From Business Plan Essentials: How to Write a Business Plan
What This Chapter Covers
This chapter turns assumptions into a coherent financial model that lenders, investors, and immigration officers can test. You’ll build integrated Income Statement, Balance Sheet, and Cash Flow projections, plus a dashboard of KPIs, ratios, and scenarios that align directly with your operating plan.
Model Architecture
- Drivers Sheet: volumes, price, mix, ramp-up, churn, utilization, store count, seasonality.
- Revenue Build: top-down TAM/SAM/SOM cross-checked with bottom-up funnel or capacity math.
- COGS & Gross Margin: unit economics, waste/shrink, freight, payment fees.
- Opex: fixed vs variable, staffing plan with start dates, marketing by channel, SaaS/tools.
- Capex & Depreciation: leaseholds, equipment, vehicles; useful life & method.
- Working Capital: AR days, AP days, inventory turns, deferred revenue rules.
- Financing: loan schedule (rate, amort, fees), covenant tests; equity tranches.
Three-Statement Integration
- P&L: revenue → gross profit → EBITDA → EBIT → EBT → Net Income.
- Balance Sheet: cash, AR, inventory, prepaids, PP&E, AP, debt, equity.
- Cash Flow: operating (NI + non-cash – working capital), investing (capex), financing (debt/equity).
Reviewer lens: If P&L shows growth while inventory and AR don’t expand, or staffing in Ops doesn’t match salaries in P&L, you’ll lose credibility. Reconcile every section.
Break-Even & Unit Economics
- Contribution Margin (CM): price – variable cost per unit.
- Break-Even Units: fixed costs ÷ CM.
- Payback: initial outlay ÷ monthly free cash flow.
- LTV/CAC: for recurring models; retention, gross margin, and CAC recovery months.
Sensitivity & Scenarios
- One-way sensitivities: price ±5–10%, volume ramp, COGS inflation, wage increases, FX.
- Multi-scenario set: Conservative / Base / Upside with explicit assumptions.
- What-if tests: slip of go-live by 2 months; loan rate +200 bps; churn +1pp.
- Cash runway: months until minimum cash; earliest breach and mitigation.
Ratios & Covenants
| Metric | Formula | Signals |
|---|---|---|
| Gross Margin % | (Revenue – COGS) ÷ Revenue | Pricing power / input cost control |
| EBITDA Margin % | EBITDA ÷ Revenue | Operating efficiency |
| Current Ratio | Current Assets ÷ Current Liabilities | Liquidity buffer |
| Debt Service Coverage (DSCR) | EBITDA ÷ Debt Service | Loan safety; target ≥ 1.25× (typical) |
| Leverage | Net Debt ÷ EBITDA | Solvency & risk |
| Cash Conversion Cycle | DIO + DSO – DPO | Working capital efficiency |
Funding Ask & Use of Proceeds
- Total Need: capex + working capital + contingency + fees – owner equity.
- Structure: term loan, line of credit, equipment financing, equity.
- Use of Funds: itemized and dated; tie to milestones (site, hires, marketing launch).
- Repayment Plan: amortization, DSCR headroom, covenant compliance over time.
Model Governance
- Version control & audit trail of key changes.
- Assumption register with sources and dates.
- Error checks: balance ties, sign tests, circularity flags.
- Outputs: PDF pack (exec summary, 3 statements, charts, ratios, scenarios).
Download the 3-Statement Model Template
Driver-based revenue, staffing, capex, and covenant tracker included.