Business Plan Financials: How Many Months and Years

Do complete business plan financials include three years of monthly financial projections? Five years? One year? Obviously the answer to this frequently asked business plan financials question depends on the specific context. Sometimes specific organizations, business plan readers, require some specific timeframe. The Small Business Administration (SBA), for example, requires at least 12 months of monthly projections for most of its mainstream loan guarantee programs.

For normal planning purposes, for any normal company, you should have at least 12 months detailed month by month for business plan financial forecasts. That would be for sales forecast, cost of sales, your burn rate, and eventually the complete financial forecast, if you’re going to do it. Then have another two years beyond that, for three years total, as annual projections.

If you’re using LivePlan this solves itself with the settings in your plan. If you’re doing it yourself with a standard spreadsheet, the normal structure looks like the illustration here:


That doesn’t mean you don’t think in longer terms. Think about what you want for your business for 5, 10, 20 years. I’m all in favor of that. But I don’t think you should plan for very long time periods in the detail of financial forecasts. The larger numbers — sales, for example, involve so much uncertainty that the time you spend trying to project more detail isn’t worth it. At least not in normal cases. If you’re farming lumber from tree farms, maybe. Another special case I’ve seen is the long development and planning cycle for mainstream pharmaceutical research, requiring years of spending before getting to revenue.

You can put too much detail into a business plan. You run into a problem of diminishing returns. For the detail it takes to run the monthly cash flow into the second year and beyond, with so much compounded uncertainty, the information value, and decision-making benefits, are rarely worth it.

Be forewarned. You’ll run into experts who will say you need more than 24 months, or more than five years in detail. They will be very sure of themselves. Sometimes what they mean is that they know more than you do, so they want you to suffer more. Or they want you to pay them to do the financials instead. Or they don’t like you or your business plan and they’re embarrassed to tell you. So instead, they say you need to forecast in more detail. If they are investors, what they mean is they don’t want to invest and they don’t want to tell you why. If they are loan managers, they don’t want to make the loan. And they don’t want to tell you the real reason.

My advice to you, when that comes up, is that unless you are a special case (if you are, you know who you are), look for another expert.



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