That’s a good question and there’s no hard and fast rule, just a widely accepted convention. The Profit & Loss and/or Cash Flow Statements are invariably the most important parts of the plan, and will be the first port of call for many readers (e.g. banks or investors).
The End Result
The financials could be at the back because everything else leads up to there – but if the numbers don’t stack up, no amount of justification or support in the rest of the plan will make any difference. However if the figures do look good, most cautious (or sceptical?) readers will want to see if, and how, they are supported.
Numbers aren’t everything
This is true but they’re a common language for all parts of the business and, most importantly, are how the outcomes of the business can be expressed i.e. money in the bank! We can be creative with numbers and it’s not too hard to put together a set of figures that tell a good story. The words (research, competitor analysis, demand studies, operations, marketing etc.) and numbers must combine to show a rounded and reasonable business plan.
Numbers aren’t sexy
I can (reluctantly) accept some people might think that. For many new business owners their passion is their business idea, whether it is marketing, design, retail or whatever. And while that makes such a difference, usually it is the business owners who don’t or can’t use their numbers who are amongst the 90% of new businesses that collapse in the first three years of operation. Like it or not, you live and breath by numbers.
Planning the Plan
So should the financials be done as the last part of the business plan i.e. the conclusion? I think the answer should categorically be no. Imagine doing all that work and finding out that when you add up all the pieces there isn’t a viable proposition! So the first draft should probably be done before anything else and, as the rest of the business plan is being complied, the assumptions and variables in the model can be tested and updated.
Update early and often
One of the great things about a financial model is that it can (and should) be changed. This does mean that the model needs to allow for quick and easy changes, even ‘on the fly’ – you should be able to test a hypothesis, like what would be the bottom line effect of selling 100 X widgets instead of 50 Y widgets, without having to wait for all the calculations to be redone.
Live the Plan
Even after the plan is completed your assumptions and variables will change (that is why they are called variables!). The whole business plan, and in particular the financials, should be a dynamic document. A budget or fixed plan is a snapshot in time from the model, and as such it can be a very useful measurement tool to keep you and your business accountable and on the right path.
So remember, the order your business plan is laid out will often not be that in which it is read, and certainly should not be the order in which it is prepared.
