38 Accounting: Business Reporting for Decision Making
- Projected profit and loss statement. Also known as a ‘statement of financial performance’, this
shows business revenues, expenses and net profit for the forthcoming year. - Balance sheet. Also known as a ‘statement of financial position’, the balance sheet reports a
business’s financial position at a specific time. It provides details about the assets (financial
resources owned by the firm), liabilities (claims against these resources) and net worth of the
business. A balance sheet is usually not provided for a new business. (There is no balance sheet
in the sample plan in the appendix to this chapter because Murphy Recruiting Pty Ltd is a new
business.) - Personal expenses, assets and liabilities. Since much of the capital funding for a new or small
business venture is provided by the owner, it is often recommended that the business plan con-
tain details about the owner–manager’s personal assets and liabilities. In addition, since the owner
usually draws income from the business, it is a good idea to include an estimate of likely personal
expenses that will need to be drawn from the business. It is important to build in some degree of
variation in these estimates since, just like the business, the owner will have high expense and low
expense months. - Analysis of financial forecasts
- From the data provided, it may be desirable to conduct ratio analysis or other pertinent calculations.
These could include (but are not necessarily limited to) an estimation of break-even point, fixed and
variable costs, contribution margins, mark-ups and margins, projected impact upon the value of the
business and return on investment (ROI) consequences.
Implementation timetable
This section provides a schedule of the activities needed to set up and run the business. It is usually
organised on a monthly basis, providing a set of milestones for the owner–manager to work by.
Appendices
This section includes any extra useful information such as résumés of the business owner and key man-
agement personnel, credit information, quotes for major capital purchases, lease or buy/sell agreements,
other legal documents, competitors’ promotional material, maps of the business site, floor plans of the
business premises, service blueprints, process flowcharts and reference sources, and key statistics col-
lected during the market research process.
Time frame
A business plan can be geared for a short time period (anything up to a year) or it may have a longer per-
spective. Short-term plans can afford to be more detailed, whereas a long-term orientation means that the
plan must be more generalised in its contents. Many researchers argue that business planning in small
firms tends to be overwhelmingly short-term in orientation and that it is unusual to find a small business
with plans that extend beyond a two-year time horizon (Glen & Weerawardena 1996). Of course, there
are always some exceptions to this rule — some firms have been able to successfully use a very long-
term time scale to help turn their business around. In general, however, a shorter term focus is used by
most small business entities.
Preparing the document: the business planning process
Few business plans are written at one sitting. More typically, a plan is the result of a series of logical
steps that most business owners work through, regardless of whether or not they are conscious of the
business planning process involved (see figure A1.2). These steps are often iterative; a person may
go through some of them several times before finally developing a plan that all parties feel comfort-
able with.