Page 150 - Business Plans that Work A Guide for Small Business

Financial Plan: Telling Your Story in Numbers • 141

visualizing what you will sell in a month or a year, break it down to the
day. For example, if you are starting a new restaurant, you should estimate
how many customers you might serve in a particular day and how much
they would spend per visit based upon the types of meals and beverages
they would buy. In essence, you are developing an average ticket price
per customer. Then multiply that by the number of days of operation in
the year. Once you have the typical day, you can make adjustments due
to cyclical aspects of the business, such as day parts, slow days, or slow
months. You could then multiply your estimates if you were to open up a
chain of restaurants. Once you have gone through a couple of iterations
of each approach, you should be able to reconcile the differences.
One schedule that is particularly powerful in building up your cost
estimates is a headcount schedule. In Chapter 7, we saw the headcount
table for Lazybones. Next assign average salaries to these employees and
then funnel them into the appropriate income statement lines. We must also
remember that employees cost more than just their salaries and wages. You
will have to pay employment taxes (social security, etc.), possibly health
insurance, workers’ compensation, retirement, and any other benefits you
wish to provide. This is sometimes called the labor burden, and, as such,
we multiply salary times a burden rate. Twenty-eight percent is usually a
good first estimate. Breaking down to this level of detail enables entrepre-
neurs to more accurately aggregate up to their real headcount expenses,
which tend to be the major line item in most companies.

The Financial Statements

Going through the preceding exercises allows you to construct a “real-
istic” set of pro forma financials. The financial statements that must be
included in your plan are the income statement, cash flow statement, and
balance sheet. Investors typically expect five years of financials, recog-
nizing that the farther out one goes, the less accurate the forecasts are.
The rationale behind five years is that the first two years show the firm
surviving, and the last three years show the upside growth potential. The
majority of new ventures lose money for the first two years. Therefore,
the income statement and cash flow statement should be month to month
during the first two years to show how much cash is needed until the
firm can become self-sustaining. Month-to-month analysis shows cash
flow decreasing and provides an early warning system as to when the