A Guide to Financial Modeling for Startups and Small Businesses

Rami Ali

Economic uncertainty was already a major concern for small businesses surveyed by the NFIB, and those results reflect pre-pandemic conditions. That uncertainty is a big reason why finance leaders want to better understand how and where their money is spent, and building financial models is an important discipline for accomplishing that.

What Is Financial Modeling?

A financial model is used to forecast how the business may perform in the future. For small and large businesses alike, financial models are often built in Microsoft Excel or more advanced financial modeling software. They link the company's financial statements with formulas to forecast future financial performance based on certain assumptions. The person building the model can change the assumptions to see what effect that has on the business's plans and profit.

Assumptions are highly educated guesses rooted in historical numbers, trends, external conditions, industry and market data.

Why Are Financial Models Important to Startups and Small Businesses?

No matter the condition of the economy, businesses face challenges or discover opportunities that weren't anticipated. A supplier might be having difficulties. Or the business might be located in a part of the country susceptible to weather-related disruptions. Your largest customers may move to a competing product, or they'll double their business with you. You may discover a new business model that takes off unexpectedly. By developing a financial model that lets you analyze the results of events like these, you can be better prepared to handle those and similar scenarios should they occur.

By constructing a model that considers the business impact of extraordinary events, you can work through how you'd handle them should they occur. Developing a model that helps you understand how you would react to predictable changes will give you a head start on dealing with an unanticipated challenge.

At its highest level, your business model should help you understand what you would do if:

  • Revenue continues just as it has over the past year or so
  • Demand significantly increases compared to the recent past
  • Demand drops significantly

The top-line implications for cash flow and product demand in each of those scenarios will have an effect on each functional area of the company, from finance to marketing. The model helps you determine the steps you would take to keep customers happy while managing the spike or fall in demand.

You don't want to be counting life jackets while the boat is sinking. Likewise, you don't want to run out of staterooms if your cruise sees a sudden rise in popularity.

A business plan that accounts for likely changes in business conditions will not only leave you more prepared; it will also demonstrate to lenders, investors or acquirers that you've thought through what it takes for business to remain successful under adverse or unexpected conditions.

Building a financial model can be intimidating for small businesses, but it's absolutely necessary. In addition to preparing for potential future outcomes, startups can use a financial model to figure out how much to charge for products or services to make a profit. Financial modeling can also be key to establishing good financial discipline by tracking performance against plans.

What's more, if a company ever wants a loan or investment, startups and small businesses will need to build a financial model to create the financial projections lenders and investors require.

Types of Financial Models

Small businesses that have been around some time can combine historical financial data with information from industry and market reports to build data models. Startups, however, often run into the problem of trying to figure out what data to use for the foundation of their financial models since they have little to no sales history or metrics on customer satisfaction. They can look to industry and market research, like Standard and Poor's (S&P) or Dun & Bradstreet, to get national averages for businesses in adjacent markets. Figures can include standard costs of revenue in every industry, the percentage of revenue attributed to direct cost of sales or what percentage of revenue goes to overhead. The U.S. Small Business Administration provides some sample financial assumptions that could be a good place to start.

Three-Statement Model

The most important financial model, and the one on which every other financial model is based, is the three-statement model. The three-statement model links three core financial statements—income statement, balance sheet and cash flow statement—with assumptions and Excel-based formulas and creates a forecast for a given time period. It starts with revenue and can also calculate expenses, debtors, creditors, fixed assets and more.

An employee building a financial model in Excel will create tabs for the income statement (showing revenue and expenses), balance sheet (detailing assets and liabilities), cash flow statement (money in vs. money out), capital expenses and depreciation costs to establish a clear picture of its existing business. A finance professional can then use those historical numbers to develop key assumptions—which drive predicted results—and apply Excel-based formulas to see the projections. How will a shift in demand for your products affect revenue growth and cost of goods sold (COGS)?

On the income statement, assumptions can include revenue projections (average order value minus refunds/discounts), average order value, refunds as a percentage of revenue, discounts as a percentage of revenue, COGS as a percentage of revenue and operating expenses as a percentage of revenue.

Once the three-statement financial model is in place, other financial models can be applied to forecast the effects of various assumptions.

Sensitivity or "What-If" Analysis

This type of model shows the effects of changes in assumptions such as selling price, supply chain costs, fixed costs, forecasted sales, delivery costs and other variable numbers. Sensitivity analysis models generally change one variable at a time and then demonstrate the impact of that change. How does changing the price of packaging or the advertising budget affect the forecast? Can the company break even if it changes the average selling price?

For this reason, sensitivity analysis is also called "what-if" analysis. It challenges the person looking at the numbers to consider the reliability of the assumptions made. What happens if actual results turn out to be much different than expectations? Which factors have the biggest impact on the forecast?

Scenario Analysis

This financial model is closely related to sensitivity analysis but involves changing all or many variables at the same time. A scenario analysis looks at what happened in the past and what could happen in the future, including major changes that would have a lasting impact on the company. It typically includes a base-case, worst-case and best-case scenario. Scenario analysis could be used, for instance, to model the effects of the coronavirus pandemic, a natural disaster or the loss of a critical customer on a company's total sales.

Strategic Forecast Model

Businesses use a strategic forecast model to see how various initiatives it's considering would move the needle on long-term, strategic goals. Also called long-range forecasting, this model helps organizations evaluate the impact of corporate projects, treasury initiatives and marketing and analysis plans on its long-term strategy. For example, a company may use the strategic forecast model to project the costs and potential revenue of opening a second manufacturing plant, building stores in another country or launching a new product line. It can then determine whether it's in the business's best interest to pursue those projects.

Discounted Cash Flow Analysis

A dollar today is always worth more than a dollar two years from now. If you do nothing to your business and it makes a predictable amount of money each month, you know your cash flow. If you make an investment now that will produce new revenue streams in the future, that future money is not worth as much on a dollar per dollar basis than the money you're spending right now.

Instead of investing that money in your business—by opening a new office, purchasing new equipment or buying more inventory, for example—you could invest it and get a return. You could also bank it and earn interest. So to know the value of an investment now, you need to discount the money you expect to earn in the future, which is where discounted cash flow analysis comes in.

The tricky part is deciding what that discount rate should be. Let's say you have a customer who is ready to sign a five-year contract to purchase some quantity of product, and that's the basis for your new investment. As long as that customer has a strong business, you have a sure thing—you know the company will receive a certain amount of income for five years. You can invest and use the interest rate on some other sure thing (like a five-year Treasury Bill) to determine your discounted cash flow.

If your estimated return on investments has historically been 90% of what you initially expected, then your discount rate needs to reflect that. In that way, your discount rate reflects both what you could earn if you just invested the money, plus a measure of risk based on market trends, your own history or both. You'll use that discount rate to calculate the net present value of your investment, and if it's positive, you're making a good investment.

One reason capital investment dried up in many sectors during the COVID-19 pandemic is the risk factor associated with future business. In most cases, it's very difficult to estimate a proper discount rate because, at the time, no one knew how the pandemic would go and how much it would affect business and the economy long-term.

Calculating the net present value of investments is the best way to determine whether an investment is a good one or not. But the quality of calculation is highly dependent on your ability to set the right discount rate.

Foundational Financial Models for Small Businesses

These are the models that will help you understand your company's performance:

  • Financial statements: A helpful financial model that includes a forecast of the financial statements is the best way to communicate company's financial performance across banks, investors, governments, auditors or any other party.
  • Revenue: This tells you how business owners are going to get paid and when they're going to get paid. Those are the things that business owners need to understand to be able to figure out how to price it, how customers are going to pay for it and how often customers are going to buy it.
  • Growth margin: Out of the money that you charge customers in the revenue, how much is going to go towards delivering on the product or service and what's left over. That's going to tell you if you have money to then support and expand the business and make profit.
  • Operating expenses: What's the cost to actually operate the business? What does it take from support, marketing, administrative cost, to services, software etc.?
  • Working capital: Many entrepreneurs and small business owners don't realize that it's going to take capital or money to start the business or even expand into a new line of business. Business owners need to understand how much revenue you need to generate from customers to eventually make enough money to support the business after paying out the operating and gross margin.
  • Investment or capital expenditures: This is usually put together when small businesses need to raise money or talk to the bank for loans or increase credit lines. Business owners need to be able to support how quickly investors could get a return on their investment.

What Does a Financial Model Tell a Business?

Having a financial model not only tells investors or lenders about the health of the business—it can improve decision-making and ultimately facilitate better business management. For small businesses, financial models can answer some basic questions to ensure the revenue model is sound.

The three-statement financial model helps a small business budget and track actual spend against that budget. This makes it easier to see potential slowdowns in cash flow and to know if and when to cut costs. And financial models help businesses plan and estimate when and how much they will need to spend to hit certain milestones around revenue, total customers or other KPIs.

For instance, Slidebean, a company that provides software to help build presentations for startups, uses two assumptions for its financial model : the number of employees and the number of active users. When the number of active users increases by a set number, the model tells the company to hire another support agent.

A financial model also allows the business to make projections in financial statements and track KPIs such as revenue growth, gross margin, operating income, earnings before income and taxes (EBIT), profit margin and net profit margin.

Finance expert Eric Andrews says that most investors want to see a four-year plan for startups. For small businesses trying to secure a loan, some banks will ask to see projections five years out, with more detailed numbers for the first year. To build a financial model:

  • Color code your model. Label assumptions blue (this is the industry standard to tell people that number can be changed). The numbers in black are linked to formulas.
  • Start by generating the basic information needed for the revenue model. For a subscription-based business selling products, for example, on one Excel spreadsheet tab type in two core assumptions—advertising spend and paid customer acquisition costs. Then calculate the number of brand-new buyers. This is calculated by taking the ad spend/customer acquisition costs.
  • On a separate tab, start building the assumptions needed to forecast the income statement. Begin with the assumptions about revenue/sales, COGS and operating expenses.
  • To forecast sales, put in assumptions on the average order value (based on product price), refunds as a percentage of orders and discounts as a percentage of orders. Carry those out month-over-month or year-over-year across the row.
  • To forecast COGS, input assumptions on product cost, fulfillment expenses, customer service and merchant fees and enter it all as a percentage of revenue.
  • To forecast operating expenses, enter assumptions on headcount, salaries and benefits, as well as expenses like advertising, rent, etc.
  • Above these assumptions, build the income statement. In the Excel spreadsheet, those assumptions will now be linked to formulas in the income statement to forecast revenue, net revenue, COGS, gross profit, operating expense, operating profit and net profit.
  • By changing one or more assumptions, the business can see the effect of changes on key areas of the business.

Plan & Forecast More Accurately

Make Financial Modeling Easier With Software

Most small businesses and startups haven't automated their financial modeling. In fact, only 11% of small businesses surveyed by Robert Half said they have automated that process. Yet, a quarter said they will automate it at some point in the future.

There are clear advantages to automating financial modeling—it can handle more complex datasets and visualize projections to make them more digestible. Automation can increase accuracy and reduce the time it takes to complete the forecasts. It also allows for easy comparison of actual versus forecasted results.

But even without automated financial modeling, using technology to automate other parts of the accounting process required to create financial statements provides time and cost savings thanks to greater speed and accuracy. For instance, nearly 40% of companies with less than $499 million in revenue surveyed by Robert Half said that they have automated financial report generation. Finalizing those reports now takes 10 days, compared to 13 days in 2018.

Every startup and small business needs financial modeling. The U.S. Small Business Administration says that financial management includes bookkeeping, financial statements, projections and financing. All of these activities can offer business owners valuable guidance, enabling them to make decisions that will help their companies thrive and grow.

A study from the Federal Reserve Banks of Chicago and San Francisco found a direct correlation between financial management and the financial health of small businesses. And the better a business understands the numbers in its financial reports and the more frequently it reviews them, the more likely it is to succeed. The study found that the majority of financially healthy companies had strong financial knowledge, experience getting financing from a bank and a commitment to developing a budget compared to those with poor financial health.

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How to Develop a Small Business Financial Plan

By Andy Marker | April 29, 2022

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Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.

Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .

What Is a Small Business Financial Plan?

A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

Craig Hewitt

Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”

Why Is It Important for a Small Business to Have a Financial Plan?

All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.

Mark Daoust

Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”

To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .

What Does a Small Business Financial Plan Include?

All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.

Ahmet Yuzbasioglu

  • Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
  • Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
  • Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
  • Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
  • Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .

How to Write a Small Business Financial Plan

Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.

“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”

1. Create a Plan

Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.

2. Gather Financial Information

Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.

3. Create an Income Statement

Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.

Income Statement

4. Create a Balance Sheet

Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.

Balance Sheet

5. Create a Cash Flow Statement

As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”

Cash Flow

6. Create Other Documents as Needed

Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.

Breakeven Point

  • Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”

7. Save the Plan for Reference and Share as Needed

The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.

Janet Patterson

Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at  Highway Title Loans.

Small Business Financial Plan Example

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Example Microsoft Excel | Google Sheets

Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.

Small Business Financial Plan Starter Kit

Download Small Business Financial Plan Starter Kit

We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.

Small Business Income Statement Template 

Small Business Income Statement Template

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.

Small Business Balance Sheet Template 

Small Business Balance Sheet Template

Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets

This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter. 

Small Business Cash Flow Statement Template 

Small Business Cash Flow Template

Download Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.

Break-Even Analysis Template 

Break Even Analysis Template

Download Break-Even Analysis Template Microsoft Excel | Google Sheets

This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.

Personnel Plan Template  

Personnel Plan Template

Download Personnel Plan Template Microsoft Excel | Google Sheets

Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.

Sales Forecast Template

Sales Forecast Template

Download Sales Forecast Template Microsoft Excel | Google Sheets

Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.

Small Business Financial Plan Dashboard Template

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets

This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.

Tips for Completing a Financial Plan for a Small Business

You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:

Jesse Thé

  • Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
  • Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
  • Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
  • Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
  • Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”

Do Small Business Owners Need a Financial Planner?

Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.

Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run. 

Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”

For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .

Drive Small Business Success with Financial Planning in Smartsheet

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How to write a business plan

  • One-page plan
  • Executive summary
  • Products and services
  • Market analysis
  • Competition
  • Marketing and sales
  • Milestones and metrics
  • Company and team
  • Financial plan

Make a financial plan and starting forecasts

Vector of two lines moving to the right and upward. Represents building financial statements and forecasts as part of your financial plan.

How to Write a Small Business Financial Plan

Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully put your budget and forecasts together. Here is everything you need to include in your financial plan along with optional performance metrics, specifics for funding, and free templates.

On this page

Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

Financial ratios and metrics

With all of your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios. While these metrics are entirely optional to include in your plan, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sheet Template

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

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Financial plan FAQ

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financial model business plan


  1. 10 Business Plan Financial Projections Template

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  2. 10-Year Business Plan Financial Budget Projection Model in Excel

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  6. Financial Model Template Free

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  1. Financial Modeling for Your Small Business: A Beginner's Guide

    What Is Financial Modeling? A financial model is used to forecast how the business may perform in the future. For small and large businesses alike, financial models are often built in Microsoft Excel or more advanced financial modeling software.

  2. Business Plan Financial Templates

    Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

  3. Small Business Financial Plans

    A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

  4. How to Write a Financial Plan: Budget and Forecasts

    Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.

  5. Write your business plan

    Executive summary Briefly tell your reader what your company is and why it will be successful. Include your mission statement, your product or service, and basic information about your company’s leadership team, employees, and location. You should also include financial information and high-level growth plans if you plan to ask for financing.