughout this section.

Use Visuals

Use graphs and charts in the financial analysis section to illustrate the financial data, just as you should in other sections of your business plan that include extensive data, numbers, statistics, and trends. Put the most important visuals in the financial analysis, with the supporting graphics included in the Appendix.

Check Your Math

A quick way to lose the attention of a potential investor is by having flawed calculations or numbers that are not backed up. Double and triple check all of your calculations and figures, and have a third-party do the same to ensure everything adds up.

You also should avoid including any figures that are not explained, backed up and otherwise researched extensively, especially when it comes to assumptions you've made. Use data from current and past markets and financial situations to substantiate your numbers.

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