A business plan is a document that can be used for obtaining a loan from a bank, attracting investors to invest in your business, or obtaining an EB-5 Green Card, E-2 Visa or L-1 Visa. When a third party is reviewing a business plan they will look to a number of key elements to establish that the plan was well thought out and that the financial projections are viable.
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One of the key parts of a business plan is the revenue projections. When determining the appropriate figures for revenue projections, it is important to document the assumptions you are using and to explain how you are coming up with the figures. The more detail and explanation you can provide the better, and this will help the reader to understand the business plan and conclude it is credible.
This excerpt below is an example of the explanation that could be provided for a gas station business. The example illustrates the level of detail that would be helpful to explain how the revenue projection for the business plan were derived. Please note that this is just an example to give you an idea of the explanation needed to supplement the financial data. The actual explanation or details in a plan will depend on the type of business and the facts and circumstances. The example assumes there are two revenue streams and it is always a good idea to identify specific revenue streams and describe them separately.
Revenue Item 1 – Gas Sales
Everyone in the United States needs gasoline to drive cars and the gross revenues associated with gas stations is high in the U.S.. The gas station currently sells 45,000 gallons a month or 540,000 gallons a year and this is evidenced by the detail in the current financial statements and tax returns that outline the sales over the last two years. The selling price is around 3.50 per gallon as evidenced by the average gas price for 2016 (see attached report) so this is $1,890,000 per year. These estimate have been increased by 10% each year given the gas station will experience increased traffic as we implement our revised business model of selling food and alcohol as well as expanding the convenience store and the increased traffic is easily achievable given the beer license. (as such 10% is a conservative estimate) This is especially the case given the opening of a new bridge in the area and the traffic flow for the gas station. In addition, a leading consumer index (Sage Martin) shows that gas prices will continue to increase in 2016 so margins should expand.
A financial statement analysis by Sageworks (an external study) shows that gas stations in 2016 experienced less pressure on their margins from key costs (costs of goods sold, or COGS), which were about 97% of sales, on average. As such the margin that has been included in the plan is 3%. Fuel expense is the biggest component of Cost of Goods Sold (COGS). Third-party data indicate that wholesale prices for resale (“rack” prices) fluctuated through the year, ranging from $2.587 a gallon to $2.989 a gallon for regular but ending 2016 slightly lower than they were at the start of the year. This analysis adds significant support to our projections.
Revenue Item 2 – Convenience Store Sales
Modest estimates for sales have been included in the forecast reaching $800,000 in year 5. Sales are currently approx. $60K per month and the revenue forecast has been increased by 10% per year. The average cost of the products sold is 80% (based on the gross margin in the attached financial statements from current operation’s past sales) leaving a gross profit of 20%. The revenue is a conservative estimate as sales of $550 per week are generated from lottery sales (based on 5% commission) and $550 per month on ATM fees. These amounts have not been included in the revenue amounts to keep the estimates conservative. The increased traffic from the bridge opening and expanding the restaurant will also allow us to achieve our business model.
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