Entrepreneurs build a financial plan to determine the economic potential for their venture. This plan provides an estimate of the potential of the venture. Of course, any estimate is based on a set of assumptions regarding sales revenues and costs. Using the best available information and their intuition, entrepreneurs calculate the potential profitability of the venture. Furthermore, they need to determine the flow of cash monthly to identify the cash investments that will be required over a two- or three-year period. An income statement and a balance sheet also are required to demonstrate profitability and liquidity.
Using the estimates of sales, the venture team can determine the number of units it needs to sell to break even. Furthermore, it can calculate several measures of profitability that demonstrate the return provided by its venture for investors. The best ventures grow sales consistently and provide positive cash flow and profit early in their life.