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Business plan and projected profit and loss statement
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Am writing a business plan to start my own business and need to show it to the bank to secure funding. The question I’ve got is that the projected profit and loss for the year after all costs shows enough to pay me a wage every month and a minimal profit. Bearing in mind that I’ve got to show this to the bank and need them to fund me, Would I be better off to show me taking less of a wage and therefore show higher profits?
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It's not just about profit, Frankieola, you must also think about cashflow. Many a profitable business has folded because the owner thought that profits = cash. That can be the case, but it depends on the nature of your business, whether there is money tied up in stock and debtors and how much you put in in the first place.
Many new businesses start off by incurring losses as they build market share gradually, but provided sales grow to the point where gross profits are enough to meet the overheads of the business then eventually those losses will be eroded and the business will trade profitably.
A bank will want to see that your sales expectations are well-founded and that your costs budget is reasonable. They will then apply sensitivities to these figures (i.e. reduce the sales figure and increase the costs figure) to see how much deterioration the business could stand before it loses money. They will also want to see a cashflow forecast, which will guide them as to the size of loan/overdraft the business needs. Again, they will apply sensitivities, such as debtors taking longer to pay, or suppliers calling for cash up front, which will give a 'worst case' position.
Only after looking at the projected worst cases in both profit + loss and cashflow terms will the bank decide whether to lend, and it will depend on the ability of the business to repay as to whether they will lend in the first place, as well as taking into account whether you will be providing any security.
Business startups are notorious for failure, but if well researched and managed they can be the start of a fruitful future.
Many new businesses start off by incurring losses as they build market share gradually, but provided sales grow to the point where gross profits are enough to meet the overheads of the business then eventually those losses will be eroded and the business will trade profitably.
A bank will want to see that your sales expectations are well-founded and that your costs budget is reasonable. They will then apply sensitivities to these figures (i.e. reduce the sales figure and increase the costs figure) to see how much deterioration the business could stand before it loses money. They will also want to see a cashflow forecast, which will guide them as to the size of loan/overdraft the business needs. Again, they will apply sensitivities, such as debtors taking longer to pay, or suppliers calling for cash up front, which will give a 'worst case' position.
Only after looking at the projected worst cases in both profit + loss and cashflow terms will the bank decide whether to lend, and it will depend on the ability of the business to repay as to whether they will lend in the first place, as well as taking into account whether you will be providing any security.
Business startups are notorious for failure, but if well researched and managed they can be the start of a fruitful future.
You are probably not capable to overgame bankers. They are trained to catch this kind of things quickly. Even more, you shall show the market level for the salaries,not the intended number.
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