Financials

Financials are used to document, justify, and convince. This is the section in which you back up what you have said with financial statements and forms that document the viability of your business. The financials section is also where you demonstrate that you have evaluated the risks associated with your venture. When you are writing a plan for angel investors, include the following sections:

• Risks
• Cash Flow Statement
• Balance Sheet
• Income Statement
• Funding Request and Return

RISKS

No business is without risks. Your ability to identify and discuss them will show that you've taken the initiative to confront these issues and are capable of handling them. The opposite is also true. Should a potential angel investor discover any unstated negative factors, it will undermine the credibility of your plan and diminish your chances of gaining financial support. Tips

• Evaluate your risks truthfully.
• Often small companies innovate and large companies copy and take the credit. Think of ways you can stay ahead of your competition and retain your Unique Selling Proposition.
• Examine all of your assumptions about how your business will develop. The flipside of many of them may be risks.

CASH FLOW STATEMENT

A cash flow statement shows angel investors how much money you will need, when you will need it, and where the money will come from. Basically, the cash flow statement looks at cash and sources of revenue minus expenses and capital requirements to derive a net cash flow figure. A cash flow statement provides a glimpse of how much money a business has at any given time and when it is likely to need more cash. Analyze the results of the cash flow statement briefly and include this analysis in your business plan. Tips

• Have your cash flow statement prepared or reviewed by a reputable accountant.
• Include effects of seasonality and business cycles in all projections.
• Do not underestimate your cash flow needs. This can lead to undercapitalization, meaning your funds will prove inadequate for meeting your obligations.
• Avoid giving large income or expense categories without backup information about the components.

BALANCE SHEET

A balance sheet is created only once a year to calculate the net worth of a business. If your business plan is for a start-up business, you will need to include a personal balance sheet summarizing your personal assets and liabilities. If your business exists already, include past years' balance sheets up to the balance sheet from your last reporting period. Tips

• As with the cash flow statement, have your balance sheet prepared reviewed by an accountant.

INCOME STATEMENT

The income statement is where you demonstrate your business' potential to generate cash. This document is where you record revenue, expenses, capital, and cost of goods. The combination of these elements demonstrates how much money your business made or will make during the year. An income statement and a cash flow statement differ in that an income statement does not include details of when revenue was collected or expenses paid. The income statement in your business plan should be broken out by month the first year. The second year can be broken down quarterly, then annually for each year after. If your business already exists, include income statements for previous years. Tips

• Have your income statement prepared or reviewed by an accountant (or FundingUniverse)
  

FUNDING REQUEST AND RETURN ON INVESTMENT (ROI)

In this section, discuss the amount of funding and the type of investment you are seeking. Also provide information on how the money will be applied. Also discuss investments that have already been made in your company, if applicable. If the company founders have invested in the company, include this in your plan. Some investors are encouraged by founders putting their own money on the line. Angels want to know what they will receive in return for their capital. Be as clear as you can in this section about both the positives and negatives associated with investing in your business. One very important part of this section is the creation of an exit plan that describes how investors will get their money out of your company. One common worry for angel investors is that even if a business is profitable, it may be difficult for them to get a good price for their shares. A cash-out option in five years or assurance that the company will become a strong candidate for a purchase or an Initial Public Offering (IPO) are what many angel investors will be looking for. Tips

• Include the following elements when appropriate: minimum amount to participate; how this capital and future investment will dilute current and subsequent ownership; payback period and return on investment; why the investment is sound; current investors; access to additional funding sources; what percent, if any, an investor could recoup via tax benefits.
• Include future financing needs.
• Avoid unrealistic company valuation.
• Don't ask for less money than you think you'll need because you think it will help you get the money. It is usually better to ask for more up-front than to have to go back to your financial resources later for more cash.