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How To Write A Business Plan for A Bank Loan (3 Key Steps)

Wondering how to create a business plan that will wow your banker.

You're not alone.

Most entrepreneurs see writing a business plan as a gargantuan task – especially if they've never written one before.

Where do you start?

How do you calculate the financials?

How can you be sure you're not making a mistake?

And if you need a business plan for a bank loan, getting this document right is absolutely essential.

So here's what we recommend: simplify the planning process by breaking the work up into manageable, bite–sized steps. That way, you can focus on one section at a time to make sure it's accurate.

Here's a quick overview of the step–by–step process we guide entrepreneurs through when they sign up for LivePlan.

Step 1: Outline The Opportunity

This is the core of your business plan. It should give loan officers a clear understanding of:

• What problem you're solving
• How your product or service fits into the current market
• What sets your business apart from the competition

There are three key parts to this step:

The Problem & Solution

Detail exactly what problem you are solving for your customers. How do their lives improve after you solve that “pain point” for them?

We recommend actually going out and chatting with your target audience first. That way, you can validate that you're solving a real problem for your potential customers.

Be sure to describe your solution in vivid detail. For example, if the problem is that parking downtown is expensive and hard to find, your solution might be a bike rental service with designated pickup and dropoff locations.

Target Market

Who exactly are you selling to? And roughly how many of them are there?

This is crucial information for determining whether or not your business will succeed long–term. Never assume that your target market is “everyone.”

For example, it would be easy for a barber shop to target everyone who needs a haircut. But most likely, it will need to focus on a specific market segment to reach its full business potential. This might include catering to children and families, seniors or business professionals.

Competition

Who are your direct competitors? These are companies that provide similar solutions that aim to solve your customers' pain points.

Then outline what your competitive advantages are. Why should your target market choose you over the other products or services available?

Think you don't have any competition? Think again. Your customers are likely turning to an indirect competitor that is solving their problem with a different type of solution.

For example: A taco stand might compete directly with another taco stand, but indirectly with a nearby hot dog vendor.

Boost your chances of securing a loan

See how LivePlan can help you write a fundable business plan

Step 2: Show how you'll execute

This is where the action happens! Here you'll get into the details of how you'll take advantage of the opportunity you outlined in the previous section. This part demonstrates to banks that you have a strong plan to achieve success.

The three main components of this step include:

Marketing & Sales Plan

There can be a lot of moving parts to this one, depending on your business model.

But most importantly, you'll need to fully explain how you plan to reach your target market and convert those people into customers. A few example of what should be included:

• Positioning strategy. What makes your business both unique and highly desirable to your target market?
• Marketing activities. Will you advertise with billboards, online ads or something else entirely?
• Pricing. What you charge must reflect consumer demand. There are a few models to choose from, including ‘cost–plus pricing’ and ‘value pricing.’

This is the nuts and bolts of your business. It's especially important for brick–and–mortar companies that operate a storefront or have a warehouse.

You may want to explain why your location is important or detail how much space you have available. Plan to work at home? You can also cover your office space and any plans to move outside your house.

Any specialized software or equipment and tools should also be covered here.

Milestones & Metrics

Lenders and investors want to be confident that you know how to turn your business plans into financial success. That's where your milestones come in.

These are planned goals that help you progress your company. For example, if you're launching a new product your milestones may include completing prototypes and figuring out manufacturing.

Metrics are how you will gauge the success of your business. Do you want to generate a certain level of sales? Or keep costs at a certain level? Figuring out which metrics are most important and then tracking them is essential for growth.

Step 3: Detail your financial plan

This is the most crucial – and intimidating – part of any business plan for a bank loan. Your prospective lender will look especially close at this section to determine how likely your business is to succeed.

But the financial section doesn't have to be overwhelming, especially if you break the work into smaller pieces. Here are 3 items that your plan must have:

Simply put, this is your projections for your business finances. It gives you (and the bank) an idea of how much profit your company stands to make. Just a few items you'll need to include:

• Revenue. List all your products, services and any other ways your business will generate income.
• Direct costs. Or in other words, what are the costs to make what you sell?
• Personnel. Salaries and expenses related to what you pay yourself, employees and any contactors.
• Expenses. Things like rent, utilities, marketing costs and any other regular expenses.

Exactly how will you use any investments, loans or other financing to grow your business? This might include paying for capital expenses like equipment or hiring personnel.

Also detail where all your financing is coming from. Lines of credit, loans or personal savings should be listed here.

Bankers will be giving this section a lot of attention. Here's what you'll need:

• Profit & Loss. This statement pulls in numbers from your sales forecast and other elements to show whether you're making or losing money.
• Projected Balance Sheet. This is likely the first thing a loan officer will look at: it covers your liability, capital and assets. It provides an overview of how financially sound your business is.
• Projected Cash Flow. Essentially, this statement keeps track of how much money you have in the bank at any given point. Loan officers are likely to expect realistic monthly cash flow for the next 12 months.

Don't forget the Executive Summary

The Executive Summary is the first section of your business plan, but we recommend you tackle it last.

It's basically an introduction to your company, summarizing the main points of your plan. Keep it to just one or two pages and be as clear and concise as possible.

Think of it as a quick read designed to get the lender excited about your business.

If you need help writing your plan

Not everyone feels confident writing a business plan themselves, especially if it's needed to secure a bank loan.

And although you don't need an MBA to write one, getting your business plan right often does require quite a bit of work. So if you need help writing your plan, here are two options to consider:

• Hire a professional business plan writer to do it for you. This is typically the most expensive route, but worth it if you're pursuing $100,000 or more in capital.
• Sign up for LivePlan. It's business planning software that walks you through a step–by–step process for writing any type of plan. It's an affordable option that also gives you an easy way to track your actuals against your business plan, so you can get the insights you need to grow faster.

LivePlan makes it easy to write a winning business plan

No risk – includes our 35-day money back guarantee.

Financing | Templates

How To Write an SBA Business Plan [+Free Template]

Published June 13, 2023

Published Jun 13, 2023

REVIEWED BY: Tricia Jones

WRITTEN BY: Andrew Wan

This article is part of a larger series on Business Financing .

• 1. Write the Company Description
• 2. Identify Organization & Management
• 3. Specify the Market Analysis
• 4. Write Descriptions of the Products or Services
• 5. Indicate the Marketing & Sales Strategy
• 6. List Financial Data & Projections
• 7. Write the Financing Request
• 8. Fill In the Appendix & Supplemental Information
• 9. Complete the Executive Summary
• Additional Resources

Bottom Line

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SBA Business Plan Template Download

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If you’re applying for a loan from the Small Business Administration (SBA), there’s a good chance that you’ll need a business plan to get approved. An SBA business plan provides a summary of the various aspects of your business, and we will guide you through the process of creating it, from writing your company description and marketing and sales strategies to completing financial data and projections and your executive summary.

Although there is no standard format, and to help you ensure nothing is overlooked, you can use our SBA business plan template above to ensure you cover the most important areas of your company. A well-prepared business plan can improve your chances of getting an SBA loan.

Step 1: Write the Company Description

This section should contain information about the purpose of your business. It should include a description of the problem or challenge your product or service aims to solve and what types of individuals or organizations will benefit.

A strong company description should also address the following questions:

• Why does your company exist?
• What problems does your business aim to address?
• What prompted you to start your business?
• What organizations or individuals will benefit from your company’s product or service?
• What makes your company different from others?
• What competitive advantages does your business offer?
• What would a successful product launch look like?
• Does your company have strategic partnerships with other vendors?

Step 2: Identify Organization & Management

Details about the legal and tax structure of your business should be included in this section. It can also be helpful to include an organizational chart of your company. You can include information about each team member’s background and experience and how it is relevant to your company:

• Highlight what business structure you have selected and why. Examples commonly include a sole proprietorship, limited liability company (LLC), partnership, S corporation (S-corp), and C corporation (C-corp)
• Include an organizational chart showing which team members are responsible for the various aspects of your company
• You can include resumes for members of your leadership team highlighting their experience and background

Step 3: Specify the Market Analysis

The market analysis section of your SBA business plan should look at who your competitors will be. Look at what they are doing well, what their weaknesses are, and how your company compares.

The SBA’s market analysis page contains information on how you can approach this. Questions you should also consider addressing should include:

• Who are the major competitors in the market?
• What are competitors doing well and are there areas for improvement?
• How does your company compare to the top competitors?
• How has the product or service evolved over time?
• Are there any trends for supply and demand throughout the year?
• What can your company do to stand apart from the top competitors?

Step 4: Write Descriptions of the Products or Services

In this section, you should detail the product or service offered by your business. You should explain what it does, how it helps your customers, and its expected lifecycle. You can also include things like any expected research and development costs, intellectual property concerns such as patents, what the lifecycle of your product looks like, and what is needed to manufacture or assemble it.

Here are some things to consider as you are working on this section:

• Description of what your product or service does
• How your product or service works
• How your customers will benefit from your product or service
• Illustration of the typical lifecycle
• Any patents or intellectual property you or your competitors have
• Pricing structure
• Plans for research and development
• Discuss plans for handling intellectual property, copyright, and patent filings

Step 5: Indicate the Marketing & Sales Strategy

Details of your marketing and sales strategy will be highly dependent on your business. It’s also something that may evolve and change over time in response to things like the overall economic environment, release of competitor’s products or services, and changes in pricing.

With that being said, here is a list of some items that should be addressed:

• Who is your target audience?
• How will you attract customers?
• How and where will sales be made?
• If applicable, what will the sales process look like?
• Where will you market and advertise your product or service?
• How does your marketing strategy compare to other companies in the industry?
• How much should you spend on marketing?
• What is the expected return on investment for marketing?
• Do you have any data showing the effect of marketing?

Step 6: List Financial Data & Projections

If your business has been running, you should include information about its finances. This should include all streams of revenue and expenses. Data for financial projections should also be included, along with a description of the methodology you used to reach those conclusions.

If available, you should be prepared to provide the following financial documents for at least the last three years to five years:

• Personal and business tax returns
• Balance sheets
• Profit and loss (P&L) statements
• Cash flow statements
• Hard and soft collateral owned by your business
• Business bank statements for the last six to 12 months

Financial projections should include enough data to offer some confidence that your business is viable and will succeed. It’s recommended that you provide monthly projections looking forward at least three years, with annual projections for years four and five.

• Projections for revenue and methodology used in arriving at these figures
• Expected shifts in revenue or expenses as a result of seasonality or other factors affecting supply and demand
• Expected expenses from loan payments, rent, lease payments, marketing and advertising fees, employee salaries, benefits, legal fees, warranty expenses, and more

You can use our SBA loan calculator to help you estimate monthly payments for the funding you’re currently looking for and projections for any additional loans you may need. Monthly payments can fluctuate depending on the terms of your loan. If you’re looking for accurate estimates, you can read our article on SBA loan rates .

Step 7: Write the Financing Request

This section is where you should specify how much funding you need, why you need it, what you’ll use it for, and the impact you expect it will have on your business. It’s also a good idea to indicate when you expect to use the funds over the course of the next three to five years.

Here is a checklist of some important items you should cover:

• How much funding you need and why
• When you will use the funds over the next three to five years
• What you will use the funds for
• The expected impact this will have on your business and how it will help reach your business goals
• The anticipation of any recurring needs for additional funding
• Your strategy for how you expect to pay off the loan
• Any future financial plans for your business

Step 8: Fill In the Appendix & Supplemental Information

This last section of your SBA business plan should include any additional information that may be helpful for lenders. This can include more detailed explanations or clarifications of data from other sections of your business plan.

Here are some examples of documents you can include:

• Business licenses
• Certifications or permits
• Letters of reference
• Photos of products
• Resumes of business owners
• Contractual agreements and other legal documents

Step 9: Complete the Executive Summary

The executive summary, which is the first section in a business plan, should be no more than one to two pages and provide a high-level overview of the items listed below. Since each section above is already detailed, a brief description of those sections will be sufficient:

• Your company’s mission statement
• The background and experience of your leadership team
• The product or service and what purpose it serves
• Your target market for the product or service
• Competitive analysis of other products and services
• Your competitive advantage or why your company will succeed
• Marketing and sales strategy
• Financial projections and funding needs

Depending on the type of SBA loan you’re applying for, certain areas of your business plan may be weighed more heavily than others. You can learn about the SBA loan options you can choose from in our guide on the different types of SBA loans .

Additional Resources for Writing an SBA Business Plan

If you’re looking for additional resources to help you write a business plan, you can consider the options below. Since a business plan is just one of many documents you’ll need, you can also read our guide on how to get an SBA loan if you need help with other areas of the loan process:

• SBA: SBA’s business guide contains information on how you can start a small business. It includes steps on creating a business plan, funding your company, and launching a business.
• SCORE: Through SCORE, you can request to be paired with a mentor and get business-related education. Educational courses come in several formats, including webinars, live events, and online courses.
• Small Business Development Center (SBDC): SBDCs provide training and counseling to small business owners. This can help with various aspects of your company such as getting access to working capital, business planning, financial management, and more. You can use the SBA’s tool to find your closest SBDC .

Having a strong SBA business plan can improve your chances of getting approved for an SBA loan. If you’re unsure where to start, you can use our guide and template to cover the most important aspects of your business. You can also see our tips on how to get a small business loan . To get even more ideas on creating a strong business plan, you can also utilize resources through organizations such as SCORE and the SBA itself.

About the Author

Find Andrew On LinkedIn

Andrew Wan is a staff writer at Fit Small Business, specializing in Small Business Finance. He has over a decade of experience in mortgage lending, having held roles as a loan officer, processor, and underwriter. He is experienced with various types of mortgage loans, including Federal Housing Administration government mortgages as a Direct Endorsement (DE) underwriter. Andrew received an M.B.A. from the University of California at Irvine, a Master of Studies in Law from the University of Southern California, and holds a California real estate broker license.

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• Sample Business Plans

Payday Loan Business Plan

If you plan to start a new payday loan business, you will first need a business plan. Use our sample payday loan business plan created using Upmetrics business plan software to start writing your business plan in no time.

Before you start writing your business plan for your new payday loan business, spend as much time as you can reading through some examples of finance and other services-related business plans .

Reading sample business plans will give you a good idea of your aim. Also, it will show you the different sections that different entrepreneurs include and the language they use to write about themselves and their business plans.

We have created this sample payday loan business plan to get a good idea of what a perfect business plan should look like and what details you will need to include in your stunning business plan.

Payday Loan Business Plan Outline

This is the standard payday loan business plan outline which will cover all important sections that you should include in your business plan.

• Business Overview
• Product and Services
• Vision Statement
• Mission Statement
• Business Structure
• Chief Executive Officer
• Loan and Check Cashing Consultants
• Admin and HR Manager
• Marketing and Sales Executive
• Client Service Executive / Front Desk Officer
• SWOT Analysis
• Market Trends
• Target Market
• Competitive Advantage
• Sources of Income
• Joe’s Beauty Salon
• No. of Clients v/s Revenue Chart
• Payment Options
• Publicity and Advertising Strategy
• Revenue and Cost Drivers
• Generating Funds / Startup Capital
• Key Assumptions & Forecasts
• Income Statement (5 Year projections)
• Balance Sheet (5 Year projections)
• Cash Flow Statement (5-Year Projections)
• Sustainability and Expansion Strategy

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After getting started with upmetrics , you can copy this sample business plan into your business plan, modify the required information, and download your payday loan business plan pdf  and doc file . It’s the fastest and easiest way to start writing your business plan.

Download a sample payday loan business plan

Need help writing your business plan from scratch? Here you go;  download our free payday loan business plan pdf  to start.

It’s a modern business plan template specifically designed for your payday loan business. Use the example business plan as a guide for writing your own.

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Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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SBA Business Plan Template: Full Guide [2023]

• January 12, 2023
• Small Businesses

In 2020, SBA’s flagship 7(a) loan program approved more than 42,000 loans totalling $22 billion . Yet, SBA loans are notoriously difficult to obtain for small businesses: less than 15% of SBA loan applications were granted by big banks. If you’re applying for a SBA loan , you will need a solid business plan template for your loan application.

In this article we go through, step-by-step, all the different sections you need in your business plan to build a complete, clear and solid business plan lenders will approve. Read on!

Why do you need a business plan for your SBA loan application?

Other than your basic eligibility requirements, the primary element that lenders would review is your business plan. Having a good business plan determines if your business is a lucrative opportunity for SBA lenders.

Also, a solid business plan makes it easier to get your loans approved because banks would be confident that your business would be successful and you would be able to repay your loan.

However, business plans tend to differ depending on the nature and status of your business. If you’re running an independent business or launching a startup for example, your business plan will be reviewed more thoroughly.

1. Executive summary

The executive summary is the most important page of your SBA business plan template . We can’t make this clearer. This is the first section that the lenders will have a look at.

Before we go into specifics, keep in mind the executive summary actually is a summary. Keep it brief: your executive summary should never be more than 2 pages maximum .

Your executive summary should consists of 5 parts:

• The “mission statement “: what problem(s) is your business solving?
• Product and service : what is it that you sell? to whom? where?
• People : who are the founders / management? What about their experience? How many people / teams do you employ?
• Key financials and projections : what are your key metrics and financials today (revenues, customers, etc.)? What do you expect these to be in 3/5 years from now?
• Funding ask : what (how much) are you asking as part of this loan? Where will you spend it? For what?

2. Company description

The company description is where we go into more details about your business, and which problem(s) it actually solves.

You should explain here clearly:

What is the problem at stake?

You should list here the 2/3 friction points you aim to tackle.

Remember: even if your business isn’t necessarily innovative, your business is potentially solving a problem, as obvious as it may be, for many people out there. The more obvious the problem is, the more people it affects, the better

What is your solution?

Your business is commercialising a product and/or a service which solves the problem mentioned above. Here, you should explain 2 things: how your product / service works, and what benefits it brings to your customers.

Ideally, you should compare the pain points explained earlier (the problem) to the benefits your solution brings to your customers. That way, it is crystal clear to lenders and investors your solution really adds value to potential customers .

When explaining your business’ solution, you should explain clearly who is your customer persona . In other words, who are your customers (or who do you think they will be)? Which gender, age range, social background, interests, etc?

Where are you going?

The third section of the company description should explain what your strategy is in the short to long term. Are you expecting to launch new products? To expand regionally, internationally? Etc.

3. Market plan and analysis

The market plan and analysis section tell investors and lenders that you have extensively studied the market and reveal your competitive plan.

Your market plan and analysis section should include the following:

Industry overview and outlook

Here you need to clearly identify 2 very important metrics:

• Market size : how big is your market?
• Market growth: how fast does your market grow?

If you are operating in a niche market, chances are that you will face some challenges: the information might not be publicly available. In any case, you should be able to make a high-level estimation of your market. Read our article on market sizing and how to estimate TAM, SAM and SOM for your startup .

When looking for these metrics, you have multiple sources of information: public reports, specialised press, etc. Even public companies publish press releases and annual reports including some of their proprietary market estimates so be sure to look there too.

Competitive landscape

Here we must answer 2 key questions:

How fragmented is your market?

Are there 3 big players sharing 90% market share or thousands of small players? Here, refer to public market reports and your own understanding of the competitive landscape .

A few questions you could ask yourself, among others:

• Who are your competitors?
• Are they local, regional, national or global?
• Are there any product alternatives to your product?
• What about their IP / technological advantage?

Where do you position yourself vs. competition?

Is your solution a game changer other competitors don’t have (yet)? Do you have competitors with similar products/services?

Ideally, you would create a small table with, for each type of competitors and their main characteristics.

For instance, do they all a global presence? Do they cover all the products you offer? What is their relative price positioning (expensive vs. accessible)?

4. Organization and management

The amount of details you need to include here varies depending on the size of your company.

No matter how many leadership roles there are, an organizational chart effectively shows lenders and investors how the management system is structured.

If you plan on running your business alone indefinitely, you can write a short paragraph explaining your qualifications and previous professional experiences.

The first thing you should include in this section is a list of each management position. This list includes who will fill the role and the qualifications of these people. These people are the heart of your company, and their skills and experience are vital in ensuring your company’s success.

Next, provide any additional information about how the management team will contribute to the business’s success. Be sure to give as many details as possible since lenders need to be comfortable and confident that you have a good team running your business.

Lastly, include information about the Board of Directors (and/or any other advisors to your business).

5. Service or product line

The level of detail and the content of this section changes depending on the type of business you have. A number of questions you need to answer are shown below (but not limited to):

• Are you selling products or services (or both)?
• How many products do you sell?
• What are they?
• What is their pricing?
• How do they work?
• Are your products protected by any kind of intellectual property (copyright, patent, etc.)?
• If you do not manufacture all of your product(s): who are they suppliers? Where do they fit in the value chain ? etc.

Expert-built financial model templates for tech startups

6. Marketing and sales

Your SBA business plan template should include a marketing and sales plan where you describe your strategy for acquiring potential clients.

Here, you should give details about your marketing plan. A few questions you should answer are:

• How you plan to build and support your sales strategy ?
• What channel(s) are you using (online vs. offline)?
• How it makes sense for your target audience (the customer persona mentioned above)?

What about your metrics?

Sales and marketing goals and KPIs are also provided in this section. Don’t forget to include a detailed report about budgets for both sales and marketing.

Include metrics such as conversion rate, customer acquisition cost (CAC) , the efficiency of your sales team, etc.

It’s ok if you don’t know them already (if you are about to launch you new venture for example), yet you should have at least targets for them. How many website visitors do you expect to generate next year? What is your target conversion rate? Etc.

This particular report would be of great interest to lenders since they will glimpse how you handle your budget. Indeed, if you expect to spend in average $100 Customer Acquisition Cost, lenders will tie the number into your financial projections later on (more on that below).

Proving lenders you are able to link your financial projections with your actual business metrics (customers, sales volume, etc.) is a big plus . Indeed, that way you will show lenders you understand very clearly your business and how it ties into your financials (more on that in our article on why you should build a solid financial projections ).

7. Funding request

The funding request is the section of your SBA business plan template where you communicate to your investors how much you need.

This report also includes how you plan on repaying your loan. It’s also essential to explain how you plan to spend the funding you’ll receive for your business.

Will you spend the loan in working capital , in equipment, in inventory, salaries or marketing costs? The more specific you are, the better.

If you haven’t done so, we really recommend you read our article on how to determine how much you should raise for you business . While raising too little creates obvious problems, raising too much isn’t necessarily better.

On top of the amount, a good practice is to include a pie chart of where you will spend that money over a given period (your runway). Will you spend the bulk of it in product development to build your MVP? Or will you use a large portion in sales & marketing to commercialise your product and find product-market fit?

Our financial model templates include a cash burn dashboard where you can easily assess how much you should raise, and where you will spend your money. We also included charts ready to be included in your pitch deck. See how to use our cash burn dashboard here .

The funding request usually includes an overview of the business. You also have to outline how much funding you need for the next five years.  The standard timeframe for repaying your loan is usually ten years, so lenders expect to see some success in your business by that time. Mention a  detailed explanation of how the funds will be used and strategic financial plans for the future here.  Include financial information for current operations if applicable.

8. Financial projections

The financial projections section of your SBA business plan is one of the most important one.

Why? Lenders will have a thorough review of your expected financials over the next 3 to 5 years and judge whether your financial projections:

Are realistic (and use verifiable assumptions)

We are all by nature optimistic, especially when we are running businesses. It’s good to be optimistic, yet it is another one to be unrealistic.

Also, when presenting your financial projections, make sure to make it clear what are your assumptions. The more sources you can find to back up your forecasts, the better.

If you need help building realistic projections for your business, we have lots of free content. Make sure to check out our guides below:

• The 5 Mistakes To Avoid For Your Startup Financial Plan
• How To Build Realistic Revenue Projections For Your Startup?

Allow you to repay the SBA loan in the future

It’s great if you have built rock-solid and realistic financial projections for your business plan. Yet, if your plan doesn’t allow you to meet your debt obligations (the SBA loan and any other debt your business might have), lenders will not grant you any loan.

When assessing whether your financial plan allows you to repay the debt, you should check if the positive cash flows your business generates are enough to cover your debt repayment (and interests).

What financials should you include?

In short, you should present 3 different set of financials:

• Profit-and-loss
• Balance sheet
• Cash flow statement

If you don’t know them already, these are the financial statements every business need to prepare at least annually (with the help of an accountant). For more information on what they are and how to prepare them, read our articles below:

• 4 Key Financial Statements For Your Startup Business Plan
• SBA Loan Application: 6 Steps To Build Solid Financial Projections

9. Appendix

This section is the best place to add supporting documents like charts, graphs, and data.

For example, a complete list of documents like licenses, contracts, maps, etc. makes you more attractive to lenders as it gives them more content to review. If you do so, make sure to reference the documents in appendix and link them to pages in earlier sections. Avoid using the appendix as a dump section: it should be well organised and structured (else no one will bother looking at it).

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How to Create a Cash Flow Forecast

10 min. read

Updated May 3, 2024

A good cash flow forecast might be the most important single piece of a business plan . All the strategy, tactics, and ongoing business activities mean nothing if there isn’t enough money to pay the bills.

That’s what a cash flow forecast is about—predicting your money needs in advance.

By cash, we mean money you can spend. Cash includes your checking account, savings, and liquid securities like money market funds. It is not just coins and bills.

Profits aren’t the same as cash

Profitable companies can run out of cash if they don’t know their numbers and manage their cash as well as their profits.

For example, your business can spend money that does not show up as an expense on your  profit and loss statement . Normal expenses reduce your profitability. But, certain spending, such as spending on inventory, debt repayment, and purchasing assets (new equipment, for example) reduces your cash but does not reduce your profitability. Because of this, your business can spend money and still be profitable.

On the sales side of things, your business can make a sale to a customer and send out an invoice, but not get paid right away. That sale adds to the revenue in your profit and loss statement but doesn’t show up in your bank account until the customer pays you.

That’s why a cash flow forecast is so important. It helps you predict how much money you’ll have in the bank at the end of every month, regardless of how profitable your business is.

Learn more about the differences between cash and profits .

• Two ways to create a cash flow forecast

There are several legitimate ways to do a cash flow forecast. The first method is called the “Direct Method” and the second is called the “Indirect Method.” Both methods are accurate and valid – you can choose the method that works best for you and is easiest for you to understand.

Unfortunately, experts can be annoying. Sometimes it seems like as soon as you use one method, somebody who is supposed to know business financials tells you you’ve done it wrong. Often that means that the expert doesn’t know enough to realize there is more than one way to do it.

• The direct method for forecasting cash flow

The direct method for forecasting cash flow is less popular than the indirect method but it can be much easier to use.

The reason it’s less popular is that it can’t be easily created using standard reports from your business’s accounting software. But, if you’re creating a forecast – looking forward into the future – you aren’t relying on reports from your accounting system so it may be a better choice for you.

That downside of choosing the direct method is that some bankers, accountants, and investors may prefer to see the indirect method of a cash flow forecast. Don’t worry, though, the direct method is just as accurate. After we explain the direct method, we’ll explain the indirect method as well.

The direct method of forecasting cash flow relies on this simple overall formula:

Cash Flow = Cash Received – Cash Spent

And here’s what that cash flow forecast actually looks like:

Let’s start by estimating your cash received and then we’ll move on to the other sections of the cash flow forecast.

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Forecasting cash received

You receive cash from three primary sources: 

1. Sales of your products and services

In your cash flow forecast, this is the “Cash from Operations” section. When you sell your products and services, some customers will pay you immediately in cash – that’s the “cash sales” row in your spreadsheet. You get that money right away and can deposit it in your bank account. You might also send invoices to customers and then have to collect payment. When you do that, you keep track of the money you are owed in  Accounts Receivable . When customers pay those invoices, that cash shows up on your cash flow forecast in the “Cash from Accounts Receivable” row. The easiest way to think about forecasting this row is to think about what invoices will be paid by your customers and when.

2. New loans and investments in your business

You can also receive cash by getting a new loan from a bank or an investment. When you receive this kind of cash, you’ll track it in the rows for loans and investments. It’s worth keeping these two different types of cash in-flows separate from each other, mostly because loans need to be repaid while investments do not need to be repaid.

3. Sales of assets

Assets are things that your business owns, such as vehicles, equipment, or property. When you sell an asset, you’ll usually receive cash from that sale and you track that cash in the “Sales of Assets” section of your cash flow forecast. For example, if you sell a truck that your company no longer needs, the proceeds from that sale would show up in your cash flow statement.

Forecasting cash spent

Similar to how you forecast the cash that you plan on receiving, you’ll forecast the cash that you plan on spending in a few categories:

1. Cash spending and paying your bills

You’ll want to forecast two types of cash spending related to your business’s operations: Cash Spending and Payment of Accounts Payable. Cash spending is money that you spend when you use petty cash or pay a bill immediately. But, there are also bills that you get and then pay later. You track these bills in  Accounts Payable . When you pay bills that you’ve been tracking in accounts payable, that cash payment will show up in your cash flow forecast as “payment of accounts payable”. When you’re forecasting this row, think about what bills you’ll pay and when you’ll pay them. In this section of your cash flow forecast, you exclude a few things: loan payments, asset purchases, dividends, and sales taxes. These will show up in the following sections.

2. Loan Payments

When you make loan repayments, you’ll forecast the repayment of the principal in your cash flow forecast. The interest on the loan is tracked in the “non-operating expense” that we’ll discuss below.

3. Purchasing Assets

Similar to how you track sales of assets, you’ll forecast asset purchases in your cash flow forecast. Asset purchases are purchases of long-lasting, tangible things. Typically, vehicles, equipment, buildings, and other things that you could potentially re-sell in the future. Inventory is an asset that your business might purchase if you keep inventory on hand.

4. Other non-operating expenses and sales tax

Your business may have other expenses that are considered “non-operating” expenses. These are expenses that are not associated with running your business, such as investments that your business may make and interest that you pay on loans. In addition, you’ll forecast when you make tax payments and include those cash outflows in this section. 

Forecasting cash flow and cash balance

In the direct cash flow forecasting method, calculating cash flow is simple. Just subtract the amount of cash you plan on spending in a month from the amount of cash you plan on receiving. This will be your “net cash flow”. If the number is positive, you receive more cash than you spend. If the number is negative, you will be spending more cash than you receive. You can predict your cash balance by adding your net cash flow to your cash balance.

• The indirect method

The indirect method of cash flow forecasting is as valid as the direct and reaches the same results.

Where the direct method looks at sources and uses of cash, the indirect method starts with net income and adds back items like depreciation that affect your profitability but don’t affect the cash balance.

The indirect method is more popular for creating cash flow statements about the past because you can easily get the data for the report from your accounting system.

You create the indirect cash flow statement by getting your Net Income (your profits) and then adding back in things that impact profit, but not cash. You also remove things like sales that have been booked, but not paid for yet.

Here’s what an indirect cash flow statement looks like:

There are five primary categories of adjustments that you’ll make to your profit number to figure out your actual cash flow:

1. Adjust for the change in accounts receivable

Not all of your sales arrive as cash immediately. In the indirect cash flow forecast, you need to adjust your net profit to account for the fact that some of your sales didn’t end up as cash in the bank but instead increased your accounts receivable.

2. Adjust for the change in accounts payable

Very similar to how you make an adjustment for accounts receivable, you’ll need to account for expenses that you may have booked on your income statement but not actually paid yet. You’ll need to add these expenses back because you still have that cash on hand and haven’t paid the bills yet.

3. Taxes & Depreciation

On your income statement, taxes and depreciation work to reduce your profitability. On the cash flow statement, you’ll need to add back in depreciation because that number doesn’t actually impact your cash. Taxes may have been calculated as an expense, but you may still have that money in your bank account. If that’s the case, you’ll need to add that back in as well to get an accurate forecast of your cash flow.

4. Loans and Investments

Similar to the direct method of cash flow, you’ll want to add in any additional cash you’ve received in the form of loans and investments. Make sure to also subtract any loan payments in this row.

5. Assets Purchased and Sold

If you bought or sold assets, you’ll need to add that into your cash flow calculations. This is, again, similar to the direct method of forecasting cash flow.

• Cash flow is about management

Remember: You should be able to project cash flow using competently educated guesses based on an understanding of the flow in your business of sales, sales on credit, receivables, inventory, and payables.

These are useful projections. But, real management is minding the projections every month with plan versus actual analysis so you can catch changes in time to manage them. 

A good cash flow forecast will show you exactly when cash might run low in the future so you can prepare. It’s always better to plan ahead so you can set up a line of credit or secure additional investment so your business can survive periods of negative cash flow.

• Cash Flow Forecasting Tools

Forecasting cash flow is unfortunately not a simple task to accomplish on your own. You can do it with spreadsheets, but the process can be complicated and it’s easy to make mistakes. 

Fortunately, there are affordable options that can make the process much easier – no spreadsheets or in-depth accounting knowledge required.

If you’re interested in checking out a cash flow forecasting tool, take a look at LivePlan for cash flow forecasting. It’s affordable and makes cash flow forecasting simple.

One of the key views in LivePlan is the cash flow assumptions view, as shown below, which highlights key cash flow assumptions in an interactive view that you can use to test the results of key assumptions:

With simple tools like this, you can explore different scenarios quickly to see how they will impact your future cash.

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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Loan Officer Business Plan Template

Written by Dave Lavinsky

Over the past 20+ years, we have helped thousands of loan officers develop business plans to grow their businesses. On this page, we will first give you some background information with regards to the importance of business planning. We will then go through a loan officer business plan template step-by-step so you can create your plan today.

Download our Ultimate Business Plan Template here >

What is a Loan Officer Business Plan?

A business plan provides a snapshot of your loan business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategy for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for a Loan Officer

If you’re looking to grow your existing loan business, you need a business plan. A business plan will plan out the growth of your loan business in order to improve your chances of success. Your loan business plan is a living document that should be updated annually as your company grows and changes.

Finish Your Business Plan Today!

If you want to grow your loan officer business, you need a business plan. Below are links to each section of your loan officer business plan template:

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

In it you must provide an overview of each of the sections of your plan. For example, give a brief overview of the loan industry. Discuss the type of loan business you are operating. Detail your direct competitors. Give an overview of your target customers. Provide a snapshot of your marketing plan. Identify the key members of your team. And offer an overview of your financial plan.  

Company Analysis

In your company analysis, you will detail the type of loan business you are operating.

For example, you might operate one of the following types of loan businesses:

• Commercial Loan Officer : this type of loan business focuses on arranging business loans.
• Consumer Loan Officer: this type of business focuses on providing loans for things such as vehicles.
• Mortgage Loan Officer: this type of loan obtains loans for consumer to purchase real estate.

In addition to explaining the type of loan business you will operate, the Company Analysis section of your business plan needs to provide background on the business.

Include answers to question such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customers served, number of positive reviews, dollar value of loans arranged, etc.
• Your legal structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry analysis, you need to provide an overview of the loan industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the loan industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your strategy, particularly if your research identifies market trends.

The third reason for market research is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your loan business plan:

• How big is the loan industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential market for your loan business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your loan officer business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: parents, students, professionals, businesses, couples, families, prospective home buyers, prospective car buyers, contractors, etc.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of loan business you operate. Clearly, someone interested in purchasing a new car would respond to different marketing promotions than a business seeking equipment financing, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, include a discussion of the ages, genders, locations and income levels of the customers you seek to serve. Because most loan businesses primarily serve customers living in their same city or town, such demographic information is easy to find on government websites.

Psychographic profiles explain the wants and needs of your target customers. The more you can understand and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other loan businesses.

Indirect competitors are other options that customers have to purchase from that aren’t direct competitors. This includes commercial banks, online loan brokers, etc. You need to mention such competition as well.

With regards to direct competition, you want to describe the other loan businesses with which you compete. Most likely, your direct competitors will be loan officers located very close to your location.

For each such competitor, provide an overview of their businesses and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as:

• What types of customers do they serve?
• What types of loans do they specialize in?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you provide higher value loans?
• Will you offer lower interest rates on loans?
• Will you provide better customer service?
• Will you offer a wider variety of loan options?

Think about ways you will outperform your competition and document them in this section of your plan.  

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a loan officer business plan, your marketing plan should include the following:

Product : In the product section, you should reiterate the type of loan company that you documented in your Company Analysis. Then, detail the specific products you will be offering. For example, in addition to loans, will you provide insurance, financial advisory, or real estate services?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your marketing plan, you are presenting the services you offer and their prices.

Place : Place refers to the location of your loan company. Document your location and mention how the location will impact your success. For example, is your loan business located near a real estate brokerage, or car dealership, etc. Discuss how your location might be the ideal location for your customers.

Promotions : The final part of your loan officer marketing plan is the promotions section. This is perhaps the most important section of your plan. Here you will document how you will drive customers to your website and/or location(s). The following are some promotional methods you might consider:

• Advertising in local papers and magazines
• Reaching out to local websites
• Social media marketing
• Local radio advertising

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your loan business, including processing loan applications, arranging signings, marketing your business, paperwork, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to arrange your 100 th loan, or when you hope to reach $X in revenue. It could also be when you expect to expand your loan business to a new city.  

Management Team

To demonstrate your loan business’ ability to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally you and/or your team members have direct experience in managing loan businesses. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act like mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience as a loan officer or success being a local bank or credit union manager.  

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet and cash flow statements.

Income Statement : an income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenues and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you work on commission, or on a fee for services model? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets : Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your loan business, this will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a bank writes you a check for $50,000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement : Your cash flow statement will help determine how much money you need to start or grow your business, and make sure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit but run out of money and go bankrupt.

In developing your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a loan business:

• Location build-out including design fees, construction, etc.
• Cost of equipment and supplies
• Payroll or salaries paid to staff
• Business insurance
• Taxes and permits
• Legal expenses

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your office location lease or outline your strategic partnerships with local realtors and lenders.  

Putting together a business plan for your loan officer business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will really understand the loan industry, your competition, and your customers. You will have developed a marketing plan and will really understand what it takes to launch and grow a successful loan business.  

Loan Officer Business Plan FAQs

What is the easiest way to complete my loan officer business plan.

Growthink's Ultimate Business Plan Template allows you to quickly and easily complete your Loan Officer Business Plan.

What is the Goal of a Business Plan's Executive Summary?

The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of loan officer business you are operating and the status; for example, are you a startup, do you have a loan officer business that you would like to grow, or are you operating a chain of loan officer businesses?

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Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.   Click here to see how Growthink’s professional business plan consulting services can create your business plan for you.

Other Helpful Business Plan Articles & Templates

Micro Lending Business Plan [Sample Template]

By: Author Tony Martins Ajaero

Home » Business ideas » Financial Service Industry » Lending & Loan Brokerage Business

Are you about starting a micro lending business? If YES, here is a complete sample micro lending business plan template & feasibility report you can use for FREE .

Okay, so we have considered all the requirements for starting a micro lending business . We also took it further by analyzing and drafting a sample micro lending company marketing plan template backed up by actionable guerrilla marketing ideas for micro lending businesses.

What Does It Take to Start a Micro Lending Business?

Building a micro lending and mortgage business is not different from building a normal brokerage or loan business. Micro lenders may actually broker loans to small businesses without collateral, but they are different from brokers because they have the license and right to lend money to people seeking home financing.

Building your own Micro lending and mortgage business might seem or sound easier and the joy of creating your own hours and keeping your commissions may be very attractive. You may also avoid office drama and politics and plan your own advancement opportunities.

But bear in mind that handling some logistics properly will be very crucial to getting your micro loan business running successfully. This is why it is very important that you learn all the ropes of the business before you look at starting yours. There are many grey areas of the micro lending business that needs to be mastered.

One of the ways to get really conversant with the micro lending business is to carry out your own feasibility research. Also you may want to use a business plan template to learn all that the business involves. The cost of starting, how many employees you will need amongst many others. Here is a sample micro lending business plan;

A Sample Micro lending Business Plan Template

1. industry overview.

Even in hard economic conditions, people and enterprises go for loans to be able to pay for the purchase of real estate and other transactions, which in turn make the lending business a recession-proof business. But before going into the micro lending and mortgage business, you need to know the contours and crannies of this large industry.

The Micro lending and mortgage business is actually coming back from a drastic crash in the housing market, economic recession and also riding with the swelling competition from commercial banks within the five years to 2016. The Micro lending and mortgage industry revenue doubled prior to the recession because of the unequivocal consumer demand for credit and the popular use of a wide variety of micro options for previously unqualified borrowers.

Due to the steady and good improvements in the housing sector in the past few years, the micro lending and mortgage industry has moved its focus toward earning back its reputation. In the approaching years to 2022, the micro lending and mortgage industry it is believed to continue recovery due to raising economy, and the housing market will favourably help the industry’s growth.

The Micro lending and mortgage industry may also venture into a declining stage of its economic life cycle because of the competition they face from commercial banks which is becoming imminent. The industry value added (IVA), which actually decides the industry’s contribution to the overall economy, is expected to grow at an annual rate of 1.5% within the 5 years to 2022.

Earnestly, the US GDP is believed will grow at a yearly rate of 2.2% during the same period. All these figures explain that the industry’s share of the US economy is quietly declining. A

lso during the past 10 years, the immediate introduction of brand new products, including subprime mortgages, Alt-A mortgages and NINJA loans, and reduced lending standards supported demand for home loans, has explicitly injected a positive pressure on the need for micro lenders and brokers that have actually enjoy unlimited access to these products and to a enjoy variety of interest rates.

2. Executive Summary

Vanguard lenders LLC is an outstanding micro lending and mortgage firm that will be attending to the enormous needs of small businesses, real estate professionals, builders and individual home buyers. We have access to a full range of microfinance and we offer the right loan–with the best rates, terms and costs–to meet our prospective customer’s enormous needs.

Vanguard lenders LLC offers high-quality micro lending and mortgage services to residential and business customers. Our major aim is to provide our customers with substantial microloans at reasonable prices and rates, while also keeping our customers Informed and active throughout the process.

Vanguard lenders LLC will also strive to become friends and advisers to our customers as well as quality service providers. Vanguard lenders LLC is a good firm to work, a professional work environment that is challenging, rewarding, innovative, and respectful of our customers and employees ideas and plans.

Vanguard lenders LLC will unanimously provide excellent value to our customers and fair reward to its owners and employees. Vanguard lenders LLC is also a legally registered micro lending and mortgage firm which will be located in the City of Alexandria, Virginia.

We will be occupying a standard office facility in the business district of the city, giving us the suitable traffic to attract customers. We plan to mould Vanguard lenders LLC into the very best of Micro lending and mortgage firm and actually compete favourably in the industry.

Our business goal which is to take over the market completely may seem outrageous, but we are very positive that it will be realized because we have done an extensive research and feasibility studies and we believe we have dotted all our i’s and made all reasonable judgements to position Vanguard lenders LLC for the war to take over Virginia entirely.

Vanguard lenders LLC are capitalized by two principal investors, Mr John Taylor and Mr Alfred Garth. Both are well renowned in the lending industry with a combined experience of over 30 years in the industry.

3. Our Products and Services

We’re going to be offering a varieties of services within the parameters of the micro lending and mortgage services industry in the united states of America and of course on the global stage. We are well place to maximise profits in the industry and we plan to do all within the proximity of the law in the United States to achieve these goals, aim and ambition. Our business offering are listed below;

• Offer loans to small businesses
• Providing residential mortgages
• Providing commercial and industrial mortgages
• Providing home equity loans
• Providing equipment loans
• Providing vehicle loans
• Providing residential mortgages loans online
• Providing mortgage financing online
• Providing home equity loans online
• Providing an online mortgage marketplace
• Providing other related loan cum mortgage consulting and advisory services

4. Our Mission and Vision Statement

• Our vision is to build loan services brand which will become the lead choice for individuals, smaller businesses and corporate clients in the whole of Virginia.
• Our vision shows our zeal, values, integrity, security, service, excellence and teamwork.
• Our mission is to provide professional, reliable and trusted microloan services that assist individuals, start – ups, corporate organization, and non-profit organizations in achieving their goals with little or no stress .
• We will build our business to become one of the leading firms in the micro loan services line of business in the whole of America, starting with Alexandria Virginia.

Our Business Structure

Vanguard lenders LLC is a micro loan service firm that we hope to grow big in order to compete favourably with leading microloan service firms in the industry both in the United States and on a global stage. We understand the need to create a solid business structure and hire capable hands that will aid in making Vanguard lenders LLC the best among the best.

The sort of loan services we hope to build and the great goals we want to achieve is what moved us to choose the list of offices and individuals we need to hire. We believe that these portfolios will be filled with well experienced and learned individuals, who understand the do and don’ts of the lending market.

We also hope to hire people that are qualified, hardworking, and creative, result driven, customer centric and are ready to work to help us build a prosperous business that will benefit all the stake holders (the owners, workforce, and customers).

Chief Executive Officer

• Business consultant

Human Resource and Admin Manager

• Sales and Marketing director
• Company accountant

Receptionist

5. Job Roles and Responsibilities

• The Chief Executive Officer will be responsible for providing work direction for the business
• He will be responsible for building, communicating, and implementing the vision, mission, and direction of Vanguard lenders LLC – which also includes leading the achievement and implementation of all strategies.
• The Chief Executive Officer is also in charge of fixing prices and signing business deals for the business
• He is also responsible for employment
• He also pays workers salary
• He signs checks and documents for and on behalf of the agency
• The Chief Executive Officer also Evaluates the success of the organization

Business Consultant

• Will be in charge of providing residential microloans
• Responsible for providing commercial and industrial microloans
• Will be obligated to provide home equity loans
• Also provides equipment loans
• Charged with providing vehicle loans
• Is also in charge of fixing micro and mortgage financing online
• The business consultant is also charged with fixing home equity loans online
• Provides an online micro and mortgage marketplace for the company
• Also responsible for providing mortgage related loan cum lending consultancy
• Oversees the running of HR and administrative tasks for Vanguard lenders LLC
• In charge of Monitoring office supplies by checking stocks; placing and expediting orders; evaluating new products.
• Makes sure of the operation of equipment by completing preventive maintenance requirements; calling for repairs.
• Is tasked with staying updated on job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations.
• Builds the reputation of the firm by accepting ownership for accomplishing new and different requests; exploring opportunities to add value to job accomplishments.
• Tasked with stating job positions for recruitment and managing interviewing process
• Responsible for organising staff induction for new team members
• Tasked with organising trainings, evaluation and assessment of employees
• Responsible for arranging travel, meetings and appointments
• Tasked with overseeing the smooth running of the daily office activities.

Sales and Marketing Director

• Responsible for organising external research and coordinating all the internal sources of information to retain the organizations’ best customers and attract new ones
• Responsible for creating demographic information and analysing the volumes of transactional data generated by customer purchases
• Expected to understand, prioritizes, and reaches out to new partners, and business opportunities et al
• Tasked with understanding development opportunities; follows up on development leads and contacts; participates in the structuring and financing of projects; assures the completion of development projects.
• It’s the job of the director to supervise implementation, advocate for the customer’s needs, and communicate with clients
• The sales and marketing director is also charged with creating, executing and evaluating new plans for expanding increase sales
• Keep all customer contact and information
• Represents the company in strategic meetings
• Aid to increase sales and growth for the business

Company Accountant

• The company accountant is responsible for preparing financial reports, budgets, and financial statements.
• Also provides the managements with financial analyses, development budgets, and accounting reports; analyses financial feasibility for the most complex proposed projects; conducts market research to forecast trends and business conditions.
• The company accountant is also tasked with the company’s financial forecasting and risks analysis.
• Should be able to understand and take care of the firm’s cash management, general ledger accounting, and financial reporting
• In charge of developing and managing financial systems and policies
• The company secretary is also responsible of administering payrolls
• Ensures that Vanguard lenders LLC complies with taxation legislation
• Also take care of all financial transactions for Vanguard lenders LLC
• Is the internal auditor for the organization
• The receptionist is expected to welcome clients by greeting them in person or on the telephone; answering or directing inquiries.
• Is tasked with providing all clients with a personalized customer service experience of the highest level
• Is expected to use every opportunity to build client’s interest in the company’s products and services
• Responsible for managing administrative duties assigned by the Admin manager in an effective and timely manner
• Beware of any new information on the company’s products, promotional campaigns etc. to ensure accurate and helpful information is supplied to clients
• The receptionist will also Receives parcels / documents for the company
• It’s tagged with Distributing mails in the organization
• Handles any other duties as assigned by the Admin manager
• Responsible for the cleaning the floors of Vanguard lenders LLC facility
• Keeps note and make sure the toiletries and supplies don’t run out of stock
• Ensures that both the interior and exterior of the firm are always clean
• Handles any other duty as assigned by the restaurant manager.

Security guard

• The security guard is responsible for protecting the firm and its environs
• Also controls traffic and organize parking
• He is Tasked with giving security tips when necessary
• Should also Patrol around the building on a 24 hours basis
• Will be expected to give security reports weekly

6. SWOT Analysis

We at Vanguard lenders LLC are prepared to build a super– structured microloan services firm that can take over the entire microloan service industry. Which is why we inculcated the help of well known consultancy firm, a firm known for its strict and precise way of doing business and also renowned for offering the best when contacted.

We contacted Brick Lewis Financial consults to help us with a SWOT Analysis in our designated business location and long term goals. Brick Lewis financial consults being the best in what they do, involved the management of Vanguard lenders LLC in conducting a SWOT analysis.

Here is a summary from the result of the SWOT analysis that was conducted for Vanguard lenders LLC by Brick Lewis financial consults;

It was literally noted that the strength of Vanguard lenders LLC doesn’t really rest on our fierce business network with other financial lending institutions, professional brokers in the industry or players in the real estate industry, but on the capacity, vision and experience of our team.

Vanguard lenders LLC has a team that are prepared to offer our clients the very best; a team that is well placed, professional and ready to pay attention to details and to maximise financial profits for the business. Vanguard lenders LLC are also positioned in a city with more family values and acknowledgement for each other, which will serve as a force to move our business to its destination.

Brick Lewis Financial consults believe our weakness would be how easy we break into the market and gain acceptance since we are just a new firm, especially from corporate clients in the already saturated micro lending and mortgage industry; that is perhaps our major weakness. But we’re positive that our publicity and advertisements would aid us in this aspect.

Opportunities

The opportunities in the lending industry is very big and daring, going by the size of people, business start ups and without doubt corporate organizations who are all in need of microloans to aid them reach their individual goals and vision.

Vanguard lenders LLC being a standard and well – positioned microloan services firm, we are well – prepared and ready to clamp any opportunity that comes our business path within the proximity of the law in the United States.

Brick Lewis Financial consults believes that most of the threats that we at Vanguard lenders LLC are likely to face as a microloan service firm operating in the United States will be unfavourable government policies, the introduction of a competitor within our location of operations and global economic downturn which usually affects purchasing / spending power.

It was also envisaged that we should beware of huge losses in three situations: due to sharp, sustained increases in interest rates, accounting control fraud, or the collapse of hyper-inflated residential real estate bubbles. So, to mitigate these threats, we have induced the use of credit scoring software like and we hope and are well prepared to use else any of these threats to our own advantage.

7. MARKET ANALYSIS

• Market Trend

We all know and understand how massive and enormous the microloan services industry is and of course it is one industry that works for individuals and businesses across different industries.  A lot of people depend on the services provided by the industry to empower themselves and businesses, showing how important and helpful this industry has been and will still remain.

The micro lending and mortgage industry flows with a low level of capital intensity. It is believed that for every $1.00 spent on wages, the micro lending and mortgage industry will allocate $0.08 in capital investment. This 2016 figure indeed shows a slight increase from $0.05 in 2011.

The micro lending and mortgage industry gives loans to businesses, agencies and individuals by raising funds in the secondary market. These businesses will continue to perform these functions without depending on significant capital expenditure.

Most of the capital expenditure for the lending business is related to computers and technology used to process loans and store information. We expect the increase in the investment in technology infrastructure in the micro lending and mortgage industry, particularly delivering online services.

It is sincerely true that without the services of the loan services industry, most individuals and even start – up businesses will find it hard to access loan or save – up to purchase a property. The lending industry is explicitly responsible for helping individuals and businesses bypass the bureaucracies involved in obtaining loans from banks and other financial institutions et al

Within the past few years, the lending industry has aided in reducing unemployment in the United States and has also boosted the revenue generated in the United States. So also, the microloan service industry has benefited from the advancement of online platforms.

Moving higher, increasing product penetration and of course an expanding customer base is expected to drive growth in the industry.

8. Our Target Market

The lending industry is an industry that has without doubt aided a lot of individuals, companies and start ups. At Vanguard Mortgages, we will first and foremost serve small to medium sized business, from new ventures to other bigger businesses and individual clients, we hope to take the market one step at a time and without much notice take over the market quickly.

Vanguard lenders LLC being a standard micro lending and mortgage  business will capitalize on the  large variety of microloan service and other industry related services we wish to offer, hence made sure all are employees are well trained and equipped to serve a diverse range of clientele base.

Vanguard lenders LLC target market will slice across businesses of different sizes and individuals. We believe our business is equipped with a breath taking business concept that will help us work with individuals, small businesses and bigger corporations in Alexandria, Virginia and all other cities in the United States.

Outlined below is the list of businesses and organizations that we have categorically designed our products and services for;

• Small businesses
• Individuals and interested homeowners
• Real Estate companies and investors
• Nongovernmental organizations
• House of worships and other religious organizations
• Educational institutions
• Corporate companies

Our Competitive Advantage

We at Vanguard lenders LLC understands explicitly the level of competitive in the microloan service industry, and due to our extensive research and planning, we should be able to penetrate the market and offer our prospective clients with easy to access microloans; thereby deleting the hard and long process needed to obtain loans from the bank and other financial institutions.

Vanguard lenders LLC might be a new micro lending and mortgage business in the United States of America lending industry, but it cannot be denied that the workforce and owners of Vanguard lenders LLC are considered micro lending and mortgage industry gods.

Right from the primary foundation of the business, who are the owners, up to the very height of our employees are core professionals, well trained and highly qualified microloan consultants in the United States. This is a fact that will push us ahead of competitors in the lending industry.

We also help to create a comfortable business environment for our employees and also inculcate them into the business by offering work bonus and loyalty bonus which will be calculated with more or less 10 years duration, which will push them to give their all and stay loyal to the business, and also help us to build a classic business that will be the topmost micro lending and mortgage business in the whole of United States.

9. SALES AND MARKETING STRATEGY

• Sources of Income

A vanguard lender LLC was founded to become the lead player in the micro lending and mortgage loan field. We also hope to bring in good and substantial profit, while also giving our customers and satisfaction they deserve to achieve their goals and targets.

We plan to generate income by offering the following microloan services for individuals, real estate companies, NGOs and for corporate organization. We plan to maximise profits and get substantial incomes by offering the following services;

10. Sales Forecast

We at Vanguard lenders LLC actually understand how hard and the rigorous process people go through to obtain loans from banks and other financial institutions, we hope to make this process less tough and create a substantial base of happy and satisfied clients.

This goes to show that the potential to generate income for the business cannot be ruled out. Vanguard lenders LLC was established to lead the war against poverty and we hope to make it the best of the best, and on our online platforms and we are very positive that we will meet our set target of getting substantial income / profits from the first six month of work and grow the business and our clientele base within and outside Virginia

After our extensive market research and with the help of the various consultancy firms we employed, we came out with our sales forecast for the next three years. The sales forecast was calculated and planned based on information gathered on the field and some assumptions that are common with new entrants in the Industry.

Outlined below is a detailed sales forecast for Vanguard Mortgages, which we believe and hope we will surpass with hard work and perseverance. This sales forecast is also based on the location of our business and the innovative business we will be offering to our clients.

• First Fiscal Year -: $750,000
• Second Fiscal Year -: $1.4 million
• Third Fiscal Year -: $3.2 million

Note : The above forecast was done based on what can be gotten in the industry and with the expectation that there won’t be any major economic meltdown and natural disasters within the next three years in the whole of Virginia.

We also hope there won’t be any fierce competitor offering all the services we hope to offer to our customers in Alexandria Virginia. It will also be worthwhile to note that the above forecast might be lower and at the same time it might be higher.

• Marketing Strategy and Sales Strategy

We all at Vanguard lenders LLC are very much aware of the threats and strict competition in the micro lending and mortgage business, and we have devised our strategic means to win and suppose them. This may include hiring the best hands for the job and also creating a more attack minded marketing plan.

Our sales and marketing director will be employed based on his/her undeniable experience and innovative competition winning mind-set in the industry and we hope to train him or her extensively with other sales and marketing workers to be prepared and well equipped to meet their targets and the overall goal of Vanguard Mortgages.

We also hope to make sure that our genuine and businesslike approach speaks volume for us in the industry; we also plan to build a business that will use or employ the use of customer satisfaction to boost our client base.

The major goal of Vanguard lenders LLC is to grow a business that will be considered the very best in Virginia and one of the top 5 micro lenders in the United States of America which is why we have after much consideration and research outlined strategies that will help us lead of the Alexandria market and grow to become a major force to consult with in Virginia in the next two years.

We hope to make use of the listed strategies to build our business and become the war Vanguard for the battle against economic recession;

• We plan to introduce Vanguard lenders LLC by sending introductory letters with our business brochure to individuals, households, corporate organizations, schools, players in the real estate sector, and all the people of Alexandria.
• We also plan to advertise Vanguard lenders LLC in important financial and business related magazines, newspapers, TV stations, and radio station.
• We also plan to Vanguard lenders LLC on yellow pages ads (local directories)
• We also plan to attend important international and local real estate , finance and business expos, seminars, and business fairs et al
• We also hope to Create different packages for different category of clients (individuals, start – ups and established corporate organizations) in order to work with their budgets
• We also plan to make use the internet to promote our business
• We hope to encourage word of mouth marketing from loyal and satisfied clients

11. Publicity and Advertising Strategy

Vanguard lenders LLC have also contacted the service a renowned firm that is known for its legit ways of boosting a company’s brand awareness, to help us create publicity and advertising strategies that will aid us to attract and keep our target market, and also make our presence known and felt by all and sundry.

We also want to take Alexandria Virginia by storm with our undefiled publicity and advertising strategies. Listed below is the summary of capable strategies suggested by Artwork business consult for Vanguard Mortgages;

• We hope to place adverts on both print (community based newspapers and magazines) and electronic media platforms; we will also advertise Vanguard lenders LLC on financial magazines, real estate and other relevant financial programs on radio and TV
• Vanguard lenders LLC will also sponsor relevant community based events / programs
• We also plan to make use of various online platforms to promote the business. This will make it easier for people to enter our website with just a click of the mouse. We will take advantage of the internet and social media platforms such as; Instagram, Facebook , twitter, YouTube, Google + et al to promote our brand
• We also plan to mount our Bill Boards on strategic locations all around Albany – New York.
• We at Vanguard lenders LLC also plan to engage in road show from time to time
• We also plan to distribute our fliers and handbills in target areas all around Alexandria
• We plan to make sure that all our workers wear our branded shirts and all our official vehicles are well branded with our company’s logo et al.

12. Our Pricing Strategy

We all at Vanguard lenders LLC understand that the industry is moved by the increase in demand and availability of real estate / properties which is why there can never be a price model that will be suitable for the lending industry. As we all know, the prices for properties fluctuates on a regular basis.

We are also aware that most lending firms rely on commissions since they serve as middlemen between those seeking for microloans and the secondary financiers but we hope to create a more direct approach by offering those loans ourselves which can be very possible due to the large incentives our founders are willing to inject.

We hope to keep the prices of our services and commissions at Vanguard lenders LLC below the average market rate for our clients for the maintime.

We also hope to provide them with loans coupled with low interest rates that will bring them closer to the firm, and we hope to move our prices a little higher when we have achieved a substantial corporate identity in the micro lending and mortgage industry.

• Payment Options

We plan to provide various a wide varieties of payment options to suit our clients at Vanguard Mortgages. We understand the need and the diverse countenances of people, and the way they understand and process things differently, and we tend to provide a suitable platform that will suit all and sundry equally. Listed below are the payment options that we will make available to Vanguard Lenders LLC.

• Payment through bank transfer
• Payment through online bank transfer
• Payment with check
• Payment with bank draft
• Cash payment

With reference to the above platforms, we have chosen a well renowned bank in the United States to aid in our business.

We have chosen and opened a corporate current account with Capital one financial Corporation. Our bank account numbers will be made available in website and promotional materials to clients who may want to make cash deposit and it will also be given explicitly to clients on request.

13. Startup Expenditure (Budget)

We at Vanguard lenders LLC understand that starting a Micro lending and mortgage Business is not an easy task especially due to its capital constraints; this is because you are not expected to acquire expensive machines and equipment, be capable to provide loans and solve other issues and legal proceedings.

Also one need to be concerned about is the enormous amount needed to acquire or lease a standard office facility in a good and busy business district, the price needed to acquire furniture and equip the office, the money needed to purchase the required software applications, the needed to pay bills like phone bills and water bills, obtain license, advertise the business. Outlined below is a detailed financial projection and costing for starting Vanguard Lenders LLC;

• Price of incorporating the Business in the United States of America – $750.
• Our budget for basic insurance policy covers, permits and business license – $200,000
• Acquiring a suitable Office facility opposite the city hall of Alexandria, Virginia (Re – Construction of the facility inclusive) – $75,000
• The budget envisaged for capitalization (working capital) – $1million
• Budget for settling other legal processes (acquiring business license and all, all Alexandria Virginia city dues et al) – $2,500
• Equipping the office with suitable and standard equipment(computers, software applications, printers, fax machines, furniture, telephones, filing cabins, safety gadgets and electronics et al) – $7,000
• Purchasing of the required software applications (CRM software, Accounting and Bookkeeping software and Payroll software et al) – $10,500
• Launching Vanguard lenders LLC official Website – $600
• Our expenditure for paying at least three employees for 3 months plus utility bills – $12, 000
• Other Additional Expenditure (Business cards, Signage, Adverts and Promotions et al) – $4,000
• Miscellaneous: $10,000

With the above detailed cost analysis of starting a Micro lending and mortgage  Business, it is understood that we need $1,322,350 to successfully set up Vanguard lenders LLC which is a large scale micro lending and mortgage  business.

Generating Funding / Start-up Capital for Vanguard lenders LLC

Vanguard lenders LLC is a well licensed and registered Micro lending and mortgage business which is capitalized by two principal investors, Mr John Taylor and Mr Alfred Garth. They are the founders and financiers of the business and hope to remain so for now, with hope to accept partners at a very ripe and mature stage in the business.

Due to less constraint in financing Vanguard Mortgages, we have outlined the few ways we can acknowledge funding and start up capital. These was may include;

• Generate part of the start up capital from the two principal investors
• Accept soft loans from family members and friends
• Agreeing to angel investors
• Apply for business loan from my Bank (if need be)

Note : Vanguard lenders LLC has been able to generate an enormous $1.4 million from its two principal investors, who aligned and individually prune out $700,000 each. We believe that the amount is substantially enough to run the business for the first three months, which by then we expect to sustain the business by the cash and incentives generated from our business proceedings.

14. Sustainability and Expansion Strategy

Every business wants to expand and stand the test of time, and this achievement lies in the number of loyal customers in their clientele base and the competence of the employees, investment procedures and the business structure they choose. A business without these mentioned criteria is not business but a playground that will end even before it starts.

Vanguard lenders LLC was established to spread its wings across the sky of Virginia, and also expand and fly all through the nick and crannies of the United States, clamping and taking over the market in each turn. We believe with our unique business structure and competent hands, we will be able to start surviving with the cash we make right from the second month of operations.

We also understand that one of the strategies of gaining approval and winning customers over is to offer innovative services to our customers at a cheaper than what is obtainable in the industry and we have made plans to survive and compete favourably within those periods.

We all at Vanguard lenders LLC will ensure that we employ the right foundation, structures and processes, and also make sure that our employees starting from our guards up to our investors are well catered for. We hope to create a family in the firm, that value work ethics, same zeal and goal to move Vanguard lenders LLC to its expected height.

We also plan to employ profit-sharing arrangement which will enable our management staff enjoy the fruit of their labour.

This arrangement will be decided upon during a considerable duration of 5 years and upon decision of the board of the organization. With these and many more attractive employees focused incentives, we hope to hire and retain employees that are the best in any field they are hired for.

Check List / Milestone

• Business Name Availability Check: Completed
• Business Incorporation: Completed
• Opening of Corporate Bank Accounts various banks in the United States: Completed
• Opening Online Payment Platforms: Completed
• Application and Obtaining Tax Payer’s ID: In Progress
• Application for business license and permit: Completed
• Purchase of All form of Insurance for the Business: Completed
• Conducting Feasibility Studies: Completed
• Leasing, renovating and equipping our facility: Completed
• Generating part of the start – up capital from the founder: Completed
• Applications for Loan from our Bankers: In Progress
• Writing of Business Plan: Completed
• Drafting of Employee’s Handbook: Completed
• Drafting of Contract Documents: In Progress
• Design of The Company’s Logo: Completed
• Graphic Designs and Printing of Packaging Marketing / Promotional Materials: Completed
• Recruitment of employees: In Progress
• Purchase of the Needed software applications, furniture, office equipment, electronic appliances and facility facelift: In progress
• Creating Official Website for the Company: In Progress
• Creating Awareness for the business (Business PR): In Progress
• Health and Safety and Fire Safety Arrangement: In Progress
• Establishing business relationship with banks, financial lending institutions, vendors and key players in the industry: In Progress

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Loan Proposal

Proposal maker.

Entrepreneurship is a challenging field, but it’s a lucrative venture. If you’re hoping to establish a startup and work your way from the ground up, you will need all the funding you can get. If you’re applying for a personal loan to start a small business , you need a loan proposal to help you. A financing proposal will comprise all your plans and purposes on why you intend to apply for a loan request. It contains your business objectives as well as a fact-based reason why you deserve your business’ loan request approval.

13+ Loan Proposal Examples

1. business loan proposal template.

• Google Docs

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3. Loan Proposal for Startup Template

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14. Loan Fund Proposal

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What Is a Loan Proposal?

A business loan proposal is a required document when going through a loan application prepared by aspiring borrowers. It includes not only the details of their loan but also their business description where they intend to use the money. Lenders demand a loan proposal to see if the loan candidate can pay for the credit and fulfill the loan agreement , and if his or her purpose is reasonable enough for a loan release.

How to Write a Loan Proposal

Development needs funding, and sometimes, even when your business is doing so well, there’s not just enough for expansion or building a new branch or a manufacturing facility. That and some other valuable purposes are among the  viable reasons to take a business loan . The idea of a huge financial burden might be intimidating, but with the right management, they can result in great profits.

Before that happens, you need a good loan proposal to back you up. Here are some guidelines to help you:

1. Start with a Comprehensive Executive Summary

To introduce yourself and your purpose, start your proposal with a comprehensive executive summary . An executive summary employs the characteristic of a cover letter that contains you and your business’ introduction. This will help whoever will review your proposal to identify who you are easily and the nature of what you do. You can include in the summary a brief description of your business, whether or not you’re a veteran in the field or finding ways to build a new business . State the reason why you’re appealing for a loan and how it will help you achieve your objectives.

2. Provide a Business Profile

Loan requests are a big deal. Lenders and bankers need to know that the person coming to them for help is credible and trustworthy. A copy of your company profile will add significant value to the validity of your appeal. Your business profile should include a summary of your business activities and the products or services that you put out into the market. It should also provide a narrative of your target customers and the marketing strategies that you use. In many ways, your business plan contributes to the most reasons why you need loan approval.

3. State Your Loan Request

Clearly state how much you want to borrow and how you exactly plan to use the money. General statements such as “I want to raise my sales, and an added fund would help me” won’t make the cut. Be specific. How will you raise your sales through additional funding? Will you buy more equipment and increase your production? Are you building another factory because your demands are piling up? This should come in detail as the bank won’t be content with a mere statement. Provide documents showcasing your intentions and the cost it entails. Present your need by showcasing facts and a promising plan waiting to happen.

4. Introduce a Proof That You Can Pay

A business loan proposal constitutes a huge sum of money. Without any repayment assurance, your bank would probably give you a negative result. Show them how you plan to pay your loan according to your agreed timeline . Provide a copy of your income statement , projected cash flow , and budget sheet , and explain how you will customize your financial plan in order to repay the loan. A concrete plan will help you provide them with a perspective on how you will manage your debt.

FAQ’s

What are the elements of a loan proposal.

A loan proposal has numerous elements, but they are generally classified as loan description, business description, financial statements , and references.

What supporting documents does your loan proposal need?

A loan proposal needs the support of a business plan, profit and loss statement , cash flow statement, balance sheets, and financial projections.

What are viable collaterals for a personal loan?

Among the most common types of viable collaterals for a personal loan are real estate properties , vehicles, home equity, cash, savings account, and investments.

Fulfilling your business objectives requires you to overcome some of your life’s most challenging obstacles. This includes getting your loan proposal’s approval. It’s not easy, and there’s a lot of considerations that go into the planning and making of your proposal presentation. If you’re thinking about doing it to enhance your business operations , here’s your cue—do it! Start with a selection of our solid loan proposals. Make the most out of a great day and download now!

Text prompt

• Instructive
• Professional

Generate a proposal for a new school recycling program

Compose a proposal for a school field trip to a science museum.

Sample Micro Money Lending Firm Business Plan

• January 10, 2024

MICRO MONEY LENDING BUSINESS PLAN SAMPLE

Starting a money lending business does not have to be an impossible idea. You will discover that my claims are not fraudulent if you can take your time to read through this post.

Most commercial banks make money in two major ways.

They give out grants and small business loans at particular interest rates, for instance, AB – MFB Microfinance Start-up loans. They also lend money to investors using funds that you deposit with them through cash, check deposit, or electronic money transfer.

I won’t be referring to commercial banks’ subsidiary functions like giving out credit letters and Forex transactions.

GUIDE: HOW TO START A LOAN COMPANY

CASH LOAN BUSINESS PLAN – LENDING BUSINESS IDEAS

The truth is most of these functions are too technical for your own money lending business. The good news is many lending business ideas would be able to receive cash and give out advance money and will duly be registered. Here is how to open a small money lending business.

What Do I Need To Start A Money Lending Business

– Education – Passion – Close Monitoring – Capital Base (Less Than 100k)

How To Set Up a Money Lending Business

It is difficult to start your own money lending business that caters to the whole country considering your current resources. This is the reason you should think about localization. You will later need an official base where new and existing clients can come to get their issues sorted out.  The place must be conspicuous, accessible, and presentable.

Good affordable furniture and a PC with the necessary money lending business software installed are important too.

How To Register A Money Lending Business

You will need to get your business register and secure the appropriate license. The requirement for lending out funds are country-specific but are generally lesser than those for establishing commercial and micro-finance banks.

Who Should I Target?

Since you don’t have what it takes to lend to big companies and corporations like P&G, MTN, BAT, SHELL, and others; you should target those investors and individuals at the bottom of the economic pyramid. Small salary earners, petty investors, market women, and artisans are a good market to generate a client base for your money lending business.

What Is The Best Money Lending Business Strategy?

Although there is no shortage of customers for the money lending business, you cannot take on everybody. This is due to what is called credit appraisal. To take care of the fund receipt and repayment process, each client should be made to deposit at least 20% of the loan sought. To protect your money, enable daily and weekly loan repayment and these people have a high tendency to become less aware of their obligations after receiving the loan.

Studying trends of operations and advertising in micro-finance banks and using it to develop marketing strategies for money lending business is recommended. You don’t have to hire a lot of people for a start. As your money-lending business expands its capital base, you would need to employ more people to do the footwork. If you want to start with say 90k, loan out 20k to each client. That is like 4 clients already. Don’t make the mistake of giving out all your funds at once. No business ever does that.

Call it whatever you like. Giving out loans as money lending business ideas, I call it smart banking 🙂

MONEY LENDING BUSINESS PLAN EXAMPLE

Here is a sample business plan for starting a micro-lending company.

If you are reading this, then I will agree that you are interested in starting a money lending business. So many have gone into this business and have greatly improved their status and their lifestyle, and in a very large way, they have helped those making use of their services.

Money is an essential part of living, sad though, humans will not always have the exact amount needed, and at such moments, they might need to borrow to sort the urgent situation they are in out, as a moneylender, that’s where your work comes in.

The way humans look at the idea differs, some see it as a good option, while others see it as something bad. Either way, only those who have once tried it can agree that the money lending business is a very good one.

The reward of starting a money lending business is unimaginable, your interest will keep growing, and you will always have people who need your services, some will pay back before the expected day; still, you will get your complete interest.

In this article, we are going to provide you with a guide that will help you in your endeavor to write your award-winning money lending business proposal sample which will help you get reasonable and willing investors to back your business up.

Here are the essential subheadings that must be included in your business plan to make it an award-winning and complete business plan.

• The Introduction Or The Overview Of The Industry

The Executive Summary

• Risk And Strength Analysis

The Market Analysis

The Competition

• The Sales And Marketing Strategy
• Financial Analysis And Forecast
• Sustainability And Expansion Strategy

Let us now discuss in detail how you can develop each of these points to get a unique business plan

Overview Of The Industry

The introductory part of the business plan is the part where you will be writing about the entire shape of the local and international money lending business, in this part, you need to provide a brief history of the money lending industry.

In this section of your money lending business plan, you will need to provide brief information about the company and the people setting it up. In this section too, you will need to provide the vision of the company as this helps your investors to see if there are plans for the future or not. Most prefer using terms like ‘’ to become a leading brand in the world’’

Your business mission will also be discussed in this section as this very important if you will get reasonable investors for your business. Your business structure is also fundamental, and as such it will be discussed in this part. Your structure will go a long way in defining your future so you must develop this very well.

The key roles to be filled will include Chief Executive Officer (CEO), Accountant, Sales, and Marketing Agent, Receptionist, etc.

Risk and Strength Analysis

In this section of your business plan, you will need to write about your understanding and analysis of your Strength, Weakness, Opportunities, and Threats This is popularly referred to as the SWOT ANALYSIS.

Your strength might involve the latest technology that will help you run a secure money lending business; your threats might be the effect of economic instability or late payment on the part of the borrowers.

This part is one of the essential parts of your business plan. The market analysis segment will prepare you for what you will meet in the money lending market. Your understanding of the business will be brought to the test to see if you have the basic needed understanding. There are trends that the market follows, some forces that define the activities of the market, the role of the economy, and the government in the business.

In this part, you will define your target market, those who will be using your services. Your services will be need by virtually everyone especially students, business owners, industries amongst others.

In this section, you will need to show that you understand the level of competition in the market, and your plans to succeed in the light of these competitions. Your competitive advantage will also be discussed. Your competition might include banks offering loans.

The Sales and Marketing Strategy

In this section, your strategy for advertising and publicizing your business to people both far and wide will be scripted, those mediums like social media, use of news media, and another advertising medium will be discussed.

Your interest rate or how much people will be charged for using your services will also be discussed.

Financial Analysis and Forecast The finance part of your business is very important. For that reason, you need to take this part seriously. Your source of income and the expected income will also be discussed. Other important points include your expenses and the total cost to be incurred, your projected profit for a set period (usually within 5 years)

Sustainability and Expansion Strategy

Your plans to and expand your money lending business will be discussed in this part.

At this point in your money lending business plan, you will be expected to summarise the entire content of the business plan and also include your concluding remarks.

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How to Navigate Starting a Business with Student Loan Debt

If your fixed monthly bills include a student loan payment, you're one of the more than 43 million Americans who have federal student loans, or roughly 13% of the total population in the U.S. In fact, national student loan debt totals $1.73 trillion and the average public university student borrows $32,637 to attain a bachelor’s degree. [1]

These numbers may feel eye-opening, they shouldn’t deter emerging entrepreneurs from pursuing their dreams of business ownership. While it's generally not advisable to take on more debt than you can handle, managing financial obligations may help sharpen your business acumen, offer opportunities for more advanced budgeting, and help you identify business financing options.

Take new dental and medical practices, for example. There’s a lot of education, testing, licensing, residencies and on-the-job experience that goes into becoming a medical doctor or a dentist. And because the courses and requirements are rigorous, many students take on student loan debt.

With an average student debt load of about $251,000, [2] new grads often start their dental or medical practices weighed down with a large volume of outstanding loans. The benefits may outweigh the challenges as those new grads vie for higher incomes, greater career freedom and the chance to build practices that align with their individual visions.

The same can be said for the budding entrepreneurs who set their sights on being their own boss, pursuing a passion, building wealth or making a difference (e.g., solving problems, addressing social causes or creating positive change).

Explore Your Options

Entrepreneurs with student loan debt can still successfully pursue their great business ideas. Here are some options for entrepreneurs who are in this position and looking to start a new business:

Personal finances or current employment. About 78% of new entrepreneurial ventures are self-funded, according to SCORE. Nearly half (42%) had about $5,000 in cash reserves and 49% started with over $10,000 in funds. [3] These bootstrapping entrepreneurs didn’t let their current debt loads stand in their way; they decided to get resourceful, which means you can too.

Alternative student loan repayment options. Here are some ways to whittle down or even eliminate student loan payments during your company’s startup phase: 

• Income-driven repayment plans effectively “cap” payments as a percentage of your current income. This can reduce your loan payments during your company’s startup phase, when it’s not producing any revenues yet.
• You can use student loan refinancing on private loans. Your income and credit score will be considered during the refinancing process. It's important to note that both federal loans and private student loans can be refinanced into a private student loan refinance product, yet federal loan benefits may be lost in the process.
• If you qualify, you may also consider student loan forbearance , which is a temporary pause of your loan repayments, during which time interest will continue to accrue. Forbearance programs are available for both private and federal student loans.
• You may also want to explore debt consolidation , whereby you consolidate multiple loans into a single loan. This may simplify your repayment process and could potentially save you money via a lower interest rate. For example, the Federal Direct Consolidation Loan program requires an application and allows borrowers to select the loans they want to consolidate and select a new monthly repayment plan.
• Business financing. Banks like PNC offer a wide range of business financing options, some of which require no collateral. For example, the bank offers lines of credit from $2,000 - $100,000 with variable interest rates on an unsecured basis. It also offers SBA loans that are typically more flexible—both in terms of structure and terms—and generally requires lower down payments than conventional loans. PNC has a history of helping business customers match their financing needs with the appropriate SBA lending program.
• Continuing education. There are many free and low cost educational resources, webinars and workshops available online, where you can equip yourself with the skills needed to get your business on the fast track to generating revenue — allowing you to continue your education without adding to your current student debt load. Consider building your knowledge base by exploring free courses targeted at your industry, joining a low-cost entrepreneurial program, or attending networking events. 
• Business grants. Uncle Sam offers several types of grants specifically for small businesses. Start your search for federal government grants at Grants.gov. This government site offers the most comprehensive database of funds the government is going to give away. There are thousands of grants to apply for and opportunities for a wide range of businesses.

Follow Your Entrepreneurial Path

Building a new business from scratch is never easy, but it’s particularly daunting for someone who has student loan debt. You can conquer these fears by identifying cost savings, using an auto-pay program and always making timely loan payments. Additionally, you might aim to reduce your spending on nonessentials and use discretionary income to build up your savings.

It’s also smart to have an emergency fund that will cover at least six months' worth of necessary expenses. This will help you work through any “unprofitable” periods and help address some of the “startup stress” that’s a natural part of being a new business owner.

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Important Legal Disclosures and Information

1. Student Loan Debt Statistics, Education Data Initiative, https://educationdata.org/student-loan-debt-statistics#:~:text=Student%20loan%20debt%20in%20the,have%20federal%20student%20loan%20debt. 2. Hanson, Melanie, Average Medical School Debt,https://educationdata.org/average-medical-school-debt#:~:text=The%20average%20medical%20school%20debt,school%20graduates%20have%20educational%20debt 3. Weston, Bridget, How Do Entrepreneurs Finance Their Startups?,https://www.score.org/resource/blog-post/how-do-entrepreneurs-finance-their-startups 

PNC and PNC Bank are registered marks of The PNC Financial Services Group, Inc. ("PNC").

All loans, lines of credit and PNC Bank credit cards are subject to credit approval. Requires automatic deduction from your PNC business checking account. Other fees and charges may apply. May be subject to a property appraisal.

These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions. This site may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.

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How to create a cash flow projection (and why you should)

For small business owners, managing cash flow (the money going into and out of your business) can be the difference between a thriving, successful company and filing for chapter 11 (aka bankruptcy).

In fact, one study showed that 30% of businesses fail because the owner runs out of money, and 60% of small business owners don’t feel knowledgeable about accounting or finance .

Understanding and predicting the flow of money in and out of your business, however, can help entrepreneurs make smarter decisions, plan ahead, and ultimately avoid an unnecessary cash flow crisis.

After all, knowing whether the next month will see a financial feast or famine can help you make better decisions about spending, saving, and investing in your business today.

One way to do this (without hiring a psychic)? Cash flow projection.

What is cash flow projection?

Cash flow projection is a breakdown of the money that is expected to come in and out of your business. This includes calculating your income and all of your expenses, which will give your business a clear idea on how much cash you'll be left with over a specific period of time.

If, for example, your cash flow projection suggests you’re going to have higher than normal costs and lower than normal earnings, it might not be the best time to buy that new piece of equipment.

On the other hand, if your cash flow projection suggests a surplus , it might be the right time to invest in the business.

Cash flow projections: The basics

In order to properly create a cash flow forecast, there are two concepts you should be aware of: accounts receivable (cash in) and accounts payable (cash out)

• Accounts Receivable: refers to the money the business is expecting to collect, such as customer payments and deposits, but it also includes government grants , rebates, and even bank loans and lines of credit .
• Accounts Payable: refers to the exact opposite—that is, anything the business will need to spend money on. That includes payroll , taxes, payments to suppliers and vendors, rent, overhead, inventory, as well as the owner’s compensation.

A cash flow projection (also referred to as a cash flow forecast) is essentially a breakdown of expected receivables versus payables. It ultimately provides an overview of how much cash the business is expected to have on hand at the end of each month .

Cash flow projections typically take less than an hour to produce but can go a long way in helping entrepreneurs identify and prepare for a potential shortfall, and make smarter choices when running their business.

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How to calculate your cash flow projection

Calculating your cash flow projection can seem intimidating at first, but once you start pulling together the necessary information, it isn’t so scary. Let’s walk through the first steps together.

1. Gather your documents

This includes data about your business’s income and expenses.

2. Find your opening balance

Your opening balance is the balance in your bank at the start of a period. (So, if you’ve just started your business, this is zero.)

Your closing balance is the amount in your bank at the end of the period.

So the opening balance in one month should equal the closing balance at the end of the previous month. But more on this later.

3. Receivables (money received/cash in) for next period

This is an estimate of your anticipated sales (such as invoices you expect to be paid, or payments made on credit), revenue, grants , or loans and investments.

4. Payables (money spent/cash out) for next period

Again, this is an estimate. You should consider things like materials, rent, taxes, utilities, insurance, bills, marketing, payroll, and any one-time or seasonal expenses.

“Seasonality can have a material effect on the cash flow of your business,” Andy Bailey, CEO of Petra Coach, wrote in an article for Forbes . “A good cash flow forecast will anticipate when cash outlays and cash receipts are higher or lower so you can better manage the working capital needs of the company.”

5. Calculate cash flow

Now, let’s bring it all together using this cash flow formula : Cash Flow = Estimated Cash In – Estimated Cash Out

6. Add cash flow to opening balance

Now, you’ll want to add your cash flow to your opening balance, which will provide you with your closing balance.

Put it all together: How a cash flow projections look on paper

In practical terms, a cash flow projection chart includes 12 months laid out across the top of a graph, and a column on the left-hand side with a list of both payables and receivables.

Here are all the categories you’ll need for your cash flow projection:

• Opening balance/operating cash
• Money received (cash sales, payments, loans, investments, etc.
• Money spent (expenses, materials, marketing, payroll and taxes, bills, loans, etc.)
• Totals for money received and money spent, respectively
• Total cash flow for the period
• Closing balance

This column typically begins with “operating cash”/opening balance or unused earnings from the previous month. For example, if your cash flow projection for January suggests a surplus of $5,000, your operating cash for February is also $5,000.

Below operating cash, list all expected accounts receivable sources—such as sales, loans, or grants—leaving a space at the bottom to add them all up.

Next, list all potential payable items—such as payroll, overhead, taxes, and inventory—with another space to add their total below.

Once you have your numbers prepared, simply subtract the total funds that are likely to be spent from the cash that is likely to be received to arrive at the month’s cash flow projection.

Once you’ve calculated your monthly cash flow, take the final number and list it at the top of the next month’s column under operating cash, and repeat the process until you’ve got a forecast for the next 12 months.

After the end of each month, be sure to update the projection accordingly, and add another month to the projection.

If you’re a Wave customer and you prefer to use a ready-made chart to help you create your projection, you can pull your financial data from the Reports section of Wave and feed it into this cash flow forecast template .

Be realistic with your cash flow forecast

Cash flow projections are only as strong as the numbers behind them, so it’s important to be as realistic as possible when putting yours together.

For example, being overly generous in your sales estimates can compromise the accuracy of the projection.

Furthermore, if you provide customers with a 30-day payment schedule and a majority pay on the last possible day, make sure that cycle is accurately reflected in your projection.

On the payables side of the equation, try to anticipate annual and quarterly bills and plan for an increased tax rate if the business is likely to reach a new tax level.

Those who pay their staff on a bi-weekly basis also need to keep an eye out for months with three payroll cycles, which typically occurs twice each year.

“Monthly or quarterly forecasts generally are more useful for stable, established businesses,” Bailey also wrote . “Weekly projections will be essential for companies scaling up or going through significant changes, such as a restructuring or merger/acquisition.”

“We like to encourage business owners—especially those who are starting out—to create a 13-week forecast for cash,” William Lieberman, the Managing Partner of The CEO’s Right Hand, told Forbes . “Each week, update the forecast based on what happened the previous week and extend the forecast window by one more week. In this way, you can keep a close watch on exactly what’s coming in and going out so you can be more proactive in addressing potential cash crunches.”

Those who want to be extra cautious with their projections can even include an “other expenses” category that designates a certain percentage of revenues for unanticipated costs. Putting aside some extra cash as a buffer is especially useful for those building their first projections, just in case they accidentally leave something out.

What now: Use your cash flow forecast to make data-driven decisions

Building the cash flow projection chart itself is an important exercise, but it’s only as useful as the insights you take away from it. Instead of hiding it away for the remainder of the month, consult your cash flow projection when making important financial decisions about your business.

If, for example, you anticipate a deficit in the months ahead, consider ways to cut your costs , increase sales, or save surpluses to help make up the difference. If you notice that payments often come in late, consider introducing a late penalty for bills past due.

You can also consult your cash flow projection to determine the best time to invest in new equipment, hire new staff, revise your pricing and payment terms, or when to offer promotions and discounts.

Have clients that regularly procrastinate on payments? Check out these tactics to get your clients to pay you faster .

Improving the accuracy of cash flow projections over time

Once you’re in the habit of creating cash flow projections, it becomes easier to improve their accuracy over time.

Comparing projections to actual results can help you improve the accuracy of your cash flow projections, and help identify longer-term patterns and cycles. Seasonal changes in revenue, patterns that contribute to late payments, and opportunities to cut costs will all become more apparent with each new cash flow projection.

While all these benefits won’t come all at once, entrepreneurs can use their cash flow projection to become better operators and better decision makers with each passing month.

Cash flow projection FAQs

How do cash flow projections affect business decisions, and how can small business owners improve their accuracy.

Cash flow projections play a key role in how you make business decisions by giving you important info on the movement of money in and out of your business You can up their accuracy by regularly updating projections, comparing them to actual results, and adjusting for any discrepancies. This helps you make smart choices about spending, saving, and investing in your business.

What industry-specific factors should small business owners consider in cash flow projections?

Small business owners need to consider various industry-specific factors when creating cash flow projections. For instance, seasonal changes in revenue, payment cycles, and market trends can significantly impact cash flow. By analyzing these factors, you can tailor your projections to better reflect the realities of your industry and adjust your strategies accordingly.

How can small business owners make sure their cash flow projections are reliable?

Small business owners often face challenges in making cash flow projections due to uncertainties in revenue, expenses, and market conditions. To ensure reliability, you should try to be realistic in your estimates, account for potential fluctuations, and regularly update your projections based on actual performance. Additionally, seeking advice from financial experts and using tools like cash flow forecasting templates can help with these challenges and improve the accuracy of projections over time.

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What Is a Cash Flow Statement (CFS)?

• Using the Cash Flow Statement

How to Prepare a Cash Flow Statement

How cash flow is calculated.

• Limitations
• Income Statement & Balance Sheet

The Bottom Line

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• Financial statements: Balance, income, cash flow, and equity

Cash Flow Statement: What It Is and How to Read One

Thomas J Catalano is a CFP and Registered Investment Adviser with the state of South Carolina, where he launched his own financial advisory firm in 2018. Thomas' experience gives him expertise in a variety of areas including investments, retirement, insurance, and financial planning.

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A cash flow statement tracks the inflow and outflow of cash, providing insights into a company's financial health and operational efficiency.

The CFS measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. As one of the three main financial statements, the CFS complements the balance sheet and the income statement. In this article, we’ll show you how the CFS is structured and how you can use it when analyzing a company.

Key Takeaways

• A cash flow statement summarizes the amount of cash and cash equivalents entering and leaving a company. 
• The CFS highlights a company's cash management, including how well it generates cash. 
• This financial statement complements the balance sheet and the income statement. 
• The main components of the CFS are cash from three areas: Operating activities, investing activities, and financing activities.
• The two methods of calculating cash flow are the direct method and the indirect method.

How the Cash Flow Statement Is Used

The cash flow statement paints a picture as to how a company’s operations are running, where its money comes from, and how money is being spent. Also known as the statement of cash flows, the CFS helps its creditors determine how much cash is available (referred to as  liquidity ) for the company to fund its operating expenses and pay down its debts. The CFS is equally important to investors because it tells them whether a company is on solid financial ground. As such, they can use the statement to make better, more informed decisions about their investments.

Structure of the Cash Flow Statement

The main components of the cash flow statement are:

• Cash flow from operating activities
• Cash flow from investing activities
• Cash flow from financing activities
• Disclosure of non-cash activities, which is sometimes included when prepared under generally accepted accounting principles (GAAP) .

Cash From Operating Activities

The operating activities on the CFS include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company’s products or services.

These operating activities might include:

• Receipts from sales of goods and services
• Interest payments
• Income tax payments
• Payments made to suppliers of goods and services used in production
• Salary and wage payments to employees
• Rent payments
• Any other type of operating expenses

In the case of a trading portfolio or an investment company, receipts from the sale of loans, debt, or equity instruments are also included because it is a business activity.

Changes made in cash, accounts receivable, depreciation, inventory, and accounts payable are generally reflected in cash from operations.

Cash From Investing Activities

Investing activities include any sources and uses of cash from a company’s investments. Purchases or sales of assets, loans made to vendors or received from customers, or any payments related to mergers and acquisitions (M&A) are included in this category. In short, changes in equipment, assets, or investments relate to cash from investing.

Changes in cash from investing are usually considered cash-out items because cash is used to buy new equipment, buildings, or short-term assets such as marketable securities. But when a company divests an asset, the transaction is considered cash-in for calculating cash from investing.

Cash From Financing Activities

Cash from financing activities includes the sources of cash from investors and banks, as well as the way cash is paid to shareholders. This includes any dividends, payments for stock repurchases , and repayment of debt principal (loans) that are made by the company.

Changes in cash from financing are cash-in when capital is raised and cash-out when dividends are paid. Thus, if a company issues a bond to the public, the company receives cash financing. However, when interest is paid to bondholders , the company is reducing its cash. And remember, although interest is a cash-out expense, it is reported as an operating activity—not a financing activity.

1 . Gather Financial Statements

Before you begin, collect the necessary financial statements:

• Income statement: Provides information on revenues, expenses, and net income.
• Balance sheet: Shows the company’s assets, liabilities, and equity at the beginning and end of the period.

2. Determine the Reporting Period

Identify the period for which you are preparing the cash flow statement. This could be monthly, quarterly, or annually.

3. Choose the Method

Decide whether you will use the direct method or the indirect method to prepare the CFS.

• Direct Method: The direct method involves listing all cash receipts and payments during the reporting period.
• Indirect Method: The indirect method starts with net income and adjusts for changes in non-cash transactions.

4. Prepare the Statement

Cash flow from operating activities.

Direct Method:

• List cash receipts: Include cash collected from customers.
• List cash payments: Include cash paid to suppliers, employees, interest paid, and income taxes paid.
• Calculate net cash flow from operating activities: Subtract total cash payments from total cash receipts.

Indirect Method:

• Start with net income: Obtain this from the income statement.
• Adjust for non-cash items: Add back depreciation and amortization.
• Adjust for changes in working capital: Account for changes in accounts receivable, inventory, accounts payable, and other working capital accounts.
• Calculate net cash flow from operating activities: Combine the adjusted net income with changes in working capital.

Cash Flow from Investing Activities

• Identify cash transactions for investments: Include cash spent on purchasing fixed assets, cash received from selling assets, and cash spent on or received from investing in securities.
• Calculate net cash flow from investing activities: Subtract cash payments for investments from cash receipts from sales of investments.

Cash Flow from Financing Activities

• Identify cash transactions for financing: Include cash received from issuing stock or debt and cash spent on repaying debt or buying back stock.
• Calculate net cash flow from financing activities: Subtract cash payments for financing activities from cash receipts from financing activities.

5. Combine All Sections

Add the net cash flows from operating, investing, and financing activities to determine the overall change in cash and cash equivalents for the period.

6. Reconcile with Beginning Cash

Add the change in cash to the beginning cash balance to arrive at the ending cash balance, ensuring it matches the cash balance reported on the balance sheet.

There are two methods of calculating cash flow: the direct method and the indirect method.

Direct Cash Flow Method

The   direct method   adds up all of the cash payments and receipts, including cash paid to suppliers, cash receipts from customers, and cash paid out in salaries. This method of CFS is easier for very small businesses that use the cash basis accounting method.

These figures can also be calculated by using the beginning and ending balances of a variety of asset and liability accounts and examining the net decrease or increase in the accounts. It is presented in a straightforward manner.

Most companies use the accrual basis accounting method. In these cases, revenue is recognized when it is earned rather than when it is received. This causes a disconnect between net income and actual cash flow because not all transactions in net income on the income statement involve actual cash items. Therefore, certain items must be reevaluated when calculating cash flow from operations.

Indirect Cash Flow Method

With the  indirect method , cash flow is calculated by adjusting net income by adding or subtracting differences resulting from non-cash transactions. Non-cash items show up in the changes to a company’s assets and liabilities on the balance sheet from one period to the next. Therefore, the accountant will identify any increases and decreases to asset and liability accounts that need to be added back to or removed from the net income figure, in order to identify an accurate cash inflow or outflow.

Changes in accounts receivable (AR) on the balance sheet from one accounting period to the next must be reflected in cash flow:

• If AR decreases, more cash may have entered the company from customers paying off their credit accounts—the amount by which AR has decreased is then added to net earnings.
• An increase in AR must be deducted from net earnings because, although the amounts represented in AR are in revenue, they are not cash.

What about changes in a company's inventory ? Here's how they are accounted for on the CFS:

• An increase in inventory signals that a company spent more money on raw materials. Using cash means the increase in the inventory's value is deducted from net earnings.
• A decrease in inventory would be added to net earnings. Credit purchases are reflected by an increase in accounts payable on the balance sheet, and the amount of the increase from one year to the next is added to net earnings.

The same logic holds true for taxes payable, salaries, and prepaid insurance . If something has been paid off, then the difference in the value owed from one year to the next has to be subtracted from net income. If there is an amount that is still owed, then any differences will have to be added to net earnings.

Limitations of the Cash Flow Statement

Negative cash flow should not automatically raise a red flag without further analysis. Poor cash flow is sometimes the result of a company’s decision to expand its business at a certain point in time, which would be a good thing for the future.

Analyzing changes in cash flow from one period to the next gives the investor a better idea of how the company is performing, and whether a company may be on the brink of bankruptcy or success. The CFS should also be considered in unison with the other two financial statements (see below).

The indirect cash flow method allows for a reconciliation between two other financial statements: the income statement and balance sheet.

Cash Flow Statement vs. Income Statement vs. Balance Sheet

The cash flow statement measures the performance of a company over a period of time. But it is not as easily manipulated by the timing of non-cash transactions. As noted above, the CFS can be derived from the income statement and the balance sheet . Net earnings from the income statement are the figure from which the information on the CFS is deduced. But they only factor into determining the operating activities section of the CFS. As such, net earnings have nothing to do with the investing or financial activities sections of the CFS.

The income statement includes depreciation expense, which doesn't actually have an associated cash outflow. It is simply an allocation of the cost of an asset over its useful life. A company has some leeway to choose its depreciation method , which modifies the depreciation expense reported on the income statement. The CFS, on the other hand, is a measure of true inflows and outflows that cannot be as easily manipulated.

As for the balance sheet, the net cash flow reported on the CFS should equal the net change in the various line items reported on the balance sheet. This excludes cash and cash equivalents and non-cash accounts, such as accumulated depreciation and accumulated amortization. For example, if you calculate cash flow for 2019, make sure you use 2018 and 2019 balance sheets.

The CFS is distinct from the income statement and the balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded as revenues and expenses . Therefore, cash is not the same as net income , which includes cash sales as well as sales made on credit on the income statements.

Example of a Cash Flow Statement

Below is an example of a cash flow statement: 

Investopedia / Sabrina Jiang

From this CFS, we can see that the net cash flow for the 2017 fiscal year was $1,522,000. The bulk of the positive cash flow stems from cash earned from operations, which is a good sign for investors. It means that core operations are generating business and that there is enough money to buy new inventory.

The purchasing of new equipment shows that the company has the cash to invest in itself. Finally, the amount of cash available to the company should ease investors’ minds regarding the notes payable, as cash is plentiful to cover that future loan expense.

What Is the Difference Between Direct and Indirect Cash Flow Statements?

The difference lies in how the cash inflows and outflows are determined.

Using the direct method , actual cash inflows and outflows are known amounts. The cash flow statement is reported in a straightforward manner, using cash payments and receipts.

Using the indirect method , actual cash inflows and outflows do not have to be known. The indirect method begins with net income or loss from the income statement, then modifies the figure using balance sheet account increases and decreases, to compute implicit cash inflows and outflows.

Is the Indirect Method of the Cash Flow Statement Better Than the Direct Method?

Neither is necessarily better or worse. However, the indirect method also provides a means of reconciling items on the balance sheet to the net income on the income statement. As an accountant prepares the CFS using the indirect method, they can identify increases and decreases in the balance sheet that are the result of non-cash transactions.

It is useful to see the impact and relationship that accounts on the balance sheet have to the net income on the income statement, and it can provide a better understanding of the financial statements as a whole.

What Is Included in Cash and Cash Equivalents?

Cash and cash equivalents are consolidated into a single line item on a company's balance sheet. It reports the value of a business’s assets that are currently cash or can be converted into cash within a short period of time, commonly 90 days. Cash and cash equivalents include currency, petty cash, bank accounts, and other highly liquid, short-term investments. Examples of cash equivalents include commercial paper, Treasury bills, and short-term government bonds with a maturity of three months or less.

A cash flow statement is a valuable measure of strength, profitability, and the long-term future outlook of a company. The CFS can help determine whether a company has enough liquidity or cash to pay its expenses. A company can use a CFS to predict future cash flow, which helps with budgeting matters.

For investors, the CFS reflects a company’s financial health , since typically the more cash that’s available for business operations, the better. However, this is not a rigid rule. Sometimes, a negative cash flow results from a company’s growth strategy in the form of expanding its operations.

By studying the CFS, an investor can get a clear picture of how much cash a company generates and gain a solid understanding of the financial well-being of a company.

Financial Accounting Standards Board. " Summary of Statement No. 95 ."

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What Is a Financial Statement: 4 Types With Examples

6 minute read

Key Takeaways

Financial statements summarise a company's financial activities, presenting comprehensive details about its financial position, performance, and cash flows at a specific time.

There are 4 primary types of financial statements, including the balance sheet, the income statement, the cash flow statement, and the statement of retained earnings.

Whether you're just starting a business or have been operating for a while, having transparent financial reports is crucial. Eventually, you will need to clarify your financial situation, whether for a loan application, investor pitches, or strategic decisions like pricing and revenue projections. In these situations, you will likely need "financial statements."

This article will cover the basics of financial statements, why they're necessary, the various types and examples, and the differences between audited and unaudited statements.

What Is a Financial Statement?

Financial statements are a compilation of written records that display a company's financial activities and performance at a specific time, usually annually, quarterly, or monthly. The purpose is to provide the company's financial position information to internal and external stakeholders.

Financial statements are typically prepared by bookkeepers and accountants who adhere to Generally Accepted Accounting Principles (GAAP) or industry-specific best practices.

Why You Need Financial Statements

Financial statements are crucial for monitoring a company's financial health, obtaining funding, and reducing tax complexities.

Companies often prepare these statements quarterly to assess business profitability, financial stability, and resource allocation. This aids in making informed key decisions, such as pricing strategies, cost reduction, and growth planning.  

When seeking outside investment or loans, these statements offer shareholders and creditors crucial details to assess the company's creditworthiness, risks, and potential returns on investment or loans. Properly prepared financial statements could make securing necessary funding more attainable.

Lastly, annual financial statements are crucial for tax reporting and tax return filing.  Documenting income, expenses, assets, and liabilities in the statements simplifies completing the paperwork required by tax authorities each year.

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4 Types of Financial Statements

The primary types of financial statements are the balance sheet, income statement, cash flow statement, and statement of retained earnings. 

Each offers a different perspective on a company's financial status. Combined, they provide a complete picture for owners, stakeholders, and investors. 

Let's look into each of these statements to understand their significance and components.

Balance Sheet

A balance sheet is a summary of a company's assets (what the company owns), liabilities (what the company owes), and shareholders' equity (the net worth of shareholders) at the end of a specific period in time, most commonly a year. 

This statement is alternatively known as a statement of financial position or a statement of financial condition.

Components of a Balance Sheet

The 3 main components of a balance sheet consist of assets, liabilities, and shareholders' equity. The table below breaks down the key details. 

This statement is called a balance sheet because the total assets must equal the total liabilities and shareholders' equity, ensuring the balance between what a company owns and what it owes. Therefore, the balance sheet follows the equation: 

Total Assets = Total Liabilities + Total Shareholders' Equity.

 Income Statement

An income statement is a financial record that presents a company's revenue and expenses over a specific period, most commonly a year, indicating whether the company is making a profit or loss. This statement helps business owners determine profit-generating strategies, such as increasing revenues or reducing costs.

An income statement is also referred to as a profit and loss (P&L) statement or an earnings statement.

Components of an Income Statement

The main components of the income statement include revenue, expenses, and net profit or loss. 

These may be broken down into

• Revenue: The total income earned by a business within a specific period.
• Costs of goods sold (COGS): The total expense of making the products, covering the cost of materials and labor.
• Gross profit: The total revenue deducts COGS.
• Total expenses: The total amount of money spent to make, sell, or promote the products.
• Operating income: The total profits minus operating expenses, such as equipment and labor costs.
• Depreciation: The reduction in value of a company's assets over time.
• Pretax income or income before taxes: Income minus costs but before taxes are subtracted.
• Net income: The total income after deducting all costs.

The income statement formula can be written as:

Net income = Revenues – Expenses

Cash Flow Statement

A cash flow statement, also known as a statement of cash flows, aggregates data regarding all cash and cash equivalents, inflows, and outflows that a company experiences in a given period. 

This statement shows where cash is being generated and used and whether the business has enough liquid cash to meet its obligations and invest in assets.

Tip: Explore our articles to find everything you need to know about cash flow management and cash flow analysis.

Components of a Cash Flow Statement

A cash flow statement includes operating activities, investing activities, and financing activities. 

• Operating activities: the cash flow generated or used in regular business operations, including revenue and expenses from goods and services provided.
• Investing activities: The cash flow from buying or selling assets, such as real estate and vehicles, or intangible assets like patents and licenses.
• Financing activities: The cash flow resulting from the acquisition of debt or equity.

Example of Cash Flow Statement

Statement of Retained Earnings 

The retained earnings statement is a financial report that shows the net income a company has retained after distributing dividends to shareholders. It also outlines the changes in this balance during a particular accounting period.

These earnings are usually used to pay off debts or reinvest. When retained earnings gather over time, they can be referred to as accumulated profits.

Some company's financial statements may not feature a separate statement of retained earnings. Instead, this information is included or provided as an addendum to either the income statement or balance sheet.

A statement of retained earnings is also called a statement of change in equity.

Components of a Statement of Retained Earnings 

The retained earnings consist of three main elements: the initial retained earnings at the beginning of the period, the net profit incurred during the accounting period, and the dividends distributed in both cash and stock during the accounting period.

• Beginning Retained Earnings: This is the equity balance from the end of the previous period, which carries forward to the start of the current period.
• Net Income: The profits generated from operations, automatically adding to the company's equity and transferring to retained earnings at the end of the year.
• Dividends: This represents the portion of profits distributed to shareholders rather than being retained by the company.

Retained earnings are calculated by combining the beginning retained earnings with the net income for the current period and then subtracting any dividends paid out to shareholders. 

In other words, the formula is:

Retained Earnings = Beginning Retained Earnings + Net Income − Dividends

Example of Statement of Retained Earnings

How Different Types of Financial Statements Interact

Essentially, a company’s operations, investments, and financing activities are interrelated, resulting in the connection between various types of financial statements.

For instance, the net income detailed in the company's income statement initiates the cash flow statement and contributes to retained earnings on the balance sheet, retained earnings on the statement of retained earnings will be stated on the balance sheet, and depreciation recorded in the income statement affects asset values on the balance sheet. 

Changes in working capital, asset purchases, borrowing, debt repayment, dividends, or stock repurchases affect both the cash and equity balances on the balance sheet and the cash flow statement.

Do Financial Statements Need to Be Audited?

Unaudited financial statements are reports prepared by accountants but have not undergone examination and verification by an external independent auditor. 

In contrast, audited financial statements are reviewed by a certified public accountant (CPA) to ensure compliance with standard accounting rules. Naturally, audited financial statements are more credible, but they require additional time and cost to prepare.

Whether financial statements require auditing depends on the entity and jurisdictions. For instance, in the US, publicly traded companies must file audited financial statements . Similarly, in New Zealand, financial statements submitted to the Companies Office must be audited . In Hong Kong, the Hong Kong Companies Registry mandates auditing for all companies. 

When securing a loan or funding, most potential funders and creditors prefer audited financial statements over unaudited ones.

Get a Good Business Account

Keeping good financial records is essential for a successful business. However, bookkeeping can easily get complicated if you combine personal and business finances in a single account. Hence, having a dedicated business account is the vital first step.

A business account that can be integrated with accounting software and allows you to connect and download transactions directly from your linked business bank account will be a significant plus. This will simplify not only your financial statement preparation but also your overall financial management.

If your business is registered in Hong Kong, Singapore, or the BVI, Statrys offers a multi-currency business account integrated with Xero accounting software and a comprehensive reporting dashboard. 

Here is a quick look at our key services:

What is a simple explanation for financial statements?

Financial statements are summaries that outline a company's financial activities, including its income, expenses, assets, liabilities, equity, and cash flow at a particular point in time.

What are the types of financial statements?

The four basic financial statements include: 1. Balance Sheet: Shows the company's assets, liabilities, and shareholders' equity at a specific period. 2. Income Statement: Outlines the company's revenues and expenses over a period, resulting in net profit or loss. 3. Cash Flow Statement: Details the inflows and outflows of cash and cash equivalents, indicating the company's liquidity. 4. Statement of Retained Earnings: Displays changes in retained earnings over a period, including profits retained in the business after dividends.

What is the objective of financial statements?

The objective of financial statements is to provide stakeholders with a clear and accurate overview of the company's financial status and performance. This information helps in making strategic decisions, securing funding, and complying with regulatory requirements.

When do you need financial statements?

You often need financial statements for annual tax reporting, quarterly company finance assessments, and when asking for loans.  In cases of significant corporate events like changes in ownership, sales, or mergers, up-to-date financial statements are also necessary. They provide a transparent financial snapshot of the company.

Can I prepare financial statements myself?

Depending on the size and needs of your business, you may be able to prepare the unaudited financial statements yourself. However, it's not generally recommended, as errors can lead to fines and more complications. It's often better to work with a professional who is familiar with accounting principles to ensure accuracy and compliance with relevant standards. Additionally, if an audited financial statement is required, it must be prepared by a Certified Public Accountant (CPA) or an equivalent professional.

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