Posted: March 27th, 2023

6.4. Investment Analysis – The investment analysis part of your business plan is

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6.4. Investment Analysis
– The investment analysis part of your business plan is the section in which you will provide a comprehensive assessment of your business, mainly based on your projected financial statements.
6.5. Projected Financial Ratios and Industry Standard Ratios

Table 15. Projected Financial Ratios
– You should find relevant industry average ratios from sources like Stats Link Canada (2009).
– Always accompany any ratios you provide with an analysis and interpretation of what they mean. It is never sufficient to simply calculate and list the relevant ratios. You must also provide valid interpretations of what they indicate and disclose. This will help you tell the story about why your business concept is viable. It will also help you understand how potential investors will interpret your financial information when they conduct their own financial analyses.
– When possible, ratios should be (1) compared with available industry average ratios, (2) past performance, if the business has been running for a few years, and (3) norms that you can derive from several sources.
6.6. Break-Even Analysis
– Break-even analysis can be done:
o (1) by formula (see Figure 7),
Figure 7. Break-Even Analysis
o (2) by copying your month-by-month cash flow statements into a new spreadsheet and manipulating them so that they become month-by-month income statements, and
o (3) by developing a chart showing the total expenses (fixed and variable) for running the business at ever increasing sales volumes alongside the corresponding sales figures and then flagging the sales volume at which total overall sales match total overall expenses (see Table 16).
(1)
Units (2)
Average cost per unit (3)
Average selling price per unit (4)
Total fixed costs (5)
Total variable costs (column 1 x column 2) (6)
Total costs (column 4 + column 5) (7)
Sales (column 1 x column 3)
0
100
200
300
400
500

Table 16. Break-Even Analysis
– Break-even is normally expressed in terms of when the break-even point is hit (year, month), how many units of sales represent break-even, and what dollar value of sales represents the break-even point.
6.7. Critical Success Factors
– You should identify the factors that, if they were to change, would most affect the plans you presented in your business plan. You can do this by manipulating some of the factors in your spreadsheets to see what the implications would be. For example, if your business plan shows the venture will be profitable after two years in business, how would this change if sales were five percent lower than projected?
– One common approach is to include three sets of financial projections; pessimistic, most likely, and optimistic.
– Critical success factor analysis is normally a descriiption of the factors that most impact the business based on financial data. It is more than a written descriiption describing the factors that impact the venture’s operations in significant ways, because it is founded in financial analysis.

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