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A Proper Business Plan Includes More Than You Think

How to analyze an integrated financial model

Oftentimes, a business plan only contains an income statement projection, but no balance sheet or cash flow planning. If all three are available, the model is called an integrated planning model. Integrated, because changes in the balance sheet, income statement, and cash flow reconcile.

The most prominent valuation techniques in a transaction include a multiple-based or discounted cash flow based valuation. If a multiple (typically on EBITDA) is applied, an income state projection is sufficient. For a discounted cash flow, in turn, an integrated planning model is required. This can partly explain why there is not always an integrated planning model. Nonetheless, multiples should never be used as the only method, they should rather be applied as a cross-check. But that’s another topic.

In this article, I am going to explain a high-level approach for an integrated planning model. There will be further hands-on articles which detailed examples and explanations.

Income statement


The projection of the income statement is based on

  • market development for revenue,
  • purchase prices for material expenses,
  • headcount planning and salaries for personnel expenses,
  • fixed costs (e.g. rent) and variable costs (e.g. electricity and water) for other operating expenses,
  • assets required to run the business for depreciation, and
  • financing requirements for finance costs

This is an indicative, non-exhaustive list of items that generally matter in projecting the income statement. Historical years can indicate which assumptions should be made. That’s why it is crucial to have a “clean view”, i.e. remove any non-recurring items or out-of-period topics. Otherwise, these items distort the planning process.


Personnel expenses have 45% of revenue last year. For an initial indication of your business plan, you will keep this ratio fixed and plan personnel expenses as a percentage of revenue. However, severance payments and headhunter costs occurred last year. This means that the personnel expenses are overstated. As such, you need to remove these outliers to get a “clean view” of personnel expenses.

Balance sheet


The balance sheet can be clustered into the following areas which need to be planned separately:

  • Asset requirements impact the (fixed) assets planning,
  • Working capital needs to be based primarily on projections for inventories, receivables, and payables,
  • Requirements to finance assets and working capital

Cash flow

Cash flow planning is the residual of the balance sheet and the income statement planning and is derived from changes in these statements.

Key takeaways

  1. A business plan consists of an integrated financial model with a balance sheet, income statement, and cash flow planning
  2. Detailed assumptions for each line item are required

Final thoughts

A detailed business plan consists of detailed assumptions and is more than a rough overview of the principle line items of the income statement. The complexity is often underestimated and it is, therefore, important to set up a proper model for planning purposes.

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