I've done several business plans and I have never included them, but I
stared very small businesses on a shoestring. I think it might be
required by some banks or other lending agencies, if not then they DO
require a Financial Statement, from which the many ratios are derived.
It also might depend on the industry and the amount of funding you
hope to receive.
To start, I'd like to bring your attention to this site. It'll make
more sense after you have read my entire answer but I want yo to be
able to locate it easily:
BIZMINER - Financial Analysis Profiles
Find industry ratios that create a rock-solid basis for your business plan.
Here's the basics:
Understanding Business Ratios ? posted by Peter J. Patsula
SIC codes, operating ratios, performance indicators, and more.
..."Business ratios are tools to evaluate your business. They come in
many guises including the popular operating ratio, financial ratio,
performance indicator, and benchmark..."
..."Operating ratios are usually shown as a percentage of some income
statement item divided by total sales. The US Census loves these
ratios and compiles them every five years for hundreds of business
categories. The most important of these ratios is your Net Profit to
Total Sales. This is calculated by dividing net profit by total sales
and multiplying by 100% to express the ratio as a percentage. A
supermarket may have a net profit ratio of 2% while business services
tend to be higher at 20%. This however doesn't mean a business service
is more profitable. Supermarkets have HUGE revenues. Thus, their
annual net profit dollar value (the money they put in their bank
account at the end of the year) may actually be much higher..."
Business Ratios: Selected Resources
What are business (or financial) ratios?
A bit more details here, this should help you gain insight into how to
interpret and include ratio information in your business plan in a
relevant and meaningful way. This site is excellent, I have used one
example below as to how the use of ratios in a business plan can be
Investopedia's Ratio Analysis tutorial: online tutorial focusing on 20
key ratios and their use.
Here's a list of some common ratios:
To get started you'll need to find the SIC Code of your business:
Standard Industrial Classification (SIC) System Search
I can see how "selecting" a few ratios that are in your favor and
omitting the ones that don't look so hot, might actually help a
RATIO: Cash Flow to Assets Analysis:
..."Cash flow is often overlooked when people analyze a company. You
can be a profitable company but if you don't have cash moving around
to pay bills then you are really in trouble. It relates a company's
ability to generate cash compared to its asset size. A ratio of 0.30
is quite good, Cory's Tequila Co. shouldn't run into any problems
generating cash. When the ratio declines below 10% then there may be
some cause for concern..."
If you have a high cash flow to assets ratio, I would include it, if
not, I would find another ratio to include that does put me in a
favorable light. If I had to use a poor ratio because it's requested
or required, I would include a plan of action that addresses how to
So, in closing, you need to find your SIC Code, and then fine the
ratio numbers that are standard for your industry, and similar
industries. There's a lot of options as to how you can present them.
After going through (or during) the tutorial, use the formulas and
plug in your numbers. Compare it to the example company "Cory's
Tequila Co.", soon, you'll get a sense of ratios.
This next link is another description of business ratios and how they
are important to lenders and business owners:
Business Owner's Toolkit ? Business Ratios
And here's where you can locate your industry's statistics and ratio standards:
Business Research Online Tutorial ? Module 4: Industry Research
Here's a reaseach guide for industry information:
COMPANY AND INDUSTRY ANALYSIS
And finally, this might come in very handy:
INDUSTRY AND COMPETITOR ANALYSIS
This is your roadmap.
I hope this information is satisfactory, and that after reviewing the
links and using the online tutorial with the ratio examples, you will
have a better understanding of what ratios are, and how to use them to
your benefit in your business plan. I am very willing to assist
further, just ask for clarification.
Search tersm used at Google:
SIC codes ratios
SIC Index Code Ratios