The Business Plan Pro Financial Model

The illustration below shows the integrated Business Plan Pro financial model. We've been working with variations of this model since the early 1980s. It links a business’ main financial statements into a logical system that facilitates financial forecasting.

Figure 1: The Business Plan Pro Financial Model

The Business Plan Pro financial model depends on standard financial principals that link the Income statement (Profit and Loss) to the Balance Sheet and Cash Flow.

As the diagram indicates, this is a system of linked tables. Linking the tables is critical for practical forecasting, because of the way business financial projections work and the way people deal with information. Tables must be able to stand alone as, for example, a Sales Forecast or Personnel Plan; but at the same time, changes in one must necessarily affect the others. When you change projected sales, that change should reflect immediately in the Profit and Loss, Cash Flow, and in most cases the Balance Sheet as well.

The financial model is based on established financial principles including standard accounting, double entry bookkeeping, and the underlying importance of the fundamental accounting equation: assets = liabilities + capital. It also depends on understanding the difference between planning vs. accounting.

The model runs on the three main projected statements: Income, Cash Flow, and Balance. It also depends on some logical links between these statements; the most important are the cash-sensitive links used to estimate behavior of receivables, payables, and inventory.  

Next: Planning vs. Accounting