Sales forecasts, cash flow and the outcoming profitability are the basis of the potential investors' valuation about the future company viability. These forecasts are supposed to be subject to an exhaustive exam and critical judgements.

Sales forecasts can not be a simple numerical series emerged from nowhere as a result of good faith and wishes. Potential investors normally ask  a lot of questions about this point when we ask them for funds. Forecasts may be based on firm information that it is reported in previous section; for example, market size, customers needs, segmentation, market maturity, competitors' strong and weak points...as well as the enumeration of all these factors, we may reinforce them with the information related to the current commercial activities of the company: a firm order book, sales rates to key customers and company growth in the market sector to which is aimed.

Once the sales forecast is determined, cash flow forecast for all the business plan period can be also determined. This is about an estimation of the net balance of the company's money month by month. Cash flow forecast may show the difference between the estimated sales income and the estimated monthly payments of all company's obligations: renting, rates, salaries, material costs, interest payments, etc. Some of these payments are usually made each month, whereas some others can be made in an irregular period of time, as material purchase, factory capital investment and equipments. 

It can happen that between the raw material purchase and the customers' payments income there is a long period of time (this is the concept of working capital needs). Important customers could wait sixty days for providing payments related to a delivery and it can, sometimes, delay the payment. For this reason, raw materials costs may be financed with company's own resources from the moment the purchase is done until to receive the customer income.

Sometimes, there is a great disbursement of money although having a good sales rate (when sales increase, treasury needs should be wide, however the selling price breaks cost price). This situation should happen when starting a new activity, because starting investments and costs are higher than sales income amounts. For this reason, the business plan may include a comprehensive forecast about the financial need (investments + working capital).

The checking of the breakeven point is the final attestation of the company's viability. The breakeven point is reached when sales incomes are equal to costs (fixed + variable). Fixed costs come from periodical payments that do not depend on sales changes in the short term (in the long term, if the company growth we should take into account more costs, named structure costs; some examples of this kind of costs are: renting, supplies, the interests of the credits, administration expenses, personnel expenses...). 

Variable costs are those which fluctuate to changes on sales incomes, as the ones of raw materials, energy (direct) and temporary workers (self-employed or subcontracted workers that increase sales proportionally). In any case, the fixed and variable costs distribution is different according to companies, and it has to be made-to-measure (it is not advisable to make that if your company needs very specialized workers, for example, to fluctuate personnel according to the sales volume...) 

The breakeven point is not a fixed estimation. If we manage to make lighter the structure, the breakeven point could be lower (as the sales rate), activity planners have a large freedom choosing the types of structure costs that will be adopted (the creation of a factory regarding to the subcontract of the production).  

Normally, as soon as the breakeven point is reached, the company is more attractive for potential investors. 

The breakeven point estimation (BP)  will be made with the following formula: S = (vc · bS) + fc 

Where: S  = sales 
           vc = variable costs 
           b = the proportion of sales that are variable costs 
           fc = fixed costs 

It is important to calculate alternative hypothesis of the breakeven point (normally with three is enough: the most favourable, intermediate and less favourable case) and show its sensitivity or firmness. In order to determine these hypotheses we may repeat the calculations and enter the supposed different sales income, of fixed and variable costs. We can check the effect of a reduction in the supposed sales income, together with a 10% rise in costs. The most important it is to determine the limits in which the company stops being viable. 

With the aim to get a global financial plan for the new company, BP calculations may be done according to balances and accounts of the planned results, in order to cover a 5 years period from the beginning of the activity. It means that all forecasts and approaches that have been described while the business plan was made may be converted into numbers. 

Complex investment projects (chemical products factories, advanced technology companies...) could need more sophisticated projects' evaluation techniques: 

Financial consultants are essential if these projects' evaluation techniques may be used. 

• Used capital return
• Depreciation period
• Cash flow updating techniques, for example: current net value and internal return rate.  

The expected balance is the statement of the company's financial resources: capital (partner's contribution), credits, benefits that may be distributed..., as well as of  the investments done (funds use). Liabilities may finance assets, it means that we may not separate each fund (financing) and profit distribution (investment) in the balance; there is a specific document to analyze these variations from year to year. The most important point in the balance is the company's worth. Obtained information is analyzed together with the operating statement.

The balance uses to include concepts that help us to determine the company's solvency, as a result of investment on fixed assets that it has obtained and how the company has financed it (see: Capital financing guide, property analysis).

Capital assets are mainly fixed assets (investment) and current assets (stocks + customers+treasury). In the liabilities side we may distinguish between own and outside funds (Loans get from thirds: suppliers or banks).

As it is a summary of the worth situation, the kind of creditor is not specified. We can include an attached control table showing this information.

The function of the account is different from the balance. The balance reveals the company's worth (goods and financing method), results included are firm as they are funds resource for the company (if it gains benefits), but information about how they have been generated is not included. 

PAL account is a proportion of gross sales income, from which all expenditures are deducted (that is, all the expenses needed in order to obtain income). The most important accounting policy in this document is the accrual, it means that PAL account does not show the treasury, but the expenditure is shown when the income is done regardless of if one has been paid and the other has been received. 

PAL account may be elaborated in detail if we want to fulfil the objectives of the business plan; in the first year, it may be a monthly account and in the next 5 can be annual. Figures, expected to be obtained from each point of the business plan, based on the forecasts made may be included in the account. Therefore, we may include: the personnel structure forecast, the number of salesmen, sales that can be reached, etc. We may also include in our PAL account the forecast of the visits to our customers and expected sales.

We may take into account the sensitivity of the situation by doing alternative calculations of the PAL account, based on lower sales income and higher expenses. So we have a range of possibilities and a rough hypothetical action in each case, as it happened with the breakeven point forecast.

Sold products costs may be deducted form sales income, as it has been announced. So, gross operating margin is obtained. We may add all variable costs (those which increases proportionally with production: materials and production labour) in order to get products costs . Production machinery costs neither factory costs will be included in the PAL account as they are information to be included in the balance and they are expected to be taken into account in the PAL account through the depreciation included in the last line of the PAL account (this calculation includes as an expense the proportional part of the good that is "wore away" annually). 

The next phase is to reduce the expenses of the gross operating margin to reach profit before tax (PBT). These expenses include: renting, administrative expenses, commercial and advertising costs, general expenses and, finally, the aforementioned depreciation. 

Finally, once we have obtained the PBT we have to deduct financial expenses, directors' profit-sharing and taxes. This number will be the profit after tax from which dividend are shared out to stockholder (that takes place as written in the company's articles of association).

Does the company have firm orders? From which customers are expected orders the first year? How many orders and when will they take place?  Which market research information have we to support a sales forecast? Is a sales forecast planned for each group of products? Is a periodic updating system planned for sales forecast?