66 CHAPTER 4 KNOW YOURSELF
You have two objectives at this moment. One is to understand what has been happen-
ing to your business. The other is to communicate this to your readers. If you have a brand
new business, you are spared this task and you can consider yourself lucky or hindered.
Otherwise, include a brief table showing annual figures for each of the previous five years
for each of:
gross profit (sales less the cost of sales);
gross profit as a percentage of sales;
operating costs by key areas;
net income (net profit) before tax.
Detailed figures should go into an annex. As discussed in Chapter 3, your choice of figures
will reflect the nature of your business. You might want to include the balance sheet value
of certain assets or liabilities or spending related to specific areas.
In a start-up situation, you have no historical data and the business will be valued for
the expected income stream with due – probably excessive – allowance for the risks.
However, where you do have a track record, you will be judged more on past per-
formance than on the potential of your ideas for the future. In other words, the cost of
raising additional finance is going to depend on your past errors and successes.
Occasionally, in these circumstances it is worthwhile developing a two-stage process
to create a bit of recovery before going for a large chunk of additional funding. I am not
suggesting that you should massage the figures or focus unduly on short-term profits.
But if you can put your house in better order before selling or renting it out, it makes
sense to do so.
Incidentally, management buyouts are an exception to this rule. The current manage-
ment might not be hindered in raising cash if they can show that past performance was
held back by a disinterested parent.
Never include financial figures in a plan without a short written analysis. You
might think that the numbers are self-evident, but many readers will ignore
tables or miss the important points. As mentioned before, it often makes
sense to present important information three times – in a chart or picture, in a table,
and in a written commentary.