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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis, and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

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4 Steps to Creating a Financial Plan for Your Small Business

When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan. It helps you pitch investors, anticipate growth and weather cash flow shortages. To get started, you need to learn some of the key elements to financial planning.

What is a Financial Plan?

A financial plan helps determine if an idea is sustainable, and then keeps you on track to financial health as your business matures. It’s an integral part to an overall business plan and is made up of three financial statements—cash flow statement, income statement and balance sheet. In your plan, each of these will include a brief explanation or analysis.

Key Takeaways

• A financial plan helps you know where your business stands and lets you make better informed decisions about resource allocation.
• A financial plan has three major components: a cash flow projection , income statement and balance sheet.
• Your financial plan answers essential questions to set and track progress toward goals.
• Using financial management software gives you the tools to make strategic decisions efficiently.

Why is a Financial Plan Important to Your Small Business?

A well-put-together financial plan can help you achieve greater confidence in your business while generating a better understanding of how to allocate resources. It shows your business is committed to spending wisely and its ability to meet financial obligations. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.

It’s also an important tool when asking investors to consider your business. Your financial plan shows how your organization manages expenses and generates revenue. It shows where your business stands and how much it needs from sales and investors to meet important financial benchmarks.

Components of a Small Business Financial Plan

Whether you’re modifying your plan or starting from scratch, a financial plan should include:

Income statement: This shows how your business experienced profit or loss over a specific period—usually over three months. Also known as a profit-and-loss statement (P&L) or pro forma income statement, it lists the following:

• Cost of sale or cost of goods (how much does it costs to produce your goods or services?)
• Operating expenses like rent and utilities
• Revenue streams, usually in the form of sales
• Amount of total net profit or loss, also known as a gross margin

Balance sheet: Rather than looking backward or peering into the future, the balance sheet helps you see where you stand right now. What do you own and what do you owe? To figure it out, you’ll need to consider the following:

• Assets: How much cash, goods and resources do you have available?
• Liabilities: What do you owe to suppliers, personnel, landlords, creditors, etc.?

Shareholder equity (the amount of money generated by your business): Use this formula to calculate it:

Shareholder Equity = Assets – Liability

Now that you have these three items, you’re ready to create your balance sheet. And just as the name implies, when complete, you’ll want this to balance out to zero. On one side, list your assets, such as cash on hand. And on the other side list your liabilities and equity (or how much money is generated by the business). The balance sheet is used along the other financial statements in order to calculate business financial ratios, discussed further below.

Balance Sheet

Why have a balance sheet? It can provide insight into your business and show important measures like how much cash you have, what your obligations are and what kind of profit you’re making all at a glance.

Personnel plan: You need the right people to meet goals and retain a healthy cash flow. A personnel plan looks at existing positions and helps you see when it’s time to bring on more team members, and whether they should be full-time, part-time, or work on a contractual basis. It looks at compensations levels, including benefits, and forecasts those costs. By looking at growth and costs you can see if the potential benefits that come with a new employee justify the expense.

Business ratios: Sometimes you need to look at more than just the big picture. You need to drill down to specific aspects of your business and keep an eye on how individual areas are doing. Business ratios are a way to see things like your net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets. Numbers used to calculate these ratios come from your P&L statement, balance sheet and cash flow statement and are often used to help request funding from a bank or investors.

Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.

Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.

Income projections: How much money will your company make in a given period, usually a year. Take that and then subtract the anticipated expenses and you’ll have the income projections . In some cases, these are rolled into profit and loss statements.

Assets and liabilities: Both of these elements are part of your balance sheet. Assets are what your company owns, including current and long-term assets. Current assets can be converted into cash within a year. Think of things such as stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use like furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are divided into current and long-term categories. Examples of current liabilities in a financial plan are accrued payroll, taxes payable, short-term loans and other obligations due within a year. Long-term liabilities include shareholder loans or bank debt that matures more than a year later.

Break-even analysis: Your break-even point—how much you need to sell to cover all your expenses—will guide your sales revenue and volume goals. Start by calculating your contribution margin by subtracting the costs of a good or service from the amount you pay. In the case of a bicycle store, the sale price of a new bike minus what you paid for it and the salary of your bike salesperson, your rent, etc. By understanding your fixed costs, you can then begin to understand how much you’ll need to markup goods and services and what sales and revenue goals to set in order to stay afloat or turn a profit.

Video: How to Build a Financial Plan

Create a strategic plan: Starting with a strategic plan helps you think about what you want your company to accomplish. Before looking at the numbers, think about what you’ll need to achieve these goals. Will you need to buy more equipment or hire more staff? Is there a chance of new goals affecting your cash flow? What other resources will you need?

Determine the impact on your company’s finances and create a list of existing expenses and assets to help with your next steps.

Create financial projections: This should be based on anticipated expenses and sales forecasts . Look at your goals and plug in the costs needed to achieve them. Include different scenarios. Create a range that is optimistic, pessimistic and most likely to happen, so you can anticipate the impact each one will have. If you’re working with an accountant, go over the plan together to understand how to explain it when seeking funding from investors and lenders.

Plan for contingencies: Look at your cash flow statement and assets, and create a plan for when there’s no money coming in or your business has taken an unexpected turn. Consider having cash reserves or a substantial line of credit if you need cash fast. You may also need to plot ways to sell off assets to help break even.

Monitor and compare goals: Look at the actual results in your cash flow statement, income projections and even business ratios as necessary throughout the year to see if you need to modify your plan or if you’re right on target. Regularly checking in helps you spot potential problems before they get worse.

Three Questions Your Financial Plan Should Answer

Once you’ve created your plan, you should have answers to the following questions:

• How will your business make money?
• What does your business need to get off of the ground?
• What is the operating budget ?

Financial plans that can’t answer these questions need more tweaking. Otherwise, you risk starting a new venture without a clear path and leave behind valuable insight.

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Improve Your Financial Planning With Financial Management Software

Using spreadsheets can get the job done when you’re just getting started. However, it’s easy to get overwhelmed, especially if you’re collaborating with others in your organization.

Financial management software is worth the expense because it offers automated capabilities such as analysis, reporting and forecasting. Plus, using cloud-based financial planning tools like NetSuite can help you automatically consolidate data and improve efficiency. Everyone across your organization can access and analyze up-to-date information, which leads to better informed decisions.

Whether you’re looking to secure outside funding or just monitor your business growth, understanding and creating a financial plan is crucial. Once you have an overview of your business’ finances, you can make strategic decisions to ensure its longevity.

Financial Management

Small Business Financial Management: Tips, Importance and Challenges

It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.

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What is Financial planning in a business plan

If one is new to the field of business and entrepreneurship, then Finance is unquestionably the vital section of the business plan. Even if your ideas and innovations are important what matters the most at the end of the day is the marketing strategies and how much your vision can help in making an earning. Hence it is vital to explain your start-up with good figures which are done with the help of accurate numbers included in the business plans and briefing about it in such a way that genuinely makes your business more attractive and profitable to the investors.

What is a business plan? 

In simple words, it is a guide for the company to achieve its goal. It is a written document that describes in detail how a business, especially a start-up , what are its objectives or how it is about to achieve its goal. This can be considered as a roadmap to success with detailed plans and budgets saying how they will be achieved. It lays a road map from marketing, financial and operating point of view as well.

Business plans are documents which are vital papers used to attract investors even before the company has shown a proven record. They do this by giving a vision to the investor and trying to convince them that their business idea is worth investing for.  From that, there comes a firm assurance and hence the business idea is sound and has every chance of success. For any newcomer, preparing a business plan is an important first step. It is this rigid milestone that will help the entry towards the path of success.

When you are about to begin a new venture, a business plan gives you a clear idea which in turn can determine whether your business idea is viable or not; that is, there is no point in business if there aren’t any chances of earning. A business plan is also a good way for companies to maintain a regular track.

We can also describe the business plan as a living document that you can use to prove two sources as it shows that one’s dreams are no longer just a dream but can be made into a viable reality. In the majority of cases, the main barrier in commencing a business is the fact that they don’t have enough money to be in the business or to start the business they wish to begin. In the case of start-ups, a ready business plan is essential to show potential investors how the proposed business can bring profit.

What is Financial Plan ?

In the world of start-ups, the importance of perfect business planning is beyond explanation. Plan length of business is different for different businesses. As mentioned no two businesses have the same sort of plans but they all have the same elements from which financial planning can be considered as a vital key in the making of a business plan.

A financial plan is a document containing the current money situation and long term goals of an individual as well as the strategies for achieving the goals. A financial plan can be done independently or with the help of a specialist who is a certified financial  planner where he will have a deep evaluation of the person’s current financial state and ,future goals and expectations.

It gives you a clear picture of current finances and how it can be utilised to achieve your goals. This is also a process which will reduce the amount of stress about money and help you to set a long term goal. It is very important as it shows how to make use of your assets in an orderly manner.

The main purpose of financial planning is that it helps you to make strong business decisions about what are the resources that the company requires and what are the strategies that the company needs to be successful. It helps to obtain necessary financing, thus helping it grow.

Financial Planning can be explained with six steps:-

1. Setting up of Financial Goals:-

 The secret of a successful business is setting up proper financial goals.

2. Track your Money:-

Since the financial plan is a guide for good business flow,  having an accurate idea about your savings or pay-downs is helpful to develop medium and long term plans.

3. Emergency expenses:-

Collecting cash for emergency expenses is the bedrock of the financial plan. 

4. Investing your savings:-

 Investing isn’t always meant for the rich alone. Building credit is another way to shock proof of your budget.

  5. Have a check of high-interest debt:-

Sometimes it happens that the interest rates most of the time, we end up repaying 2 or 3 times what we have actually borrowed. Paying down the ‘toxic’ high-interest debt like title loans,rent-to-own payment, credit card balances etc. are the crucial steps in any financial plan.

6. Setting up of a moat:-

It is essential to build a moat to protect you and your family from financial setbacks.  Financial moats can be improved by:-

• Retirement accounts should be increased
• Padding your emergency fund until you earn a constant profit.
• By using insurance so that a sudden illness or accident can alter you thus, ensuring financial stability.

Financial planning is at the heart of all successful business ventures. As mentioned earlier, it consists of details of statement and financial projections, forming the overall core of your business plan. Financial planning is supposed to be completed within a year and revised monthly for better results. In addition to impressing  your investors that you are serious and knowledgeable with the business the financial  planning allows them to evaluate :

•The short and long term prospects 

• Profit potential 

•Your company’s  weakness as well as strengths

•Opportunities and challenges 

•What type of financing  can make your business successful  

For a strong financial plan,  there should be careful calculations and reliable numbers. If you are starting a new business then your financial plan should consist of:- 

• Start-up costs

•Cash flow projection 

•Projected Balance sheet 

•Balance and income statement (if it isn’t a new business)

•Break-even analysis

Start-up Costs

If you are about to start a business, first you are supposed to determine start-up costs. They are the first time expenditures that you have to spend before opening your business. It includes all costs such as furniture, supplies, equipment, renovations, license permits and incorporation fees; if necessary.

Cash flow projections  

All the business activities, large or small depends on cash. Cash flow projections show the expected amount of money that you can earn in a business along with what will be spent on expenses It is the cash that you expect from sales.

Projection of cash flow projections

The first is to calculate how much revenue you expect to generate from the sales every month. For that:

• consider the best and worst.
• reach to the clients who can  repay loan on a regular-schedule basis 
• set a credit policy .
• which bills should be delayed and what to be paid. The projections must be completed on an ongoing basis.

Income statements 

It shows your actual business expenses and revenues, the difference between the net profit over some time it sometimes often referred to as profit and loss statement or an operating statement.

From a regular check-in, the projected income statement (at least every three months) can help you identify an emerging problem in your business.

Balance Sheets

It is a snapshot record which contains all the details of what your business assets (owns) are or on as well as its liabilities (owes). Assets can be money, property,  vehicle, inventory etc. The projected balance sheet is what predicts the net worth of your business over a specific period in future. It should be from at least one year to three years into the future

Break-even Analysis

It is a useful tool which calculates at what point your company will be able to make a profit . This is where the total costs equal total revenues. It is based on three factors:- Selling price, fixed cost and variable cost.

  Methods Of Financing for Businesses

After you have completed financial statement, projections and calculations, you will have a clear idea on how to finance your business.

The two main financings are:- 

• Equity Financing

The financing in which you and your partner put the money or raise from the investor’s for the business.

Equity financing is not a debt or loan, but the investors just share the profits or losses.

2. Debt  Financing 

With your equity capital, you are now in a position to approach lenders for a business loan.  It is the money you borrow for business. Unlike equity financing, it should be repaid with interest over a specific period. The lenders won’t be getting the profit however, they must be repaid-with interest no matter whether the business is in profit or loss. The potential lenders include banks, credit unions , private investors, trust companies etc.

In the end, financial planning is a crucial step in mapping out a company’s financial future. In that sense, it is financial planning which gives clarity to your business plan and thus to one’s life!

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How to create a balance sheet in excel, 3 thoughts on “ what is financial planning in a business plan ”.

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it is interesting and essential I know but we need sample of financial plan of one business plan

Budgeting is the backbone ([Link deleted]of any successful business strategy. It’s not just about numbers; it’s about making informed decisions that drive growth and stability.

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How to Write the Financial Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Taking Stock of Expenses

The income statement, the cash flow projection, the balance sheet.

The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:

• Business registration fees
• Business licensing and permits
• Starting inventory
• Rent deposits
• Down payments on a property
• Down payments on equipment
• Utility setup fees

Your own list will expand as soon as you start to itemize them.

Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:

• Salaries (including your own)
• Rent or mortgage payments
• Telecommunication expenses
• Raw materials
• Distribution
• Loan payments
• Office supplies
• Maintenance

Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business plan starting with the income statement.

The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.

While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.

Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.

If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.

The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how  much capital investment  your business idea needs.

For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a  short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.

Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.

There are three parts to the cash flow projection:

• Cash revenues: Enter your estimated sales figures for each month. Only enter the sales that are collectible in cash during each month you are detailing.
• Cash disbursements: Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay for each month.
• Reconciliation of cash revenues to cash disbursements: This section shows an opening balance, which is the carryover from the previous month's operations. The current month's revenues are added to this balance, the current month's disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month.

The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:

• Assets :  Tangible objects of financial value that are owned by the company.
• Liabilities: Debt owed to a creditor of the company.
• Equity: The net difference when the  total liabilities  are subtracted from the total assets.

The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .

For your  business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.

Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.

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Financial Planning Business Plan

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Grizzly Bear Financial Managers

Financial plan investor-ready personnel plan .">, key assumptions.

• Stability in investment markets
• No significant change in regulatory environment
• Trackable, provable performance results
• Good word of mouth bolstered by social media

Revenue by Month

Expenses by month, net profit (or loss) by year, use of funds.

Grizzly Bear Financial Managers will incur the following start-up costs:

• Desk, chair and file cabinet.
• Couch and table.
• Fax machine, copier.
• Computer with printer, CD-RW, and Internet connection.
• Legal fees for business formation.

Please note that the items which are considered assets to be used for more than a year will labeled long-term assets and will be depreciated using G.A.A.P. approved straight-line depreciation method.

Sources of Funds

Meghan will invest $23,000. 

Projected Profit & Loss

Projected balance sheet, projected cash flow statement.

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