How to Write a Small Business Financial Plan

Stairs leading up to a dollar sign. Represents creating a financial plan to achieve profitability.

Noah Parsons

3 min. read

Updated January 3, 2024

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.

  • 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.

how to do financial planning for a business

Sales forecast template

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

Download Template

how to do financial planning for a business

Accurate and easy financial forecasting

Get a full financial picture of your business with LivePlan's simple financial management tools.

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Content Author: Noah Parsons

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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How To Create Financial Projections for Your Business

Learn how to anticipate your business’s financial performance

how to do financial planning for a business

  • Understanding Financial Projections & Forecasting

Why Forecasting Is Critical for Your Business

Key financial statements for forecasting, how to create your financial projections, frequently asked questions (faqs).

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Just like a weather forecast lets you know that wearing closed-toe shoes will be important for that afternoon downpour later, a good financial forecast allows you to better anticipate financial highs and lows for your business.

Neglecting to compile financial projections for your business may signal to investors that you’re unprepared for the future, which may cause you to lose out on funding opportunities.

Read on to learn more about financial projections, how to compile and use them in a business plan, and why they can be crucial for every business owner.

Key Takeaways

  • Financial forecasting is a projection of your business's future revenues and expenses based on comparative data analysis, industry research, and more.
  • Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts, which can be attractive to investors.
  • Some of the key components to include in a financial projection include a sales projection, break-even analysis, and pro forma balance sheet and income statement.
  • A financial projection can not only attract investors, but helps business owners anticipate fixed costs, find a break-even point, and prepare for the unexpected.

Understanding Financial Projections and Forecasting

Financial forecasting is an educated estimate of future revenues and expenses that involves comparative analysis to get a snapshot of what could happen in your business’s future.

This process helps in making predictions about future business performance based on current financial information, industry trends, and economic conditions. Financial forecasting also helps businesses make decisions about investments, financing sources, inventory management, cost control strategies, and even whether to move into another market.

Developing both short- and mid-term projections is usually necessary to help you determine immediate production and personnel needs as well as future resource requirements for raw materials, equipment, and machinery.

Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts. They can also be used to make informed decisions about the business’s plans. Creating an accurate, adaptive financial projection for your business offers many benefits, including:

  • Attracting investors and convincing them to fund your business
  • Anticipating problems before they arise
  • Visualizing your small-business objectives and budgets
  • Demonstrating how you will repay small-business loans
  • Planning for more significant business expenses
  • Showing business growth potential
  • Helping with proper pricing and production planning

Financial forecasting is essentially predicting the revenue and expenses for a business venture. Whether your business is new or established, forecasting can play a vital role in helping you plan for the future and budget your funds.

Creating financial projections may be a necessary exercise for many businesses, particularly those that do not have sufficient cash flow or need to rely on customer credit to maintain operations. Compiling financial information, knowing your market, and understanding what your potential investors are looking for can enable you to make intelligent decisions about your assets and resources.

The income statement, balance sheet, and statement of cash flow are three key financial reports needed for forecasting that can also provide analysts with crucial information about a business's financial health. Here is a closer look at each.

Income Statement

An income statement, also known as a profit and loss statement or P&L, is a financial document that provides an overview of an organization's revenues, expenses, and net income.

Balance Sheet

The balance sheet is a snapshot of the business's assets and liabilities at a certain point in time. Sometimes referred to as the “financial portrait” of a business, the balance sheet provides an overview of how much money the business has, what it owes, and its net worth.

The assets side of the balance sheet includes what the business owns as well as future ownership items. The other side of the sheet includes liabilities and equity, which represent what it owes or what others owe to the business.

A balance sheet that shows hypothetical calculations and future financial projections is also referred to as a “pro forma” balance sheet.

Cash Flow Statement

A cash flow statement monitors the business’s inflows and outflows—both cash and non-cash. Cash flow is the business’s projected earnings before interest, taxes, depreciation, and amortization ( EBITDA ) minus capital investments.

Here's how to compile your financial projections and fit the results into the three above statements.

A financial projections spreadsheet for your business should include these metrics and figures:

  • Sales forecast
  • Balance sheet
  • Operating expenses
  • Payroll expenses (if applicable)
  • Amortization and depreciation
  • Cash flow statement
  • Income statement
  • Cost of goods sold (COGS)
  • Break-even analysis

Here are key steps to account for creating your financial projections.

Projecting Sales

The first step for a financial forecast starts with projecting your business’s sales, which are typically derived from past revenue as well as industry research. These projections allow businesses to understand what their risks are and how much they will need in terms of staffing, resources, and funding.

Sales forecasts also enable businesses to decide on important levels such as product variety, price points, and inventory capacity.

Income Statement Calculations

A projected income statement shows how much you expect in revenue and profit—as well as your estimated expenses and losses—over a specific time in the future. Like a standard income statement, elements on a projection include revenue, COGS, and expenses that you’ll calculate to determine figures such as the business’s gross profit margin and net income.

If you’re developing a hypothetical, or pro forma, income statement, you can use historical data from previous years’ income statements. You can also do a comparative analysis of two different income statement periods to come up with your figures.

Anticipate Fixed Costs

Fixed business costs are expenses that do not change based on the number of products sold. The best way to anticipate fixed business costs is to research your industry and prepare a budget using actual numbers from competitors in the industry. Anticipating fixed costs ensures your business doesn’t overpay for its needs and balances out its variable costs. A few examples of fixed business costs include:

  • Rent or mortgage payments
  • Operating expenses (also called selling, general and administrative expenses or SG&A)
  • Utility bills
  • Insurance premiums

Unfortunately, it might not be possible to predict accurately how much your fixed costs will change in a year due to variables such as inflation, property, and interest rates. It’s best to slightly overestimate fixed costs just in case you need to account for these potential fluctuations.

Find Your Break-Even Point

The break-even point (BEP) is the number at which a business has the same expenses as its revenue. In other words, it occurs when your operations generate enough revenue to cover all of your business’s costs and expenses. The BEP will differ depending on the type of business, market conditions, and other factors.

To find this number, you need to determine two things: your fixed costs and variable costs. Once you have these figures, you can find your BEP using this formula:

Break-even point = fixed expenses ➗ 1 – (variable expenses ➗ sales)

The BEP is an essential consideration for any projection because it is the point at which total revenue from a project equals total cost. This makes it the point of either profit or loss.

Plan for the Unexpected

It is necessary to have the proper financial safeguards in place to prepare for any unanticipated costs. A sudden vehicle repair, a leaky roof, or broken equipment can quickly derail your budget if you aren't prepared. Cash management is a financial management plan that ensures a business has enough cash on hand to maintain operations and meet short-term obligations.

To maintain cash reserves, you can apply for overdraft protection or an overdraft line of credit. Overdraft protection can be set up by a bank or credit card business and provides short-term loans if the account balance falls below zero. On the other hand, a line of credit is an agreement with a lending institution in which they provide you with an unsecured loan at any time until your balance reaches zero again.

How do you make financial projections for startups?

Financial projections for startups can be hard to complete. Historical financial data may not be available. Find someone with financial projections experience to give insight on risks and outcomes.

Consider business forecasting, too, which incorporates assumptions about the exponential growth of your business.

Startups can also benefit from using EBITDA to get a better look at potential cash flow.

What are the benefits associated with forecasting business finances?

Forecasting can be beneficial for businesses in many ways, including:

  • Providing better understanding of your business cash flow
  • Easing the process of planning and budgeting for the future based on income
  • Improving decision-making
  • Providing valuable insight into what's in their future
  • Making decisions on how to best allocate resources for success

How many years should your financial forecast be?

Your financial forecast should either be projected over a specific time period or projected into perpetuity. There are various methods for determining how long a financial forecasting projection should go out, but many businesses use one to five years as a standard timeframe.

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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 .

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6 Elements of a Successful Financial Plan for a Small Business

Table of contents.

how to do financial planning for a business

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

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9 Financial Planning Tips for Small Business Owners

David Luther

Starting a small business can be exhilarating and overwhelming all at once. It’s tempting to devote the lion’s share of time and effort to developing your product or service, hiring the right people and finding customers. But it’s important to carve out some time to tend to the financial health of the company. It’s similar to how airlines recommend attaching your own oxygen mask before helping others: You can’t fulfill your customers’ needs or empower employees if you suddenly find yourself in a liquidity crisis.

What is Financial Planning?

Small business financial planning is an ongoing process. Your objectives: Develop short- and long-term business and fiscal goals and tactics to achieve them. Do some scenario planning to understand the financial barriers that can arise at every stage of growth, and consider your options in terms of funding sources.

While many aspects of small business financial planning are similar to handling personal finances — think creating a budget, risk management, tax and investment strategies and retirement and estate planning — there are some important differences.

1. Separate business and personal goals.

Blurring the lines between personal and business goals could mean compromising some aspects of your finances for another. Perhaps you want to add a new product to your inventory but also want to add funds to your child’s 529 plan. Which takes priority?

Of course, you’re building the business to make money to forward your personal financial goals. But if you don’t distinguish between personal and business objectives, you may end up hurting both.

We’re not just talking about separating your finances, including having separate checking accounts, for example — though that’s also critical, as we’ll discuss. We’re talking about visioning and goal setting. Ask yourself:

  • Personal: What are my immediate personal priorities? Examples: Get more exercise, learn a new skill. What’s my five- and 10-year plan? What are my family’s priorities?
  • Business: What are my immediate business priorities? Examples: Hire a new employee, make a marketing plan to acquire more customers. Where do I want my business to be in five years? What are our product or service development priorities?

2. Explore your funding options.

Small business owners tend to self-fund, or bootstrap, meaning that personal funds are the owner’s only or major source of capital. Putting money back into the business makes sense: Bootstrapping allows you to slowly and organically grow your business while ensuring that the model is financially viable.

On the downside, you’re not well-diversified. Using savings or credit cards for startup capital can put you at significant financial risk, depending on how capital intensive your business is.

It’s prudent to offset some of that risk by exploring one or more additional sources of funding.

Fortunately, there are plenty of other places to get capital. Bringing in outside sources, such as offering equity and getting a good or service in return, business loans or customer presales or recurring sales can ensure a constant inflow of capital.

3. Focus on liquidity.

Sure, your balance sheet shows you that your business is financially sound, but it doesn’t mean your assets are liquid. The goal should be to have more assets than liabilities, so you have a buffer to meet short-term financial obligations.

And, the professionals controlling those external funding sources — like business lines of credit or inventory/receivables factoring — will expect you to have a view into your liquidity status . Some key points are that while cash, not P&L, is your main metric, there are additional important KPIs like the cash conversion cycle (CCC), days sales outstanding (DSO), days payable outstanding (DPO) and days inventory outstanding (DIO) that all companies should track.

Some small businesses may even want to assemble a “cash committee” to closely monitor daily metrics and report back on liquidity status.

4. Cash flow.

A healthy cash flow enables you to meet current obligations, like paying employees and purchasing raw materials, while also building up a reserve for investments and emergencies. Amassing assets, like real estate or inventory, is great, but if cash flow is a challenge, your business will stall.

Performing a formal cash flow analysis will tell you how much money is flowing in and out of your business. This knowledge allows you to plan accordingly. When you do these analyses regularly, you will gain historical perspective and be able to determine the amount you should set aside as reserves to weather the leaner months or an unexpected cash flow shortage.

5. Manage taxes.

Going the do-it-yourself route may work for your personal finances, but tax planning can be far more complicated as a small business owner. Outsourcing tax planning and preparation to a qualified certified public accountant (CPA) or other financial professional who may be helping with your business will not only free up time, but that expertise may reduce your tax liability.

A CPA knows tax laws in your area inside and out and can advise you on various strategies, such as how to maximize qualifying business expenses and the amount to pay in estimated taxes so you don’t end up with a big bill — or giving Uncle Sam an interest-free loan.

One note: One business valuation expert has seen founders make a mistake by trying to structure their businesses to minimize the payment of taxes. When they’re successful at that, net income might be zero or even negative. However, that can cause major problems when seeking funding or investments.

6. Risk management.

Identifying and mitigating risk is something every small business needs to do, but it often falls to the bottom of the list simply because creating a plan that addresses all potential perils seems like a massive task. And yes, it is virtually impossible to address every risk that could possibly affect your business. But you can certainly narrow the list and put safeguards, like cybersecurity insurance and a crisis communications plan, in place.

Scenario Planning vs. Business Continuity Planning

Scenario planning is often conflated with business continuity planning. While both are structured processes, scenario planning plays a longer game that considers revenue over time. Business continuity planning is about how your business will react to a disaster, such as a warehouse fire or earthquake.

In both processes, the journey may be as valuable as the final work product. By bringing leaders together to think through what could affect your business, you may head off potential risk.

Here are some things to consider when crafting a risk management plan:

  • Provide the right amount of coverage for yourself and your employees while avoiding overpaying for healthcare and worker’s compensation coverage
  • Include cash flow contingencies in case of a business interruption due to a disaster or death of a key person.
  • How will you cope with the loss or theft of business property or fraud by an employee, supplier, partner or other third party?
  • Consult with counsel about protecting your business from lawsuits.

Note that you don’t need to start from scratch. The Small Business Administration provides a free “Risk Management for a Small Business” training guide.

One existential risk for any business is the loss of the founder or other key leader — do you have a plan for what happens when you must or want to leave?

That leads us to the next three items which, while related, deserve their own plans and attention.

7. Create succession and exit plans. 

These are two different scenarios. In a succession, you’re turning the reins of the business over to the next leader. In an exit, you are selling or shutting down the business. As with risk management, the SBA offers a template for succession planning that also includes a section on selling the business.

When deciding whether to sell, close or pass along the company you’ve built, the Small Business Administration recommends looking at a few factors. Have you received a job offer from another company or a purchase offer for your business or your business assets? Are you satisfied with the business’ profitability? Do you foresee market or industry changes that you can’t or don’t wish to adapt to?

On a personal level, are you ready to retire or find you’re working too many hours? Are you simply no longer passionate about the business and ready to try something new? Answering these questions should provide clarity into your next steps.

Let’s look at both succession and exit.

Exit plan: If you wish to sell your company, you need an idea of the value. In fact, even if you aren’t looking to sell, it’s smart to always have a ballpark idea of the business’ market value. Experts advise looking at what similar firms have sold for recently, consider qualitative factors such as whether executives plan to stay on and decide what payment terms you’ll accept.

Succession plan: This is a strategy to cede control of the business to one or more people, or an acquirer. If the former, decide if you will pass the company on to a family member or an employee, and begin training. You’ll still need to know the business’ value, so take the steps mentioned above. Bring in an attorney and a tax professional early on.

8. Plan for retirement.

Retirement planning is crucial for everyone, business owner or not. Experts recommend saving at least 15% of pretax income for retirement in a tax-advantaged plan, such as a simplified employee pension individual retirement account, or SEP-IRA. Any employer, including sole proprietorships, are eligible to establish SEP-IRAs. You can extend this opportunity to employees.

As with taxes, an experienced financial planner can walk you through your options to create a plan suited to your company’s needs.

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9. Create an estate plan.

Proper estate planning helps to provide for your loved ones, business partners and employees who rely on your business; minimize tax exposure; and provide clear instructions on how the business should proceed. These plans are also critical in case you’re incapacitated. There’s no substitution for having an experienced estate planning attorney help you create an airtight plan.

Creating a customized financial plan is an ongoing process. Find trusted advisers who can offer advice and help you develop actionable steps. Successful small business financial planning is an ongoing process, and done successfully, these strategies will optimize performance and show customers and employees that you’re looking out for their welfare.

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How to Conduct Small Business Financial Planning Effectively

September 14, 2023

by Joanne Camarce

small business financial planning

In this post

  • Why is financial planning important for a small business?

How to craft a strong financial plan for your small business

  • Financial planning considerations small businesses make
  • Financial planning tips for small businesses

As a small business owner, financial planning can feel overwhelming.

But financial planning is crucial for small businesses. Not only does it provide you with an entire overview of your financial health, but it helps you figure out how to grow and develop your business as efficiently as possible. 

There are many budgeting and forecasting software for small businesses that can estimate future revenue and expenses by planning the financial resources you need. 

What is small business financial planning?

Small business financial planning is the process of reviewing revenue, turnover, assets, capital, inventory, and anything else concerning a business's financial affairs. It summarizes the financial health of a business and outlines its financial goals for the future. 

Whether it's a long-term investment plan or a short-term plan for revenue growth, your financial plan will be clear as to what your goals are and how you can plan to achieve them. 

In this article, we’ll discuss everything you need to know about financial planning as a small business . We’ll cover what financial planning is, whether you need a financial advisor, and how to create a solid financial plan for your business.

We’ve also got some valuable tips for financial planning as a small business and an overview of a few essential things to bear in mind when creating a financial plan. 

Why is financial planning important for a small business? 

You just finished registering your business through a qualified registered agent . Now, you’ve got a lot on your plate running the actual business, and finance is a complex subject. Here are a few reasons to plan your finances: 

  • Understanding your financial situation: As a small-to-mid-size business, it’s important to have clear oversight of your financial health. With oversight of your finances, you’ll know what resources you have available, what areas of your business are doing well, and what areas need improvement. 
  • Identifying areas of growth: Financial planning is a great way to identify areas of growth. It shows you where you can improve your business and how to spend your money. And as a small business owner, you need to make sure you’re spending your money as efficiently as possible. 
  • Thinking about the long term: Financial planning is the perfect opportunity to think about the long-term growth of your small business. You can create a step-by-step plan to get from where you are now to where you want to be. 

Do you need a financial advisor as a small business owner? 

A financial advisor helps you make informed decisions about what to do with your money and other assets. 

But the question is: do you need one?  In short, no. You don’t need a financial advisor. But there are benefits to using one if you’re running a small business.

These include:

  • Saving time: With a financial advisor taking care of your money, you can spend less time managing your finances and more time running your business.
  • Evaluating market trends: Financial advisors know the industry inside and out. They’re on top of all the latest economic trends that influence the way you run your business. 
  • Saving money: Using a financial advisor isn’t cheap, but it can help you save money in the long run. With such a wide range of industry knowledge, they’ll find ways you can cut costs that you might not have considered.

Even though a financial advisor isn’t a necessity, there are certainly reasons you should think about using one as a small business owner. It might seem like a lot of money to spend, but it’ll save you both time and money. 

Unfortunately, there isn't a one-track system to create a successful financial plan. Every company is different, which means financial plans change from business to business.  But there are some best practices you can follow to make sure your financial plan is as strong and stable as possible. 

Identify any capital required 

First things first, you must identify the capital you need to help your business grow.  Knowing what capital you need helps you plan your finances more efficiently and maximize your resources. 

Not to mention, it allows small business owners to figure out how much they have (in terms of money, resources, and assets) in comparison with what they need. 

So how can you identify the capital you need? First, you need to figure out what capital you already have. This will give you a solid starting point to find the capital you need to get to where you want to be. 

Spend some time reviewing what your business already has, and go from there. Once you know what resources you have available, you can think about what capital you need. 

Create a balance sheet 

A balance sheet reveals your company’s assets, liabilities, and equity. It adds your liabilities (any debt or losses) to your equity (what your business is worth) to determine the value of your assets. 

Here’s an example of a balance sheet in action: 

balance-sheet

When combined with other documents, such as an income statement or cash flow statement , small business owners get a pretty clear picture of their financial health.

How can you create a balance sheet? Follow these steps to create your own: 

  • List all your assets along with their current market value
  • Outline all your debts and liabilities
  • Subtract the value of your liabilities from the total value of all your assets

What you’re left with is the equity ( net worth ) of the business. 

To keep things simple, the free balance sheet template is also available.

Produce a cash flow statement 

As a small business owner, it’s important to keep on top of your operating cash flow . 

Having a healthy cash flow is an important part of running a successful business. It gives you a buffer for emergencies, allows you to pay your employees on time, and provides you with the funds you need to run your business. 

To keep track of your cash flow, you need to create a cash flow statement. A cash flow statement is a financial document that summarizes all the cash going in and out of your company. It shows how the company's operations are running, where money is coming from, and how it’s being spent.

Here’s an example: 

cash-flow-statement

With a cash flow statement in place, you can easily measure how well your company manages its cash position. 

Project your future earnings 

Part of the financial planning process involves projecting your future earnings. The most efficient way to do this is to create an earnings forecast. Based on how your company has performed in the past, you make predictions about future earnings over a specific period. 

In other words, you use past data to predict your future earnings.

But how is this useful for a small business? There are a few ways: 

  • Find your future goals: Forecasting helps you figure out where you want your company to be further down the road and map out the journey to get there. 
  • Align your team: When you conduct an earnings forecast, you create a goal for everyone to work toward. By doing this, you align your company to hit certain targets. 
  • Show investors your roadmap: As a small business, you might be thinking about getting investors involved . An earnings forecast outlines the course of your business development, which investors will certainly want to see. 

Financial planning considerations small businesses make 

For your outline, you only need bullet point descriptions of content you plan to write. When it comes to financial planning, there are certain considerations small businesses need to keep in mind that large companies won’t. 

Or if a large corporation needs to take the same consideration, they’ll probably review it from an entirely different perspective. Let’s take a look at some of the financial planning considerations you need to be aware of as a small business owner. 

1. Retirement planning 

We know what you’re thinking. Isn’t retirement planning important for every business, not just small businesses? You’re right. Every business owner should think about retirement planning. But small business owners need to do it sooner rather than later. 

Large corporations have retirement planning and processes in place for employees. But as a small business owner, this job is up to you. 

Here are a couple of things to think about when it comes to retirement planning: 

  • Distribute your finances: Preparing for retirement involves saving, distributing, and investing your money. The most common investments are usually retirement accounts, which allow you to grow your money with tax benefits and interest. If you’re giving away any assets to friends or family, be sure to check whether they are tax deductible . 
  • Create a will or trust: Retirement planning takes life expectancy into account. Having a living will or trust in place will protect your assets in the event of an accident or incapacitation. 

Get your ducks in a row as soon as possible to make sure you can enjoy a long and happy retirement. The sooner you factor it into your financial plan, the more chance you will reach your goal. 

2. Risk management

Every business faces risk. Whether that’s losing market share to a new competitor or taking a hit in product sales, there’s always a possibility things won’t go to plan. 

But the potential loss for a small business can be detrimental if you don’t have a risk management plan. A risk management plan outlines the possible financial issues your business might face and how to mitigate them. This will ensure that you’re prepared for the worst-case scenario. 

And if you’re thinking about getting an investor on board, they’ll be pleased to know you have a plan to tackle any challenges that come your way.

So when it comes to your financial planning, make sure you think about integrating a risk management plan, too. It might seem like a lot of effort, but if things don’t go your way, you’ll be glad to have a plan of action in place. 

3. Tax planning 

No one wants unexpected fines and charges, especially if you’re a small business. A large fine from the authorities could be the difference between a successful year or cutting costs across the company. 

Fortunately, this is where tax planning can help. 

Tax planning involves organizing your finances in the most tax-efficient way. It identifies areas where you can save money and claim money back. It also reduces your likelihood of getting unwanted fines. As a result, you can put more money back into your business. And as a small business, the more money you can invest in your growth, the better. 

If you’re not sure where to start with tax planning, don’t worry. There’s a lot of tax software out there that can help you out. 

Financial planning tips for small businesses 

We’ve covered a lot of ground so far, so let’s wrap things up by looking at four of our most useful financial planning tips for small businesses. 

1. Review your operating expenses 

Operating expenses are costs incurred from your core business operations. For example, the rent you pay for your workspace or your inventory costs.

Taking stock of your operating expenses allows you to identify the cost of running your business, which is vital for financial planning. With this information, you can work out your net profit. This means you can figure out how much money you have leftover after all your expenses are settled. 

And as a small business, keeping on top of your net profit is the key to success. Without an SMB accounting system, you won’t know what money you have available, which could result in overspending. 

If you’re not sure where to start, there are plenty of expense management platforms out there to make the job easier. 

2. Outline your business goals 

Clearly outlining your business goals gives your financial planning direction. When you have company goals in place, you can tailor your financial plan to achieve those goals. 

Imagine your business goal is to increase your annual turnover by 10% within the next year. As a result, your financial plan outlines how you can cut costs on production to offer a lower price to consumers. 

Take a look at the pricing page from ActiveCampaign . This software is entirely online, meaning it can offer services for a very reasonable price. 

Offering a lower price has a higher chance of increasing your conversions and getting a higher annual turnover. 

Make sure you’re clear on what your company goals are before you create a financial plan. By aligning business goals with the financial planning process, you have a higher chance of achieving them. 

3. Consider your funding options 

If you haven’t already, make sure you explore the loans and grants that are available  to small businesses. 

Securing funding can help you reinvest your capital, grow your company, and improve your financial health. The good news is that there’s a variety of funding options out there for small businesses.

Organizations such as the U.S. Small Business Association and the U.S. Government (among others) offer funding options for small businesses. You’ve got nothing to lose by applying, so take a look at what’s out there. 

4. Build your credit score 

If you consider funding or investment, you don’t want poor business credit to be a problem. Investors and shareholders aren’t going to invest in a business with a bad credit score. It could also cause problems with acquisitions and other business transactions further down the road. 

So what can you do to improve your credit score and keep it strong? Pay your bills on time. Don't miss credit card payments. Don't accept any loans with interest rates you can't afford. This will make sure your credit rating stays above the line.

When cents make sense

You’ve now got a pretty solid understanding of small business financial planning and some best practices to follow when creating a financial plan. 

Now it’s time to put all this knowledge into practice.

If you’re worried about taking on this arduous task, don’t be. There are ways to make the process easier to manage. With the right platform, you can streamline the planning process and keep everything stored in one location.

Take a look at the best financial analysis software for small businesses to monitor your financial performance efficiently.

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Money talks. What's yours saying?

Use the right budgeting and forecasting software for your small business to plan your finances accurately.

Joanne Camarce photo

Joanne Camarce grows and strategizes B2B marketing and PR efforts. She loves slaying outreach campaigns and connecting with brands like G2, Wordstream, Process Street, and others. When she's not wearing her marketing hat, you'll find Joanne admiring Japanese music and art or just being a dog mom.

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Ajay Jagtap

  • December 7, 2023

13 Min Read

financial plan for startup business

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.

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how to do financial planning for a business

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.

how to do financial planning for a business

Create a Financial Plan with Upmetrics in no time

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

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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:

Upmetrics financial projections visual report

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 Balance Sheet

Projected Cash-Flow Statement

Cash-Flow Statement

Projected Profit & Loss Statement

Profit & Loss Statement

Break Even Analysis

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.

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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

how to do financial planning for a business

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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9 key benefits of business financial planning

how to do financial planning for a business

Published on January 31, 2024

how to do financial planning for a business

Building a business financial plan is never easy. It requires effort, good data, and a fair amount of imagination. And if you’ve never done this before, you’ll likely hit a few roadblocks along the way.

But this post will show you why it’s so valuable, nonetheless.

A good financial plan keeps you focused and on track as the company grows , when new challenges arise, and when unexpected crises hit. It helps you communicate clearly with staff and investors, and build a modern, transparent business.

And there are plenty of other advantages .

We’ll explore nine of our favorites shortly. But first, let’s define exactly what we’re talking about.

What is business financial planning?

Your company’s financial plan is essentially just the financial section of your overall business plan . It applies real financial data and projections to put the rest of your business plan in context.

And crucially, it is forward-looking. While you use existing accounting figures (if you have them already) and experience to create your plan, it’s not simply a copy/paste of your accounting data. Instead, you look at your business goals and define the level of investment you’re willing to make to achieve each of these.

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But this doesn’t mean that financial plans are just “made up.” If anything, this section of your business plan is the most grounded in reality.

As Elizabeth Wasserman writes for Inc :

“A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line.

The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business.”

The importance of financial planning in business

This probably won’t come as a surprise to most readers, but financial planning is essential to building a successful business. Your business plan dictates how you plan to do business over the next month, quarter, year, or longer - depending on how far out you plan.

It includes an assessment of the business environment, your goals, resources needed to reach these goals, team and resource budgets, and highlights any risks you might face. While you can’t guarantee that everything will play out exactly as planned, this exercise prepares you for what’s to come.

We’ll look at the precise individual benefits next, but suffice it to say that, without a clear financial plan, you’re basically just hoping for the best .

9 benefits of financial planning for business

So what exactly can you hope to gain from business financial planning? The benefits of business planning are probably endless, but here are nine clear advantages.

1. Clear company goals

This is really the starting point for your whole financial plan. What is the company supposed to achieve in the next quarter, year, three years, and so on?

Early on, you’ll want to establish that there is a real need for your business , and that your business fills this need. This is also known as “product/market fit.” For many startups, the first several years may be devoted to building a product and establishing that product/market fit. So this would be your chief one-to-two year goal, with smaller checkpoints along the way.

Crucially, if this is your key goal, you won’t set lofty sales targets or huge marketing KPIs. What’s the point of investing in sales and marketing for new customers, if the product isn’t ready to sell?

We’ll refer back to your company goals throughout this post, so it’s worth getting a handle on them from the start.

2. Sensible cash flow management

Your financial plan should also set clear expectations for cash flow - the amount coming in and out of the company. In the beginning, you’ll of course spend more than you make. But what is an acceptable level of expense, and how will you stay on track?

As part of this plan, you also need to figure out how you’ll measure cash flow easily. You may not have seasoned finance experts in the team, so can you accurately and efficiently keep track of where your money’s going?

By making your plan now, you can anticipate challenges both in receiving money and spending it , and identify ways to do both more effectively.

3. Smart budget allocation

This is obviously closely related to cash flow management (above) and cost reductions (below). Once you have a clear understanding of the amount of funding you have to spend - whether through sales income or investments - you need to figure out how you’ll actually spend it.

The company has its overall budget - essentially its “burn rate” for each quarter or year. Break this down into specific team budgets (product development, marketing, customer support, etc), and ensure that the amounts dedicated to each reflect their importance.

Budgets give each team their own constraints from within which to build . They know what resources are available to them, and can plan out campaigns and personal or product development accordingly.

At the company level, tracking project or team budgets is always going to be easier than monitoring spending as a whole . Once you break each budget down, it’s relatively straightforward to keep an eye on who’s spending what.

Get our free marketing budget template to help.

4. Necessary cost reductions

Aside from setting out how much you can afford to spend (and on what), a financial plan also lets you spot savings ahead of time. If you’ve already been in business for some time, building your financial plan involves first looking back at what you’ve already spent and how fast you’re currently growing.

As you set out your budget(s) for next year, you’ll refer back to past spending and identify unnecessary or over-inflated costs along the way. And then for next year’s budget , you simply adjust accordingly.

This conscious effort is all part of spend control , the practice of keeping company spending in line with your expectations. Even better, a quarterly or annual review almost always unearths areas where you can save money and put your resources to better use.

Learn more about effective spend control .

5. Risk mitigation

A crucial aspect of the finance team’s role is to help companies avoid and navigate risk - from financial fraud to economic crisis . And while plenty of risks are hard to predict or even avoid, there are plenty that you can see coming.

Your financial plan should make room for certain business insurance expenses, losses through risky inefficiencies, and perhaps set aside resources for unexpected expenses . Particularly during turbulent times, you may in fact create several financial forecasts which show different outcomes for the business: one where revenue is easy to come by, and one or two others where times are tougher.

Again, the point is to have contingency plans in place, and to attempt to determine how your roadmap changes if you grow only 20% next quarter instead of 30% (or 50%) . There’s no reason to go overboard, but you can find risky areas within the business, and also consider your best responses if things go wrong.

6. Crisis management

The first thing that tends to happen in any company crisis is you review and re-build your plans. Which of course means that you must have a clear business plan in the first place . Otherwise, your crisis response is simply to improvise.

As the 2020 financial crisis unfolded, the key refrain we heard from finance leaders was the need to reforecast constantly. Nobody truly knew how long the crisis would last, or how it would impact their business. So companies created new financial plans on a monthly or quarterly basis, at least.

And those with robust and well thought-out financial plans found this process easier. They weren't starting from scratch over and over, and they’d already identified obvious risks and the key levers to pull in response.

7. Smooth fundraising

Let’s shift away from risk entirely now. Whether you’re a brand new startup, a sustainable company that needs a small cash injection, or looking for a significant series-level investment, at some point you’ll likely need funds.

And the first thing any prospective investor or bank will ask you for is your business plan . They want to see how you intend to grow the business, what risks and uncertainties are involved, and how you’ll put their money to good use.

A financial plan that speaks to investors is critical, and the better your history of planning is, the more likely they’ll trust your projections. So whether or not you’re looking for funds today , a business financial plan is an important tool in your chest.

8. A growth roadmap

Finally, your financial plan helps you analyze your current situation, and project where you want the business to be in the future . Again, your wider business plan will do this on a broad level: the markets you’d like to be present in; the number of employees you’ll have; the products or services you hope to sell.

The financial section adds data to these goals, and plugs in your level of investment along the way . For example, if you wish to hire 100 new employees this year, your financial plan will likely need to include recruiters, and a specific budget to find new talent.

Take the time to set out how large you expect the company to be, your expenses with a larger company, and the amount of revenue coming in to compensate. If you’ve raised venture capital to help grow financially , you can probably expect to burn cash faster than you make it - this is normal.

But if you burn through money and can’t reach your growth targets, then you’ll need to re-evaluate your position. So set those growth targets out now, and you’ll be able to assess as you go.

9. Transparency with staff and investors

We already mentioned how necessary your financial plan is for investors. So we won’t dive into them more here.

But the same is true for staff. It is now expected that company executives will be open and honest with staff . Some startups go so far as to publicize their salaries for the world to see.

At the very least, modern employees want to see that the company is in good hands and on the road to success. And when executives can share the financial plan in all-hands meetings, they bring real data to what would otherwise be a business plan lacking in details.

Employees love to see key figures like revenue coming in, costs, and where you are on the road to profitability .

What to include in a business financial plan

We won’t go into too much detail here, but it’s worth giving an idea of what belongs in the typical financial plan.

A three-year financial plan is most common. But whatever the period in question is, your plan should include:

Sales projections : Project your expected sales growth for the near future, as well as the cost of sales . You can break these down in different pricing groups, products, and other important factors.

Expenses & budgets : Most important here are costs - separated into fixed and variable expenses. (Lower fixed costs usually mean lower risk for the business).

Profit & loss statement : Alternatively, you can create a cash flow statement, which achieves a similar outcome. You essentially want to project money in and money out over the next three years.

Assets & liabilities : These will usually be separated from your P&L statement, and will certainly include startup costs and assets for new businesses.

Break-even analysis : Ideally, you’ll be able to identify your break-even point within the coming three years.

Hiring & team structure : This one is not essential, but it makes sense to add as part of your business plan. Who will you need - and when will you acquire them - in order to reach your goals?

For more information - especially on forecasting in uncertain times - read our expert’s guide to startup financial planning .

There’s no time like the present to create your business financial plan

We’ve seen nine excellent reasons to get to work on your company financial plan as soon as possible. As we explored, the financials form a critical part of your overall business plan , without which you’ll have a hard time assessing your performance as a company.

Of course, this exercise requires projection - you can’t just rely on the numbers you have today. But that’s not the same thing as guesswork . Follow best practices and consider all potential outcomes, and you’ll walk away with a clear roadmap to get you to business success in the foreseeable future.

From there, it’s a matter of putting in the work, measuring success, and regularly updating your financial plan.

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The Ultimate Guide To Business Financial Planning

The ultimate guide to business financial planning.

Every business wants to accomplish its own set of long and short-term goals. Yes, some goals are more relevant than others, and the hierarchy is unique to the organization. Still, one of the biggest things companies aim for is financial stability for the long term.

Having a comprehensive financial plan is crucial if you want your business to go from where it is now to where you want it to be. Many factors affect a business’s finances, from decisions in management to profits to accounts receivable turnover. As owner or finance leader of the firm, you’d want to make sure that your organization always stays on top of its finances.

This article will discuss the significance of financial planning and how you can create one for your business. 

What is Financial Planning? 

Simply put, financial planning involves a comprehensive evaluation of your company’s current financial health so you can lay out financial objectives and the strategies your company will use to achieve those objectives. You can use these evaluations to create favorable projections that your company can aim for. Typically, a financial plan is a component of your overall business plan, which you tweak over time to align with your current goals. 

In your financial plan, company management and investors can view critical information regarding your company’s growth strategy. It includes essential details such as sales projections, cash flow projections, your expenses budget, and other information that can guide those involved to make informed decisions. As more and more companies embrace digitization, the use of financial management software in budgeting and planning slowly becomes the norm. By pairing it with robust accounts receivable management software, your business increases its efficiency in cash flow management.

Why is Financial Planning Essential For Your Business?

Every business experiences ups and downs as it goes along its journey. With the pandemic still going on, organizations must work harder and innovate to remain standing. A recent survey shows that six in 10 Singapore businesses are barely making ends meet amid the pandemic-induced volatility. When things go downhill, you must find a way to pull through. Your financial plan can come in handy as you navigate the rollercoaster of running a business. It can serve as a road map to your business’s monetary success, nudging you about your short-term and long-term financial objectives from time to time.

A financial plan sets your short and long-term financial goals in a timeline that you can follow. By organizing it into small chunks of steps, you can focus on single actions that accumulate into significant gains.

What Does Your Financial Plan Tell You?

Whether you’re a new business or an established corporation, keeping track of your financial growth and success is vital. Your financial plan reveals two principal details: your current financial data and your expected financial outcome in the future.

Your company’s financial plan lays out the following:

  • Where your business is right now in terms of finances and where you want it to be. 
  • The strategies you will use to generate your ideal income 
  • Your expected profits and future revenue stream
  • How your business will keep ahead of the competition
  • Your projected business growth on an annual basis
  • How your business will make the most out of existing capital and assets
  • The current and expected state of your cash flow
  • How you will handle common problems such as dormant financial receivables  

How Do Financial Plans Guide Your Company?

All this information is vital for you, your team, and various entities and individuals who can provide value for your company. Complementing your business plan with a comprehensive financial strategy can help justify why your business is good. 

All of the information found on your business’s financial plan allows you to:

  • Attract potential investors and funding to your company
  • Secure business loans from lenders
  • Have benchmark forecasts that you can strive to meet and exceed.
  • Better allocate resources and manage liabilities such as debt
  • Determine if your business is still viable or not
  • Protect your business by planning for the unexpected.

If you’re just starting out on your entrepreneurial journey, your financial plan can inform you whether your business is feasible or if you’re just taking an uncalculated risk. 

How to Create a Solid Business Financial Plan?

Your financial business plan should properly supplement your company’s overall business plan. Just like every other section of your business plan, your financial plan is not set in stone. You can modify it anytime for the right reasons. Remember that while the details written on your financial plan are crucial, at the end of the day, what you do with those details is what counts the most.

Here are the steps you can create or recreate your company’s financial business plan:

1. Conduct Research and Develop a Strategy

Everything starts with doing your homework, especially if you’re a startup since you won’t have any past data to gather information. This process goes hand in hand with the development of your overall plan. Before calculating any information to make predictions on the financial plan, you must put every other integral business component in place. This includes your business’s:

  • Operating procedures for activities
  • Products or services
  • Target audience
  • Market research
  • Market strategy
  • Predefined budget and expenses 

After outlining the core components of your business, you can now develop a plan to carry it towards financial growth using a predefined budget. By laying out what your company wants to achieve, you can determine the most productive steps towards it. You can answer questions such as how you’ll acquire financing, what level of talent you would need to source, and how to improve accounts receivable turnover. 

2. Create Financial Projections

Your business must have something good to look forward to in the future to attract investors. Financial projections show an estimate of your future revenues, expenses, profits, and net worth. It provides three essential points, a forward-looking income statement, a balance sheet, and a cash flow statement.  

  • Income Statement

A projection of this financial statement shows your anticipated revenue, expenses, and profit after the end of a specific period. By calculating your expected sales and the cost of those sales, you can reveal if your business can be sustainable.

  • Balance Sheet

A balance sheet forecast reveals your anticipated assets, liabilities, and owner’s equity during a particular point in the future. Ultimately, it shows what you expect your business to be worth during that future period.

  • Cash Flow Statement

This forecast shows the outlook of cash movement in and out of your business. By projecting a smooth cash flow (more money moving in than coming out), you can impress investors and lenders to stand by your company. 

Cash is what will eventually drive your company forward. At any point in your business’s life, having excellent cash flow gives you more flexibility to do the things that allow you to expand and grow. 

By examining past and present results to forecast growth, you can set realistic goals, formulate sound decisions, and tackle unexpected challenges. When gathering data and organizing your projections, financial forecasting software can help ease the process. 

Here at Peakflo, we have integrated our advanced accounts receivable management software with an intuitive forecasting tool, making it easier for you to anticipate your business’s most valued KPI – liquidity. 

3. Keep Track of Progress

Having a benchmark to aim for allows you to create straight pathways towards the results you want. After expressing your goals in clear and definite numbers, you can now monitor your progress and determine if it’s spinning in the right direction. 

You can always generate financial statements at any time and start comparing past results to your current. Yes, compiling detailed reports on paper can be intimidating, especially if you have to do it on the spot. However, you can simplify the process by utilizing financial management software to generate reports and forecasts quickly.  

4. Plan for the Unexpected

It’s not uncommon to run into uncertainty when running a business. But, now that you have developed your financial game plan and its supplementing forecasts, you can now review every detail to identify vulnerabilities and weak spots. For example, suppose you know that your business will eventually have to deal with b2b accounts receivables. In that case, you can brainstorm ways to maintain cash in the bank early on so that when cash flow takes an unexpected twist, you’ll have enough reserves to keep everything going.

Enhance Financial Planning with Business Financial Planning Software

Conventional tools such as spreadsheets might work if you’re just starting out in getting your finances together. However, as your business grows and expands, so will the demands for more streamlined financial management and team collaboration approaches.

By complementing your financial planning and management with software, you can begin to automate tasks that would otherwise take more time and effort. You’ll also be able to seamlessly retrieve gathered data to create your essential reports and projections.

How Can Peakflo Help?

Integrating cash management and AR platform with your existing financial tool puts you in a better position to maintain your ideal cash flow. With Peakflo, you can increase the efficiency of your AR operation, ultimately allowing you to get paid sooner rather than later. We also offer valuable tools that improve team collaboration and productivity so you can be sure that your finances stay in the right direction.

Connect your accounting software and start automating your accounts receivables with Peakflo today!  

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6 Steps to Develop a Financial Plan for Your Small Business

Create a financial plan in 6 steps, 1. open a business bank account and get a tax id.

It’s difficult enough to keep track of your personal expenses, and when you mix your business income with the money in your checking account, things can quickly get out of hand.

For this reason, we recommend you open a business account before opening your business to start with a clean slate. Then, apply for your Employee Identification Number (EIN), a.k.a., your business tax ID or ITIN. If you forget while operating as a corporation or partnership, you can get into a lot of trouble with the government.

2. Identify your funding sources

The second steps of your financial plan is identifying your funding sources. You’re going to need money to finance your startup, but what’s the best way to find it? There are actually multiple ways to finance your small business , and it depends on your personal style and how much money you’re currently worth. Here are a few popular ways entrepreneurs fund their startups:

  • Self-Financing – This can be risky, but there are multiple ways to accomplish your financial goals on your own. Whether you tap into your money market accounts, make use of credit cards, or take out a bank loan, almost any aspiring entrepreneur can find a way to finance their business themselves.
  • Friends & Family – Many entrepreneurs run into bad luck when trying to go it alone – let’s face it, life happens, and that savings account can suddenly empty out after an emergency. So, it’s not a bad idea to ask close friends and family for their help. In fact, you wouldn’t be alone; 68 percent of SMB owners have tapped into their immediate network to obtain funds. Just be confident it’ll work out, or else your personal relationships could suffer significantly.
  • Venture Capital – VC firms invest directly in companies that are first starting out in exchange for equity stakes. If you choose this option, keep in mind that the competition in this market is high, and they tend to pick those companies that show the most growth potential.
  • Small Business Administration Loans – These are commonly utilized loans that are offered by qualifying banks, nonprofit lenders, and credit unions. One popular loan is the 7(a) Loan Program, which offered an average of $337,730 per loan in 2012.

The above are just four ways to finance your business in its early stages.

3. Calculate expenses

What is the real cost of starting or operating a business ? Total expenses can be easily underestimated at the beginning of a business, so make sure to itemize every single thing you might need to invest in when you first start out – after all, this can be revised later as your business finds its footing. Here are just a few of the expenses you’ll want to consider for your startup:

  • Office equipment
  • Office supplies
  • Rent/Deposit
  • Web and logo design
  • Pre-opening marketing

Once you have the numbers, add these to your assets and recurring costs that keep your business going, and you will have your startup cost. You can also check out the Wall Street Journal calculator that help get you on the right track.

4. Create price points and profit margins

F igure out how much you'd like to make in profits. Once you decide how much you'd like to make in profits, you'll have to create a price point for your product that covers the expenses incurred in making the product and gives you the profit margin you're looking for. Not sure how to price your products or services? Follow these simple tips . And don't forget to add taxes to the equation for an accurate number.

5. Build a budget

  Building a budget is the most essential step in creating your financial plan. Take a look at the expenses such as product equipment, utilities and other services you pay for in order to maintain the business. Insurance and rent are major expenses for many businesses as well. Keep the budget in an Excel or Google spreadsheet, and factor in other items such as savings and an emergency fund. As a business owner, you really don't know what to expect: in the beginning stages, you may spend more money than you might have anticipated. For this reason, it's really good to have a financial cushion to make sure that the business is covered. 

6. Factor in advertising and promotion

Advertising and promotion are essential for growing your company. Because of this, it's so crucial for a small business to allocated a budget to cover marketing expenses . Most small business owners underestimate the power of a marketing budget to run the right ads and get in front of the right people. Thankfully, sites like Facebook and Instagram have excellent advertising programs that aren't nearly as expensive as creating a TV commercial. They work in the favor of the startup companies. However, it's still important to know that you'll get much farther as a company if there is a specified monetary amount to cover effective advertising and marketing campaigns.  In the end, you have to plan for where you want to go. It's important to factor in sustainability and growth for the company. Once you do this, you'll have an easier time focusing on outsourcing, product creation, and customer engagement. Before you know it, your small business will be making big financial moves.

Alex Briggs is a contributing author for Wages & Benham .

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What is financial planning in business?

Table of Contents

What is financial planning?

Difference between a personal and business financial plan, how to create a financial plan for your business, develop a solid strategy, create a balance sheet, make cash flow projections, prepare a projected income statement, allocate your budget, monitor your results, plan your finances easily with countingup.

Planning and organising your finances is one of the most crucial parts of running your own business. Financial planning helps you prepare for what the future may involve and uncover ways to grow your company. 

But a financial plan involves much more than simply tracking income and expenses. To help you understand what financial planning is, this guide covers:

  • The difference between a personal and business financial plan

Read on to learn how Countingup can help you manage your financial planning with ease.

A financial plan serves as a roadmap for your economic growth, showing where you’re at right now, where you want to go, and how you will get there. 

You can create a financial plan for personal and business purposes, but these processes are slightly different. We’ll explain more about personal vs business financial planning later in this article.

Financial plans are essential because they force you to consider if you’re on the right track to achieve your business goals. Businesses don’t usually grow accidentally but as a result of hard work and careful planning. 

Working with specific goals in mind and a plan for reaching them increases your chances of taking your business where you want it to go. Otherwise, you risk stumbling around in the dark, focusing on things that won’t help your business grow. 

Most financial plans include much of the same information. However, there are some key differences between a personal financial plan and a business one. The reason is that an individual’s financial goals are likely different from those of a growing company.

For example, your personal financial plan may include a retirement plan, a strategy for investments, and a plan for buying a new house. You’ll also likely focus on making more money while paying yourself as tax-efficiently as possible.

On the flip side, your company’s financial plan is more likely to focus on goals like hiring more staff, buying new equipment, expanding your product or service offering, and purchasing additional inventory. 

These goals are entirely different from the hypothetical individual goals we just mentioned. Therefore, you need a different strategy for your business and personal financial planning.

What is important to include in a financial plan? Below we’ve listed some of the main documents and other aspects you need to create a robust plan:

Effective financial planning usually includes a strategic plan. Think about what you want to accomplish in the next year and ask yourself questions like:

  • Do I need to expand or hire more staff?
  • Do I need more equipment or new resources?
  • How will my plan affect my cash flow?
  • Will I need financing? If yes, how much?

Once you know where you want your business to go in the next 12 months, think about how much it might cost you.

It’s also good to think about what you would do if your finances suddenly deteriorated, perhaps from not getting enough jobs or selling enough products. Maybe you could put money aside when the business goes well to have funds available if money ever gets tight.

Your balance sheet is a snapshot of your business’s financial position, meaning how much money you have, how much you’ll receive, and how much money you owe. It’s called a ‘balance sheet’ because it calculates what you need to balance out.

A balance sheet should list your:

  • Assets: Such as unpaid invoices, money in the bank, and inventory.
  • Liabilities : Money you owe, credit card balances, loan repayments, and so on.
  • Equity: For small businesses, this is usually the owner’s equity, but it could include investors’ shares, retained earnings, and stock proceeds.

Financial planning also involves predicting how much money you’ll make and spend in the coming month, quarter or year. Record how much you expect to make from sales and what you think you’ll spend on expenses like bills, supplies, loan repayments, and so on. 

You can use a simple spreadsheet to calculate your cash flow projections. We have a separate guide that tells you all about what cash flow is and how it works.

Next, you’ll want to prepare a projected income (or profit and loss) statement to predict how successful you think your company will be. It can be helpful to include different scenarios, good and bad, to help you prepare for each one.

Income statements typically include:

  • Revenue: Money from sales.
  • Expenses: Money you’ll spend. 
  • Total income: Calculated as your revenue minus expenses before income taxes.
  • Income taxes: Such as Income Tax, National Insurance, and Corporation Tax for limited companies.
  • Net income: Your total income after deducting expenses and taxes.

Once you’ve created your strategy and filled in your balance sheet, cash flow, and income projections, you need to figure out where you’ll spend the money you make. 

Take your company’s overall budget (read more about how to budget money for your growing business ) and divide it into specific budgets. For example, one for hiring new staff, one for buying new equipment, and one for expanding your product or service offering.

Once you’re done with your financial planning, monitor your real-life results and compare them to your predictions. Monitoring helps you spot any problems so you can fix them before they get out of hand. 

It may be a good idea to hire a financial expert to help you put together and monitor your financial plan. Accounting software like Countingup can also help you keep track of your finances almost effortlessly.

Countingup offers sole traders and small business owners the chance to save time and money. 

With Countingup, your business current account and accounting software are available in one app. Coupled with our handy expense reminders, automated invoicing, and tax estimates, you can have complete confidence in keeping on top of your finances as you trade. 

The app’s realtime profit and loss dashboard gives an insight into your business’ performance and can give you the edge you need to make it a success. 

Find out more about Countingup here and sign up for free today. 

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Financial Planning: A Step-by-Step Guide

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What is a financial plan?

A financial plan is a comprehensive picture of your current finances, your financial goals and any strategies you've set to achieve those goals. Good financial planning should include details about your cash flow, savings, debt, investments, insurance and any other elements of your financial life.

how to do financial planning for a business

Get a custom financial plan and unlimited access to a Certified Financial Planner™

NerdWallet Advisory LLC

*6-month commitment to be set up for success.

What is financial planning?

Financial planning is an ongoing process that looks at your entire financial situation in order to create strategies for achieving your short- and long-term goals. It can reduce your stress about money, support your current needs and help you build a nest egg for goals such as retirement.

Creating a financial plan is important because it allows you to make the most of your assets and gives you the confidence to weather any bumps along the way. You can make a financial plan yourself or get help from a financial planning professional. Online services like robo-advisors have also made getting assistance with financial planning more affordable and accessible than ever.

» Ready to get started? See our roundup of the best financial advisors

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via Zoe Financial

9 steps in financial planning

1. set financial goals.

A good financial plan is guided by your financial goals. If you approach your financial planning from the standpoint of what your money can do for you — whether that's buying a house or helping you retire early — you'll make saving feel more intentional.

Make your financial goals inspirational. Ask yourself: What do I want my life to look like in five years? What about in 10 and 20 years? Do I want to own a car, or a house? Do I want to be debt-free? Pay off my student loans? Are kids in the picture? How do I imagine my life in retirement?

Having concrete goals can make it easier to identify and complete the next steps, and provide a guiding light as you work to make those aims a reality.

Financial Goals: Where to Begin

How to Set Financial Goals

2. Track your money

Get a sense of your monthly cash flow — what’s coming in and what’s going out. An accurate picture is key to creating a financial plan and can reveal ways to direct more to savings or debt pay-down. Seeing where your money goes can help you develop immediate, medium-term and long-term plans.

For example, developing a budget is a typical immediate plan. NerdWallet recommends the 50/30/20 budget principles: Put 50% of your take-home pay toward needs (housing, utilities, transportation and other recurring payments), 30% toward wants (dining out, clothing, entertainment) and 20% toward savings and debt repayment. Reducing credit card or other high-interest debt is a common medium-term plan, and planning for retirement is a typical long-term plan.

Video preview image

Budgeting 101: How to Budget Money

Free Budget Planner Worksheet

3. Budget for emergencies

The bedrock of any financial plan is putting cash away for emergency expenses. You can start small — $500 is enough to cover small emergencies and repairs so that an unexpected bill doesn’t run up credit card debt. Your next goal could be $1,000, then one month’s basic living expenses, and so on.

Building credit is another way to shockproof your budget. Good credit gives you options when you need them, like the ability to get a decent rate on a car loan. It can also boost your budget by getting you cheaper rates on insurance and letting you skip utility deposits.

How to Build Credit

Emergency Fund: What It Is and Why It Matters

Emergency Fund Calculator

4. Tackle high-interest debt

A crucial step in any financial plan: Pay down high-interest debt, such as credit card balances, payday loans, title loans and rent-to-own payments. Interest rates on some of these may be so high that you end up repaying two or three times what you borrowed.

If you’re struggling with revolving debt, a debt consolidation loan or debt management plan may help you wrap several expenses into one monthly bill at a lower interest rate.

Pay Off Debt: Tools and Tips

How to Pay Off Debt Fast: 7 Tips

5. Plan for retirement

If you visit a financial advisor , they will be sure to ask: Do you have an employer-sponsored retirement plan such as a 401(k) , and does your employer match any part of your contribution? True, 401(k) contributions decrease your take-home pay now, but it’s worth it to consider putting in enough to get the full matching amount. That match is free money.

If you have a 401(k), 403(b) or similar plan, financial advisors also generally suggest that you gradually expand your contributions toward the IRS limit. $23,000 in 2024 ($30,500 for those age 50 or older)

Another savings vehicle for retirement planning is an IRA , or individual retirement arrangement. These tax-advantaged investment accounts can further build retirement savings. The contribution limit is $7,000 in 2024 ($8,000 if age 50 or older) .

How Much Should I Contribute to a 401(k)?

IRA Contribution Limits Explained

6. Optimize your finances with tax planning

For many of us, taxes take center stage during filing season, but careful tax planning means looking beyond the Form 1040 you submit to the IRS each year.

For example, if you're netting a sizable refund each year, you may be needlessly living on less throughout the year. Learning how and when to review your W-4 , the form you fill out with employers, can help you to take control of your future. Adjust your withholdings on your W-4, and you either can keep more of your paycheck, or pay a smaller tax bill.

Getting cozy with the tax law also means looking into tax credits and deductions ahead of time to understand which tax breaks could make a difference when it comes time to file. The government offers many incentives for taxpayers who have children, invest in green home improvements or technologies, or are even pursuing higher education.

Tax Planning for Beginners: 6 Tax Strategies & Concepts to Know

Federal Brackets and Income Tax Rates

20 Popular Tax Deductions and Tax Credits

7. Invest to build your future goals

Investing might sound like something for rich people or for when you’re established in your career and family life. It’s not. Investing can be as simple as putting money in a 401(k) and as easy as opening a brokerage account (many have no minimum to get started). Financial plans use a variety of tools to invest for retirement, a house or college.

How to Invest Money: Choosing the Best Way To Invest for You

How To Invest in Stocks

Saving for Education: 529 Plan Rules and Contribution Limits

8. Grow your financial well-being

With each of these steps, you're protecting yourself from financial setbacks. If you can afford it, decide whether you'd like to do more, such as:

Increasing contributions to your retirement accounts.

Padding your emergency fund until you have three to six months of essential living expenses.

Using insurance to protect your financial stability, so a car crash or illness doesn’t derail you. Life insurance protects loved ones who depend on your income. Term life insurance, covering 10-year to 30-year periods, is a good fit for most people’s needs.

Backdoor Roth IRA: What It Is and How to Set One Up

What Is Life Insurance and How Does It Work?

9. Estate planning: Protect your financial well-being

Financial planning also means looking out for your future needs, as well as mapping things out for your loved ones. Creating a will can help ensure your assets are distributed according to your wishes. Other types of estate-planning documents can also provide your relatives with clarity on how you would like to be cared for, and who should manage your affairs.

Estate Planning Checklist

Estate Tax Planning: How Does Your Strategy Look?

how to do financial planning for a business

Types of financial planning help

A financial plan isn’t a static document — it's a tool to track your progress, and one you should adjust as your life evolves. It's helpful to reevaluate your financial plan after major life milestones, such as getting married, starting a new job, having a child or losing a loved one.

If you're not the DIY type — or if you want professional help managing some tasks and not others — you don't have to go it alone. Consider what kind of help you need:

Complete financial plan and investment advice

Online financial planning services offer virtual access to human advisors. A basic service would include automated investment management (like you’d get from a robo-advisor), plus the ability to consult with a team of financial advisors when you have other financial questions. More comprehensive providers basically mirror the level of service offered by traditional financial planners : You're matched with a dedicated human financial advisor who will manage your investments, create a comprehensive financial plan for you, and do regular check-ins to see if you're on track or need to adjust your financial plan.

» Want to work with a local advisor ? Learn how to find a financial advisor near you

Specialized guidance and/or want to meet with an advisor face-to-face

If you have a complicated financial situation or need a specialist in estate planning, tax planning or insurance, a traditional financial advisor in your area may fit the bill. To avoid conflicts of interest, consider fee-only financial advisors who are fiduciaries (meaning they've signed an oath to act in the client's best interest). Note that some traditional financial advisors decline clients who don’t have enough to invest; the definition of “enough” varies, but many advisors require $250,000 or more. If you want to know more about how much seeing an advisor will cost, read our guide to financial advisor fees .

» Need some help? Check out our roundup of the best wealth advisors

Portfolio management only

Robo-advisors offer simplified, low-cost online investment management. Computer algorithms build an investment portfolio based on goals you set, and your answers to questions about your risk tolerance. After that, the service monitors and regularly rebalances your investment mix to ensure you stay on track. Because it's all digital, it comes at a much lower cost than hiring a human portfolio manager.

» Need help investing? See our list of the best robo-advisors

Why is financial planning important?

Financial planning can help you feel more confident about navigating bumps in the road — like, say, a recession or historic inflation . According to Charles Schwab's 2023 Modern Wealth Survey, Americans who have a written financial plan feel more in control of their finances compared with those without a plan [0] Charles Schwab . Charles Schwab Modern Wealth Survey 2023 . Accessed Aug 7, 2023. View all sources .

Once your basic needs and short-term goals have been addressed, a financial plan can also help you tackle big-picture goals. Thoughtful investing, for example, can help build generational wealth , and careful estate planning can ensure that wealth gets passed down to your loved ones.

On a similar note...

Find a financial advisor

View NerdWallet's picks for the best financial advisors.

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The Importance of Financial Planning for your Businesses 

When you’re starting out and putting in the hours to turn that business dream into a functioning reality, it can be difficult to think of next week – never mind next year. However, it always pays to plan ahead, especially when it comes to the financial future of your business.

Business Financial Planning:

Financial planning for your business helps you to forecast future financial results and decide how best to use your company’s current financial resources in order to realise both your short-term and long-term plans. Because planning involves looking well into the future, it is a highly creative thinking process as well as an analytical one, and you might need to call in the experts to help you juggle both these aspects of your financial roadmap.

How can financial planning help me achieve my company goals?

Having a strong financial plan for your business is probably the most important single thing that you can do to help yourself succeed.  It’s your roadmap, your guideline, a reminder of what your goals are–what you are trying to achieve in the short term and the long term. It is so important that possible investors, bankers, and creditors won’t even set up a meeting with you if you don’t have a financial plan in place. We cannot state this clearly enough – get your business’s financial function set up effectively from the start, and the rest will follow. 

Here are 5 benefits of financial planning for your business:

Financial planning can help you:

  • Manage your cash flow properly: Good financial planning allows you to set clear expectations regarding your cash flow so that you know where you can spend and where you need to cut back. This is especially important after the initial startup expenditures.
  • Allocate your budget: Financial planning for businesses makes for clever budget allocation and allows all players within your company to understand where and how money will be spent, ensuring less friction. 
  • Set realistic goals: If you don’t know how much you have to work with, you can’t set realistic financial goals that work within your budget. Your vision might be lofty, but it pays to be realistic.
  • Mitigate your risk: A good financial plan should prepare for unexpected expenses, as well as times of lower income. That way you can ride out the bad times, but keep your doors open.
  • Plan a roadmap for the future: Financial planning helps you clarify your company goals and communicate them to your employees and other stakeholders. This makes it easier for the business owners and top management to make more good decisions when planning to scale.

Most people have some idea of what they would like to achieve financially, but they don’t always know how to go about setting realistic goals. Companies that put in the time and effort to work out an effective and strategic financial plan , will be able to allocate their time and resources effectively, allowing them to expand while ensuring good cash flow and healthy accounts.

Does my business need a financial plan?

In short – yes. If money is the lifeblood of your business, then you cannot afford NOT to have a sound financial plan in place. A good financial plan that you refer back to, will allow you to spot anomalies and positive or negative trends in your finances so that you can take the necessary corrective action. This means that you can make your money work for you – spending when and where it’s needed for growth, and cutting back on those outgoings that are becoming a financial black hole. 

We have found that business owners and entrepreneurs are often so involved in the day-to-day running of their businesses, that they don’t have the time and energy to think of long-term financial planning and strategy. This is where we recommend a financial consultant or CFO with the expertise to see what you might miss.  Many entrepreneurs are making use of the services of a virtual CFO instead of hiring full-time, as this allows them access to expertise without the cost of a permanent hire.

What should be included in a business financial plan?

All business financial plans , whether you’re just starting a business or building an expansion plan, should include at least the following:

  • Revenue or income – what money is actually coming into your business.
  • Your basic fixed operating costs such as rent and utilities.
  • General monthly expenses such as marketing etc.
  • Costing of your goods or services – take the time to note every cent and every minute that you put into producing your product or service.
  • Total profit or loss – the formula for this is income minus cost of goods or services.
  • Actual operating income (total profit minus expenses).

After you have these basics down and feel that you have at least an overview of the financial health of your business, it is important to remember that ‘big-picture’ higher-order financial planning and strategizing  are also necessary for the long-term viability of your business. Finance is complex and the finance function is often one of the last frontiers to get fortified by the leadership team. It is also one that becomes increasingly more important as you head towards further expansion, possible fundraises and potential acquisitions. Getting the numbers right is critical. So is developing the right strategy based on analysis, forecasts , and smart financial management . This is where you need the advice of an expert CFO or the assistance of a virtual ‘CFO-as service’ company like Outsourced CFO.

At Outsourced CFO we can assist with getting your financial planning off to a solid start,  in order to help you with building long-term profitability for your business. Reach out to us and let’s get your business ready for growth.

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How to develop a financial plan for a small business: a guide.

Brett Shapiro

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How-to-Develop-a-Financial-Plan-for-a-Small-Business-A-Guide

A new small business may find building a financial plan daunting. Having to come up with projections for sales, revenue, and profits and conduct analyses likely sounds intimidating to the newly-initiated.

So how do you develop a financial plan for a small business? Is it as technical as it sounds?

The truth is that you can develop a financial plan for your small business all by yourself, without the necessity of expert help. This article is your ultimate guide to developing a financial plan for your small business.

Is developing a plan even necessary?

Yes. Every business, big or small, needs a financial plan. A financial plan provides proof of the sustainability and financial feasibility of a small business. It also provides direction as to where your small business is headed long-term.

And of course, investors and long-term debtors need to see your finances before investing in your small business.

A financial plan is precisely how you assure investors of consistent returns and debtors of your credit-worthiness.

So what is a financial plan, and why is it important for a small business? Keep reading to find out.

What Is a Financial Plan?

A financial plan is a document that shows the current monetary situation of a business and its future financial projections.

This financial plan also serves as proof of a business’s financial sustainability in the long term. It uses an analysis of cash flow statements, income statements, and balance sheets to do that.

A financial plan also helps forecast a business’ future projections by providing outlines, goals, and estimates.

And analyses of cost, volume, and profits determine a business’s future profitability using historical data.

A financial plan also details every step that the business will take to achieve the projected goals.

So why does every small business need a financial plan?

Find out in the next section.

The Importance of a Financial Plan for a Small Business

In this section, we will discuss some of the reasons why it is important for every small business to have a financial plan.

Here are the specifics:

1. Helps You Commit to Your Business Goals

Having a financial plan helps remind you of what your financial goals are and how much your small business should grow during a particular period.

It acts as a constant reminder about the specific numbers you’re working towards.

It can be easy to lose sight of your business goals, especially the long-term ones, when you’re busy with day-to-day challenges. But with a financial plan, any negative deviation from the projected revenue, business income, and profits will only inspire more effort.

2. Helps Manage Your Business Finances

Having a solid financial plan is one of the best ways you can manage your finances as a small business.

A financial plan can help you manage your business’s income and money reserves. Through your financial plan, you can budget for the future and create contingency reserves for economically uncertain times.

Additionally, a financial plan helps small businesses manage their cash flows and taxes.

For small businesses, resource conservation is essential. With a financial plan, you can tell which expenses to prioritize in order to maximize the use of those resources.

3. Inspires Confidence In Your Business

Any small business owner can be confident in their business’s sustainability if they know where it’s headed financially. This is what a financial plan does for you.

And with that kind of confidence, pitching your startup idea to investors will be easy. A good financial plan, after all, helps you identify your business’ funding needs.

With concrete financial projections, you can estimate your future revenue and how much financing you’d need to take it to the next level.

Having that confidence in yourself inspires confidence in the outside investors funding your small business, as well.

4. Helps In Future Decision-Making Processes

A good financial plan will spot deficiencies in your financial decisions. For instance, it allows you to identify an investment that was made that didn’t yield good returns versus one that did.

It also helps in identifying high-performing and low-performing areas so that you can direct resources to the former.

A simple break-even analysis will help measure your cost versus benefit for different areas of your business, helping with your future production decisions.

A break-even analysis lets you know exactly how many more units you need to sell to start making profits. These are details included in a financial plan for a small business.

With a financial plan, you’ll know both where your business is and where it’s headed. You can tell how much more is needed to propel it forward, both financially and in terms of time and resources.

Wondering how to develop a financial plan for a small business?

How to Develop a Financial Plan for a Small Business

When developing a financial plan for a small business, the key element is to be realistic. A plan should be a true plan, not a distant dream or fantasy.

You may want your business to grow at a certain rate within a given period. Every startup, after all, dreams of exponential growth in the shortest time possible.

Investors want to be a part of those types of companies just as much.

But how realistic is this trend when making financial predictions?

The answer to that question is one thing every small business needs to consider.

But first, let’s understand what makes a good financial plan.

Characteristics of a Good Financial Plan

Here are the key characteristics of a good financial plan:

  • It should be exhaustive. A good financial plan should cover every monetary aspect of the business, present, and future.
  • A good financial plan should be fully customized to the business. It should consider the business’s needs, risks, environment, goals, and projections.
  • It should reflect the current status of the business’s financial situation. The progress from its current monetary state to your future trajectory should be reasonable and plausible.

You can develop a financial plan for your small business yourself, or you can hire a financial planner to do it for you.

But before we get into the steps of how to make a financial plan for a small business, let’s discuss what goes into a financial plan.

Components of a Financial Plan for a Small Business

When developing a financial plan, there are a few must-haves that you’ll need to include. This goes for both small and large businesses.

Let’s discuss each one of them in detail.

Components of a Financial Plan for a Small Business

Income Statement

An income statement, otherwise known as a profit and loss statement, determines a business’s profitability. Profit and loss statements are a crucial part of the financial plan for your small business.

An income statement explains your business performance over time, whether you’re making profits or losses.

An income statement is comprised of:

  • Sales/revenue
  • Cost of goods sold (for businesses selling goods)
  • Gross margin

Income Statement

Revenue refers to money received from sales or other operations. It can be categorized into:

  • Operating revenue: This is revenue that is generated from a business’s core activities. It can be from the sale of goods and services that the company primarily offers.
  • Non-operating revenue : This is revenue from your business’s secondary activities. It can include revenue from royalties and interest.
  • Other income : This refers to revenue from activities unrelated to your business’s core operations. Asset disposal is one example of this.

Revenue is counted for the period it was earned. If a sale is made, whether payment is received or not, it’s registered as revenue for the period in which the sale occurred.

Expenses are the costs a business incurs to keep its operations running. They can be categorized into:

  • Primary expenses : These are expenses incurred on a day-to-day basis by a business. They include items such as the cost of goods sold, administrative expenses, salaries, utility bills, and depreciation.
  • Secondary expenses : These relate to activities that do not directly involve its core operations. For example, interest paid on debt is a secondary expense.

Primary revenue and expenses show how well a business is handling its core operations. Secondary expenses and revenue, on the other hand, illustrate how well a business can deal with unexpected obligations.

Depending on the size of your business and the nature of its operations, income statements can be categorized into two categories:

Single-Step Income Statement

These are simple income statements suitable for small businesses with few entries and simple, straightforward structures.

This kind of income statement takes your business’s total revenue and gains and deducts them from your total expenses and losses. Here’s an example:

Single-Step Income Statement

Image via Principles of Accounting

Multi-Step Income Statement

These are suitable for larger businesses or companies. They are more detailed and contain more entries than a single-step income statement.

These entries are separated by categories. For instance, expenses can be separated as operating and non-operating expenses.

Profits are also measured in more detail in a multi-step income statement. These include gross profit, earnings before interest, tax (EBIT), and profit after tax.

At each level of profitability, the changes in amounts can be interpreted differently. For example, when profits before tax are a lot higher than profits after tax, it indicates more tax expenses incurred by your business.

Here’s an example of a multi-step income statement:

Multi-Step Income Statement

Image via Deskera

Every financial plan needs to have a business’s current and projected income statement to:

  • Show a company’s profitability levels
  • Show a snapshot of a business’s internal activities across its departments
  • Help in decision-making

These decisions may include deciding whether to expand a business’s operations or whether to shut some of them down.

Cash Flow Statements

A cash flow statement explains the cash that goes through a business: both inflows and outflows.

A cash inflow refers to money that the business receives from its transactions. These can come from:

  • Revenue from cash sales
  • Income from investments
  • Interest received

Cash outflows are financial payments made by the business. These may include:

  • General expenses
  • Interest paid on a bank loan

In essence, a cash flow statement is a statement of direct cash spent, versus cash on hand or in the bank.

Cash flow statements differ from income statements in that they only focus on cash transactions, as the name suggests.

When assessing transactions on income statements, income is included as earned and expenses as incurred. Neither are necessarily based on receipts.

Cash flow statements do not make deductions or additions on intangible gains and losses.

For instance, depreciation amounts are added back as these are not cash losses. Similarly, gains such as those from revaluation are deducted, as these are not cash gains.

Why are cash flow statements an integral part of your business’s financial plan? Why does your business need a cash flow analysis besides its income statement?

Here’s the reason:

A cash flow statement helps you assess your company’s liquidity position. This means that you can easily determine if your business can take care of its day-to-day operations sufficiently.

You can also determine your business’s ability to fund unforeseen future expenses through a cash flow statement.

Can your business remain operational in uncertain times? A positive cash flow will provide confidence that yes, it can.

With this kind of outline, you can easily show investors what your business is capable of when it comes to its primary activities.

Furthermore, you can determine if there’s a gap in financing, exactly what the gap is from, and what’s needed to fill it. You can also use these for future cash flow projections.

Here’s an example of what a simple cash flow statement looks like.

simple cash flow statement

Image via Zoho Books

There are several different types of cash flows.

several different types of cash flows

This refers to cash flow from a business’s basic operations. For instance, Walmart’s basic operations would be the sale of goods.

If your business offers a service, then its operating cash flow would include transactions around this service.

It also includes other activities that directly support this basic operation, such as salaries, utility bills, and transportation.

With operating cash flows, you deduct operating expenses from cash sales.

An operating cash flow helps determine if a business needs funding or if it needs to expand its operations.

Investing Cash Flow

2. Investing Cash Flow

Investing cash flow refers to money spent on or received from an investment. This could include:

  • Purchase or sale of fixed assets
  • Purchase or sale of securities

Negative investing cash flow may indicate poor investments. This information, then,  will help a small business make better future investment decisions.

3. Financing Cash Flow

This refers to cash flow from financing activities such as debt and equity. It shows how money flows from investors and creditors into the business and back out.

This, therefore, involves transactions such as:

  • Dividend payments
  • Payment of debt or interest on debt
  • Selling and issuing stocks
  • Issuing bonds

With financing cash flow, your investors will see how you’re funding your business and what your gearing ratios (ratios comparing equity to debt) are. This way, they can determine if your business is a good fit for them.

Cash Flow Versus Income Statement

An income statement determines a firm’s profitability. However, a firm may be profitable yet still struggle with short-term liquidity.

This is because a firm’s profitability is measured only by its revenue and expenses. An income statement, however, does not distinguish between cash and non-cash revenue and also accounts for money not received.

For this reason, cash flow statements offer more precision than income statements for short-term predictions.

Income statements and cash flows, then, can and should be analyzed alongside each other.

Some factors indicate that the flow of cash in your business may need fixing, and these factors can be traced back to your income statement.

For instance, too much cash can be stuck in your business’s accounts receivables or in excess inventory. This shows you that you need to better manage your cash flow.

Statement of Financial Position

Commonly known as a balance sheet, a statement of financial position contains information about a business’s assets, liabilities, and equity.

This is the statement that indicates how much a business owns, how much it owes, and how much has been invested in it.

Balance sheet statements from different years are commonly used in comparison to each other for ratio analysis. This analysis provides trends that help in making financial predictions.

We’ll discuss these business financial ratios and their significance to your business later.

For now, let’s discuss exactly what a statement of financial position contains and what it looks like.

Here’s an example of what a balance sheet should look like:

balance sheet should look

Image via Amazon

First, it’s called a balance sheet for a reason: the assets a business owns should equal its liabilities and equity.

The components of a balance sheet may vary by business, and different items may have different interpretations. Here are some common items each balance sheet should contain:

Assets Type

Fixed assets of a company may include:

  • Intangible assets such as patents and goodwill
  • Long term securities
  • Land and buildings
  • Furniture and fixtures

Current assets may include:

  • Cash and cash equivalents
  • Accounts receivable
  • Short-term securities

Liabilities

These constitute a company’s financial obligations and these also appear in the order of liquidity.

Long-term liabilities include:

  • Long-term debt
  • Deferred tax

Here are examples of current liabilities :

  • Bank overdraft
  • Accounts payable
  • Interests payable
  • Wages payable
  • Dividends payable

Shareholder’s Equity

This section contains equity investments made in the company as well as the company’s retained earnings.

Retained earnings are either invested back into the company or distributed among shareholders.

Besides retained earnings, this section contains:

  • Ordinary shares
  • Preference shares

Unlike ordinary shares, preference shares have par values that are not affected by market changes.

A company’s statement of financial position is used alongside its income statement, and a cash flow statement is used to assess its performance.

Here’s more on why it’s important to have a balance sheet in your financial plan. It determines:

  • Your company’s net worth
  • Its liquidity ratio
  • Whether your company can handle its financial obligations

Sales Forecasts

This refers to the projected sales revenue your business expects to make in the future.

Sales forecasts are important for any business. Here’s why:

Businesses develop budgets based on their sales forecasts. Marketers also create their sales demand plans based on this data, including the amount of inventory to purchase.

Sales forecasts, therefore, need to be incredibly accurate.

Accurate sales forecasts ensure you avoid major issues like understocking or overstocking.

They also give your business confidence in its performance, and increase your business’s credibility to your stakeholders.

Here’s an example of a basic sales forecast template:

Sales Forecasts

Image via Smartsheet

So how do you come up with accurate sales forecasts?

Keep reading to find out.

Guide for Creating Accurate Sales Forecasts

Here is a step-by-step guide to creating accurate sales forecasts.

  • First, you need to assess your business’s past trends. These set the basis for your projections.
  • After coming up with projections, optimize them based on:
  • Price: Ask yourself if there are going to be any price changes for your products in the future. If yes, incorporate these changes into the projections.
  • Marketing strategies : Are there any new marketing strategies you plan on implementing to promote your products? How do you suppose these strategies will change your sales forecasts? Have you used them in the past? How did they perform? Use these insights to adjust your projections.
  • Projected customers : This refers to how many new customers you anticipate winning in the future. Are you planning to hire new salespeople to win more clients? If so, how will this change your business’s current state?
  • Projected growth : Adjust your projections to match anticipated growth within your business. Does your business have geographical expansion plans? Are you planning to open new branches? Do you want to reach a different demographic? Are there any new products being introduced?
  • Then, try to anticipate how market changes could affect your business. This involves identifying any legislative changes that may affect your product.

It may also involve predicting economic situations that could affect your business, such as recessions.

  • Monitor your competitors. Are they introducing new products that may take a share of the revenue from your products? Which markets are they expanding into?
  • Once you have made all these analyses and comparisons, you can modify your forecast to make it more accurate.

Now that you understand how to create accurate sales forecasts, let’s discuss why they’re helpful.

Benefits of Sales Forecasting

Having a sales forecast helps your business in the following ways:

  • You can make better decisions for the future of your business
  • Your sales and revenue align more closely if your sales forecasts are accurate
  • If your sales forecasts correctly reflect your sales, they can be used for future trend analysis
  • They help reduce wastage from overstocking

Types of Sales Forecasts

Here are the various types of forecasts:

Bottom-Up Forecast : This method of sales forecasting starts with the smaller items  that add up to form the major items.

For instance, you could begin by projecting the number of units of sale you want your business to achieve. From here, you can proceed to estimate a price and multiply that by that number of units.

Bottom-Up Forecast

From there, you can then determine, as a percentage, the share your business will have in this market.

Say the total market size is $20M and your market share is 15%. This means that your projected revenue will be $3M.

The best way to go about sales forecasting is by using both methods. This way, you can compare the results of both and try to streamline them over time for higher accuracy.

The efficiency of your sales forecast depends on its accuracy. Accuracy is determined by:

  • The reliability of your data
  • Your business’s past analytics and trends
  • The collaboration among your company’s departments
  • Whether you’re using automated forecasting features of a sales software solution

Personnel Plan

A personnel plan refers to an overview of employees or contractors your business hires, and their expenses.

It could also contain a projection of employees that your organization intends on hiring in the future.

A personnel plan is a crucial part of every financial plan. This is because human resources usually account for the most costly expense for most organizations.

However, human resources are as important as they are costly, and businesses simply can’t do without them.

Investors need to know the nature of your team and why each member is important for your business. A personnel plan outlines every team member as well as their significance and why the business needs them.

Potential investors will also need to know if any financial gaps need to be filled regarding personnel. For instance, if there are any positions that you need to fill but have financial constraints, that’s pertinent information.

With a personnel plan, you’ll easily identify these gaps and know when to hire new people.

In addition to this, deciding your employee remuneration rates will be easier.

Here’s a guide on how to create a personnel plan:

When creating a personnel plan, you need to first describe the team you’re currently working with. This includes naming your team members and mentioning their qualifications.

It doesn’t stop at that. You will also need to convince investors why these people are best-suited for their respective roles.

Include information on their backgrounds, what they’ve worked on before, and their academic qualifications. This way, you can easily match their skills to their roles.

Next, describe the hierarchical structure of your team and who takes care of what.

This could be represented visually using a chart, as shown below:

represented visually using a chart

Image Source: Creately

You can also include employees that haven’t joined yet or estimates for an increase in the number of employees.

Note: If your team still has gaps, which is often the case for startups and small businesses, that’s perfectly okay.

However, if you’re using your financial plan to approach investors, you may need to explain those gaps. This would mean explaining why you haven’t hired someone for a role yet and what your plans are to do so.

With small businesses and startups, it’s also important to note that some employees could take on many roles. Given the size of the business, there may be undefined structures and fewer roles per department.

A financial plan also includes forecasts of what the employees will be paid.

Payment to personnel can be categorized into two categories:

Direct labor costs: These are payments directly made to employees or contractors for their work. They include salaries, wages, bonuses, and overtime.

Indirect expenses: These are other expenses that are related to employees but are not directly associated with their work. These include:

  • Health and insurance covers
  • Payroll costs such as software and taxes
  • Employee benefits

Numbers for indirect costs may not be exact. In such cases, you can always add estimates to your financial plan for these expenses.

When listing employee costs, you can put them together as a group per department, and then list your top employees only.

For instance, you can list customer service representatives under the customer care department. Then, prepare individual lists for department heads and so on.

You can then include these personnel cost projections in the expenses section of your income statement estimates.

Break-Even Analysis

This is an analysis of your costs, sales, and profitability. A break-even analysis seeks to determine your business’ safety margin.

This involves examining how many units of sales your business requires to cover its fixed and variable costs.

Break-Even Analysis

Fixed costs, also known as overhead costs, are expenses that remain constant regardless of the number of sales. Examples of fixed cost include:

  • Depreciation

Variable costs , on the other hand, vary and can either increase or decrease depending on the production volume. These include:

  • Cost of raw materials
  • Cost of fuel
  • Packaging costs
  • Other production-related costs

Fixed assets are the main determinant of your company’s break-even point.

Here’s why:

When calculating your break-even point, you take your total fixed costs and divide that by sale price per unit. You then subtract your variable costs from this result.

Therefore, lower fixed costs will equal lower break-even points.

Why is it important to conduct a break-even analysis?

Here’s why your financial plan needs it:

  • Managing production: With a break-even analysis, you can tell how many units you need to produce to cover your company’s costs.
  • Decision-making:  With knowledge of the sale volume needed to make a profit, management can come up with reports on the safety margins. These reports help in future production decisions.
  • Tracking costs: With this analysis, you’ll see the amount of fixed and variable costs and how they’re affecting your profitability.
  • Pricing: Break-even analysis uses product unit price to determine profitability. So, you can set your pricing optimally to reach break-even faster. For instance, to break even, increasing a product’s price would mean a reduction of sales volume. Likewise, reducing the price of your products would mean increasing the production volume. You need to find the perfect balance between the two to set your price right.
  • Budgeting and sales forecasting : Knowing your business’s break-even point makes it easier to set sales targets. It also makes it easier to budget production costs.

Investors may need break-even analysis data to determine at what point their investments start giving them returns.

Break-even analyses act as guides for startups on how to price products before launching them. The same goes for businesses planning to launch a new product.

Ratio Analysis

Financial ratios are tools that gauge your business’s efficiency, liquidity, profitability, and stability.

They are calculated using data obtained from your income statements, cash flow statements, and balance sheets.

This is done by comparing data in these statements from various years to identify trends.

There are different types of financial ratios that businesses use, and each has its own distinct formula. Let’s look at these business ratios in more detail:

Ratio Analysis

  • Quick Ratio
  • Current Ratio
  • Working Capital
  • Return on Investment (ROI)
  • Gross Profit Ratio
  • Net Profit Ratio
  • Operating Ratio
  • Operating Profit Ratio
  • Total Debt-to-Equity Ratio
  • Long-Term Debt-to-Equity Ratio
  • Proprietary Ratio
  • Financial Leverage
  • Asset Turnover
  • Inventory Turnover
  • Accounts Receivable Turnover
  • Accounts Payable Turnover
  •  Price-Earnings (P/E) Ratio
  • Price to Book Ratio
  • Price to Cash Flow (P/CF) Ratio

You don’t need to include all of these complex ratios in your financial plan. However, there are a few essential ones that will tell you and your investors what you need to know.

Here’s a quick overview of the top financial ratios every business needs:

  • Acid test : This is also called the quick ratio, and it shows how sufficiently your current liabilities can be offset by your near-cash assets. You get this by subtracting inventory from your current assets and dividing that by current liabilities.
  • Working capital : This determines how your business can pay current liabilities using current assets. It’s the difference between your current assets and current liabilities.
  • Debt-equity ratio : This is a company’s gearing ratio; a comparison between your debt funding versus equity financing. You get this by dividing your debt by the book value of your shareholder’s equity.
  • Earnings per share : This measures the returns an investor gets on every share they buy from your company. You get it by dividing net income by the number of ordinary shares owned.
  • Price-earnings ratio : This ratio shows the value of a company’s future earnings. It’s calculated as the share price divided by earnings per share.
  • Return on equity (ROE) : This ratio measures the profitability of a company against shareholder’s equity. It helps show investors how profitable their investment in the business has been. It’s calculated by taking the net profit after taxes less dividends then dividing the result by the ordinary share value.

Why does your business need financial ratios? Here are a few reasons.

  • Provides a regulated method of comparison : Financial ratios are calculated using uniform formulae. This way, analysts and investors can compare the performance of different companies across industries using the same standards.

It also offers a more detailed view of a company’s liquidity and profitability. For instance, a smaller company with seemingly fewer returns can have more earnings per share than a larger business.

  • Provides analysis and benchmarks: Using these ratios, you can identify trends not only for your business but also for the industry you operate in.

This way, you can make comparisons and benchmark your performance against the high performers in your industry. You can also measure your company’s performance against the industry using these ratios.

  • Determines company worth : With financial ratios, you can determine a company’s worth for investing purposes. Stock valuation ratios show how sustainable your investors’ earnings will be if they buy stocks in your business.
  • Helps with planning : Financial ratios guide small businesses through planning presentations for investors. They also help them set goals based on industry performance.

Trends provided by financial ratio analysis help you make strategic changes in your organization.

Exit Strategy

Every business needs an exit strategy in its financial plan. Exit strategies outline the owner’s plan to sell their business to investors in an event that it becomes either unsuccessful or unprofitable.

The purpose of an exit strategy is to minimize any losses the business might incur in the process.

There are a few exit strategy options a business can make depending on its size and type. These include:

  • Going public by issuing an IPO (initial public offering)
  • Management buyouts
  • Strategic mergers and acquisitions
  • Liquidation
  • Filing for bankruptcy

Picking an exit strategy may be influenced by several factors including but not limited to:

  • The type of business you’re running. Selling a business may be convenient for a sole proprietor. This is because their goal would be to make as much money as they can on their way out. That is different from public companies with stakeholders whose interests have to be considered as well, for example. In a case like that, selling may not be the best option.
  • The market situation . Initial public offerings are considered an appealing way to raise extra capital by most privately-owned companies. However, it can be a disadvantageous strategy to adopt during periods of recession. This is because share prices tend to drop during that time. The company would lose money trying to gain capital this way, as they’d have to issue shares at prices below par value.
  • How much control one is willing to let go of. With exit strategies like acquisition, you will have to relinquish all control of your business. Strategies like initial public offerings let you retain some control of your business, giving up only a fraction of it.
  • The way you want the business to be run . With mergers, you can retain part of your business structures and even staff.
  • How much liquidity the exit strategy offers. For instance, an acquisition offers the highest liquidity within the shortest time frame. It will determine whether or not you can let go of your business as long as a certain amount of money is paid.
  • Reputation . Some exit strategies such as filing for bankruptcy are considered undesirable.

There is no single best exit strategy, as they all depend on the different factors listed above. Remember, you should make sure that the exit strategies you choose are as favorable for your business as possible.

4-Step Process for How to Develop a Financial Plan for a Small Business

Now that you have an in-depth understanding of financial plans, it’s time to take action and learn how to develop a financial plan for a small business.

Here’s a step-by-step guide on how to do it:

How to Develop a Financial Plan

1. Evaluate Your Company’s Strategic Plan

Before you develop a financial plan for your small business, you need to first review what your business’ overall strategy is.

The reason for this is that it is from your overall business strategy that you will develop a financial plan, as these two need to be in sync.

You will need to look at what your business has in store in the near future. To find this out, you may need to ask questions such as:

  • Does your business plan on expanding to new locations?
  • Are you planning on making any heavy purchases on fixed assets, e.g. equipment, machinery?
  • Are you planning on making any new hires in any department?
  • Are there any additional resources the business wants to introduce?
  • How much extra funding does the business need for these business plans, if any?

By answering these questions, you’ll know where to start when making your financial projections.

2. Create Financial Estimates

The next step is to start creating your financial projections. You can do this either on a monthly or weekly basis depending on the bulk of your transactions and cash flow.

These projections include income and expenses. Based on the strategic plans you already have in mind, you can come up with estimates for your expenses.

Keeping track of these expenses is crucial. To do so, you can use accounting software , as they are more organized and automated.

You will also need to prepare income estimates, which will be based on your sales forecasts. With an accurate forecast of how many sales you will make, you can come up with near-accurate income projections.

Just remember, it’s important to play it safe when making income projections. You should include both conservative and optimistic estimates that take different possible scenarios into account.

That way, you can mitigate losses for periods with reduced sales and still keep your business afloat. If you run into difficulties making these projections, then you can always seek help from professionals.

However, if you’re going to pitch these statements to investors for funding, you need extensive knowledge of your company’s financial standing.

Financial estimates help you determine your business’s financial gaps. Once you have identified these gaps, you can then approach your partners and discuss funding.

At that point, you’ll decide if debt capital or equity is the way to go. If you’re going for a mix of both, then you can come up with the right ratios based on your forecasts.

3. Anticipate Uncertainties

This means preparing for those inevitable rainy days. Some periods are better than others, and there are many factors that can affect business performance.

The truth is that businesses always experience some form of unforeseen financial constraints at some point. These could be in the form of emergencies or simply an unexpected decrease in sales.

Your financial plan needs to have a strategy for such times.

How can you put that in place?

By setting aside contingency funds. This is a must-have for any business in these kinds of situations.

Reserves come in handy for uncertain situations and can help your business survive tough times.

What’s next in this guide on how to develop a financial plan for a small business?

4. Monitor and Adjust Goals

Once you have set your financial goals, you can monitor them over time against your actual performance. Compare the results against your projections and take note of any disparities.

Once you identify how much deviation there is between the two, you will know what steps to take next.

Negative disparities show that there are adjustments you need to make in your way of doing business. Luckily with these projections, you can easily spot the problem.

You’ll also be able to find solutions to the problems causing those disparities. For instance, a costly marketing strategy might not be yielding enough sales. If you discover that this is the case, then you can switch to a different marketing strategy.

This marks the end of the section on how to develop a financial plan for a small business.

In the next section, we’ll discuss how you can develop a financial plan for a small business quickly by using certain resources and tools.

Resources to Help You Develop a Financial Plan Faster

Creating your financial plan from scratch can be tedious. The good news is, you don’t have to! Some tools can help you develop a financial plan for a small business much faster and with less effort.

These tools include templates, apps, and financial plan outlines. Let’s discuss them further.

1. Financial Plan Templates

There are plenty of templates that can help you with your financial planning. Some of them come as downloadable documents that you can fill in with your business-specific details.

Some are customizable, allowing you to make them into whatever fits your business structure. These templates are especially useful for smaller businesses.

More complex templates can act as models that will guide you through how to include items in your financial plan.

They contain provisions for past entries and future projections. This will eliminate the distress that comes with deciding which way to structure your financial plan.

This makes it easier to come up with your customized template as well. There are many such free templates online that you can draw inspiration from.

Here’s an example:

Financial Plan Templates

Image via SpreadSheet 123

2. Financial Planning Software

Financial planning software has built-in instructions and prompts that guide you through the process of how to develop a financial plan for a small business.

Depending on the tool, it might also provide tutorial videos to take you through developing your plan.

They’re also easier to use than spreadsheets since you’ll likely have automated functions, such as calculations.

These kinds of software applications will also help you easily produce analytics and provide visuals such as graphs and charts.

Additionally, these applications allow you the flexibility to develop a financial plan according to your requirements. Wherever you’re located, they allow you to access your financial plan from any of your devices.

3. Financial Plan Samples

In addition to templates, there are financial plan samples that you can easily access and use to develop a financial plan of your own.

Samples are based on examples from real businesses, and consist of examples of finished financial plans showing transactions from companies you may know.

You can study the details of these existing businesses, especially those with a structure similar to that of your business. This way, you’ll get a more detailed look at what your own projections would look like.

Then, you can personalize these plans based on the distinct challenges your business faces. Different businesses, even those with similar structures, have varying challenges.

Remember: don’t use any of these samples as-is; use them only as guides to help you develop a financial plan for your small business.

4. Financial Plan Outline

These outlines give a basic structure of what a financial plan generally looks like. They guide you on how to develop a financial plan easily and what all to include in it.

Different types of businesses may have different components in their financial plans and have different outlines.

Therefore, be sure to consider the nature of your business when choosing a financial plan outline.

5. Financial Planning Services

If the whole process just seems too overwhelming to you, you can always hire professional financial planners to develop a financial plan for your small business.

However, since you’re the one with the most knowledge about your business, you’ll still need to be involved in the process to develop a financial plan.

It will be your duty to provide the information needed. It’s also crucial to be part of the process to make changes to it over time, as needed.

This brings us to the end of this post on how to develop a financial plan for a small business. We hope it’s been helpful to you!

1. How can you develop a financial plan for a business?

Developing a financial plan for a business involves knowing what its purpose is. You also need to know the components of a financial plan.

Once you have this figured out, everything else will fall into place. You can then easily analyze your business’ financial strategies, create estimates, anticipate uncertainties, and adjust your financial goals.

2. What is included in a financial plan for a small business?

A financial plan for a small business needs to have the following components:

  • Cash flow statement
  • Income statement or a profit and loss statement
  • Statement of financial position/balance sheet
  • Sales forecast
  • Personnel plan
  • Break-even analysis
  • Financial ratio analysis
  • Exit strategy

3. What are the four steps in the financial planning process?

The four steps in the financial planning process include:

  • Evaluating your company’s long-term strategy
  • Creating financial estimates
  • Anticipating uncertainties
  • Monitoring and adjusting goals

Be sure to follow those steps to develop a financial plan for your small business.

4. What financial statements are needed for a business plan?

All three financial statements are needed for a business plan, i.e., an income statement, a balance sheet, and a cash flow statement.

They’ll all be analyzed together to determine a business’s performance, profitability, liquidity, and net worth.

5. How do you write a financial assumption?

When making financial assumptions for your forecasts, you need to:

  • Research various aspects of the small business you intend to project.
  • Refer to your financial statements and those of other industry players.
  • Be ready for any outcome. Make pessimistic, moderate, and optimistic assumptions.
  • Record all your assumptions for future reference.
  • Explain the basis for your financial assumptions.

6. How do you create a sales forecast for a business plan?

You create a forecast by estimating what your company’s future sales will be based on historical financial data. Making a sales forecast for a business plan requires accuracy for the forecast to be useful.

When making sales forecasts, therefore, there are several different factors you consider. These include past trends, future pricing, market changes, promotional activities, and competitor behavior.

7. What is a break-even point for a small business?

A break-even point for a small business refers to the sales it needs to make to cover its fixed and variable costs.

At the break-even point, a company’s profitability is zero. This analysis helps determine a company’s safety margin. It shows the exact point where a company covers its costs and starts making profits.

8. How do you calculate the break-even point of a small business?

You calculate the break-even point of a small business by taking its fixed costs and dividing this by cost per unit sale. You then take the amount you get and subtract your variable costs.

The result is the number of units a company needs to sell to break even, i.e. cover all costs without making a profit.

9. What should an exit strategy include?

An exit strategy should include a company’s options in case its operations turn out to be unsuccessful. These options need to ensure the company cuts its losses and exits in the best possible manner.

10. What are the four exit strategies?

A company can choose any of the following common exit strategies:

  • Initial public offering
  • Liquidation or filing for bankruptcy
  • Management buyout

It’s important to consider the best exit strategy and include it in your financial plan.  After all, it’s always good policy to hope for the best but prepare for the worst.

Ready to Develop a Financial Plan for Your Small Business?

Every business needs a financial plan. Small businesses need a financial plan more to get a sense of structure and direction that they need to grow.

This post has all you need to know about how to develop a financial plan for a small business. Use it as a reference to develop a financial plan for your business.

Also, note that developing a financial plan is an ongoing process that doesn’t just stop at creating a plan once. You’ll need to make constant reviews and changes to keep optimizing your financial plan.

What are you waiting for?

Use this guide on how to develop a financial plan for a small business and set your business up for success.

Brett Shapiro

Brett Shapiro

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Small business.

I'm a financial planner — I have 4 tips for my business owner clients looking to open a business bank account

Our experts choose the best products and services to help make smart decisions with your money ( here's how ). In some cases, we receive a commission from our partners ; however, our opinions are our own. Terms apply to offers listed on this page.

  • Legally protecting yourself in case of an audit is the No. 1 reason to use a business bank account.
  • Different banks will offer different levels of convenience, and they'll come with different fees.
  • Fraud detection and other security features are especially important for protecting your business.

Insider Today

When starting a business, it can be overwhelming thinking about all the things you need to do and consider. However, it is essential that you do not overlook the value of opening a business bank account — usually both a business checking account and a high-yield business savings account .

As a CPA and financial planner, one of the first things I tell all my business owner clients to do is to keep their personal and business transactions separate. While there are a multitude of reasons you should have a separate bank account for your business, legal protection is certainly the most important.

If you experience an audit, it is important to have an easy way to track your business expenses and income. When business finances are commingled with personal finances, it becomes nearly impossible to provide a clear financial trail.

When choosing a business bank account, there are several important factors to consider. Here are four things I tell my business owner clients to consider when choosing a business bank account.

1. Access to banking services and customer service

When it comes to running a business, a variety of banking services can help you effectively manage your business finances. Beyond just opening a business bank account, you want to ensure that the financial institution you choose can provide access to services such as a checking account, savings account, business loans , wire transfers, fraud prevention services, a notary, checkbooks, business credit cards , online and mobile banking, and bill payment services.

If you want more one-on-one attention from a banker, consider opening an account with your local bank or credit union. You may also prefer a physical branch if you plan to make daily deposits or withdrawals of cash or checks.

This may be more challenging to do with an online bank. Many online banks may offer deposits and withdrawals, but their ATM network may not be as large as a well-known brick-and-mortar bank. For this reason, some small business owners open an account at their local bank where they have their personal accounts and know the level of customer service they will receive.

Consider opening your business checking and savings accounts at different financial institutions so that you can have access to both better banking services at a physical branch and higher interest rates at an online bank.

2. Terms and fees (including minimum balance)

The fees associated with business bank accounts can vary widely depending on the financial institution. Some of the most common fees to be aware of include monthly maintenance fees, overdraft fees , wire transfer fees, minimum balance fees, and ATM fees.

You may find that online banks charge fewer fees than brick-and-mortar banks, but you must consider this in conjunction with the other features.

Seek an account with reasonable fees that can accommodate your business.

3. Ease of paying contractors

Some business bank accounts, especially online accounts, offer free invoicing and bookkeeping software/features.

If you use accounting software (such as QuickBooks) to manage your business finances, accessing a business bank account that offers integration features may be desirable. Trust me, this will make your or your accountant's life much easier.

In addition, some accounts allow integrations with payroll and tax preparation software. This will help to make the process of paying contractors with 1099s more seamless.

4. The bank's security offerings

One of the most important things you should consider when choosing a business bank account is security. There are certain features that you want to look for to make sure your account is protected.

First, you want to make sure that the bank you choose is FDIC-insured (or NCUA-insured if a credit union). In addition, you want to make sure that the institution has additional layers of security such as multi-factor authentication and fraud detection services, which include account monitoring and alerts for suspicious activity.

Ensure that whatever bank you choose offers the best security features to protect your business from fraud.

When choosing a bank account, consider all the various banking features offered by different financial institutions to find the one that best suits your business's financial needs. Also, remember that your decision is not permanent. It is easy to switch banks if necessary.

Watch: The 3 most important things you need to know about starting a business

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How Fast Should Your Company Really Grow?

  • Gary P. Pisano

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Growth—in revenues and profits—is the yardstick by which the competitive fitness and health of organizations is measured. Consistent profitable growth is thus a near universal goal for leaders—and an elusive one.

To achieve that goal, companies need a growth strategy that encompasses three related sets of decisions: how fast to grow, where to seek new sources of demand, and how to develop the financial, human, and organizational capabilities needed to grow. This article offers a framework for examining the critical interdependencies of those decisions in the context of a company’s overall business strategy, its capabilities and culture, and external market dynamics.

Why leaders should take a strategic perspective

Idea in Brief

The problem.

Sustained profitable growth is a nearly universal corporate goal, but it is an elusive one. Empirical research suggests that when inflation is taken into account, most companies barely grow at all.

While external factors play a role, most companies’ growth problems are self-inflicted: Too many firms approach growth in a highly reactive, opportunistic manner.

The Solution

To grow profitably over the long term, companies need a strategy that addresses three key decisions: how fast to grow (rate of growth); where to seek new sources of demand (direction of growth); and how to amass the resources needed to grow (method of growth).

Perhaps no issue attracts more senior leadership attention than growth does. And for good reason. Growth—in revenues and profits—is the yardstick by which we tend to measure the competitive fitness and health of companies and determine the quality and compensation of its management. Analysts, investors, and boards pepper CEOs about growth prospects to get insight into stock prices. Employees are attracted to faster-growing companies because they offer better opportunities for advancement, higher pay, and greater job security. Suppliers prefer faster-growing customers because working with them improves their own growth prospects. Given the choice, most companies and their stakeholders would choose faster growth over slower growth.

Five elements can move you beyond episodic success.

  • Gary P. Pisano is the Harry E. Figgie Jr. Professor of Business Administration at Harvard Business School and the author of Creative Construction: The DNA of Sustained Innovation (PublicAffairs, 2019).

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Here's how much money you'd have if you invested $1,000 in bitcoin 10 years ago

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Bitcoin is flying high again, with the price of a token topping $52,000 Wednesday — the first time that's happened since November 2021 .

That's a remarkable recovery for the ever-volatile cryptocurrency, which was trading at less than a third of its current value in November 2022. 

Back then, the currency had lost more than 75% of its price following the collapse of FTX , the largest cryptocurrency exchange at the time. The price has recovered since, although it's still short of its November 2021 peak of nearly $69,000 .

The recent rise in price is largely related to the Jan. 11 launch of spot bitcoin exchange-traded funds , which allow everyday investors to buy a stake in bitcoin on regulated stock exchanges rather than cryptocurrency exchanges.

The Securities and Exchange Commission's approval makes it easier to invest in bitcoin, while also lending legitimacy to an industry plagued by scandal. Bitcoin's approval has seemingly attracted renewed investor interest, as the value of all bitcoin in circulation exceeded $1 trillion for the first time since 2021 on Wednesday.  

How much $1,000 invested in bitcoin is worth, based on purchase date

If you had invested $1,000 in bitcoin one, five or 10 years ago, here's how much your money would be worth now. CNBC's calculations are based on the token's price of $51,793 as Feb. 14.

  • If you had put $1,000 into bitcoin a year ago, it would have grown by 133% and be worth around $2,331 as of Feb. 14.
  • If you had invested $1,000 into bitcoin five years ago, the investment would have grown by 1,352% and be worth around $14,524 as of Feb. 14.
  • If you had bought $1,000 worth of bitcoin 10 years ago, it would have grown by 7,644% and be worth around $77,443 as of Feb. 14.

And if you bought bitcoin on Jan. 11, when the ETFs launched, a $1,000 investment would now be worth $1,113.

Do your research before investing

Because cryptocurrencies are highly speculative, financial experts commonly recommend investing no more than you're willing to lose. Similarly, past performance isn't necessarily indicative of future success.

That said, a small amount of crypto can be part of a diversified investing strategy.

"I think it makes sense for most folks to hold a small holding of cryptocurrencies, maybe 1% or 2% of an entire portfolio," Chris Diodato, a CFP and founder of  WELLth Financial Planning , previously told CNBC Make It .

However, "I'm hesitant to recommend more because, in addition to its significant volatility, it doesn't produce cash flow like traditional investments — it's only worth as much as someone is willing to pay for it."

Instead of picking individual stocks or other assets, experts often recommend investing in low-cost index funds or ETFs, which offer automatic diversity. When you invest in the S&P 500, for example, you're essentially buying part of around 500 of the largest publicly traded companies in the U.S., so your investment's success isn't tied to a single company.

As of Feb.14, the S&P 500 is up about 21% compared with 12 months ago, according to CNBC's calculations. Since 2019, the index has grown by around 82% and since 2014, it has ballooned by around 172%.

Want to land your dream job in 2024?  Take CNBC's new online course How to Ace Your Job Interview to learn what hiring managers are really looking for, body language techniques, what to say and not to say, and the best way to talk about pay.

How a millennial couple earning $227,000 a year in Chicago spend their money

IMAGES

  1. How to Create a Financial Plan in 5 Simple Steps

    how to do financial planning for a business

  2. Financial Planning for Business Owners

    how to do financial planning for a business

  3. Financial Planning

    how to do financial planning for a business

  4. Financial Planning Process

    how to do financial planning for a business

  5. Financial Planning

    how to do financial planning for a business

  6. 6 Ways to Improve Your Business's Financial Planning Approach for 2022

    how to do financial planning for a business

COMMENTS

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

    Financial plan templates and tools. Download and use these free financial templates and calculators to easily create your own financial plan. Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales. Get a full financial picture of your business with LivePlan's simple ...

  2. How To Create Financial Projections for Your Business

    The first step for a financial forecast starts with projecting your business's sales, which are typically derived from past revenue as well as industry research. These projections allow businesses to understand what their risks are and how much they will need in terms of staffing, resources, and funding.

  3. Small Business Financial Plans

    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. Income Statement: An income statement includes information on profit and loss ...

  4. 4 Steps to Creating a Financial Plan for Your Small Business

    Whether the business is starting from scratch or modifying its plan, the best financial plans include the following elements: Income statement: The income statement reports the business's net profit or loss over a specific period of time, such a month, quarter or year.

  5. Guide to Writing a Financial Plan for a Business

    portion of the financial plan aims to give an idea of what the business will be worth, considering all its assets and liabilities, at a future date. To do this, it uses figures from the income statement and cash flow statement. The essence of a balance sheet is found in the equation: Liabilities + Equity = Assets.

  6. 6 Elements of a Successful Financial Plan for a Small Business

    A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan. A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and ...

  7. How to create a financial plan for your business

    Planning is an essential part of operating a business, but a business plan isn't the only roadmap you need. Cortlon Cofield, CPA and owner of Cofield Advisors, a small business financial planning service, said, "Having a well thought out financial plan for your business is the blueprint to success.". Bradford Daniel Creger, chief economist and lead wealth strategist at TFR Group, a ...

  8. How to Financially Plan for Your Business

    Financial planning & cash flow projection for your company. Start your quote. Or call 1-888-490-1549. "Businesses that don't plan thoroughly are more likely to struggle." This axiom is particularly true when it comes to financial planning. Financial planning analyzes current and future costs and income to help determine the best plan of action.

  9. 9 Financial Planning Tips for Small Business Owners

    9. Create an estate plan. Proper estate planning helps to provide for your loved ones, business partners and employees who rely on your business; minimize tax exposure; and provide clear instructions on how the business should proceed. These plans are also critical in case you're incapacitated.

  10. How to Conduct Small Business Financial Planning Effectively

    2. Outline your business goals. Clearly outlining your business goals gives your financial planning direction. When you have company goals in place, you can tailor your financial plan to achieve those goals. Imagine your business goal is to increase your annual turnover by 10% within the next year.

  11. How to Write the Financial Section of a Business Plan

    Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest ...

  12. How To Create A Financial Plan for a New Business

    We can help with that. This guide covers how to create a financial plan for a new business, including: Forming a strategy. Creating projections. Outlining funding needs. Planning for the unexpected. Checking in with your plan. See also: Why you need financial planning in business.

  13. How to Create a Financial Plan a Small Business

    Once you determine your financial needs, set realistic goals based on these requirements—identifying your business KPIs would make an excellent starting point. 2. Choose the Right Financial Planning Tool. It may take you forever to start and finish creating a financial plan using traditional and old-school methods.

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

    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.

  15. Business spending can be beautifully easy

    The importance of financial planning in business. This probably won't come as a surprise to most readers, but financial planning is essential to building a successful business. Your business plan dictates how you plan to do business over the next month, quarter, year, or longer - depending on how far out you plan.

  16. How to Start a Financial Planning Business

    Having a business plan in place can help you to: Define your mission and vision for the business. Set realistic goals and objectives, both short-term and long-term. Understand who your competitors are and where you're positioned in the marketplace. Define your target customers and what services you plan to offer to them.

  17. The Ultimate Guide to Business Financial Planning

    All of the information found on your business's financial plan allows you to: Attract potential investors and funding to your company. Secure business loans from lenders. Have benchmark forecasts that you can strive to meet and exceed. Better allocate resources and manage liabilities such as debt.

  18. 6 Steps to Develop a Financial Plan for Your Small Business

    5. Build a budget. Building a budget is the most essential step in creating your financial plan. Take a look at the expenses such as product equipment, utilities and other services you pay for in order to maintain the business. Insurance and rent are major expenses for many businesses as well. Keep the budget in an Excel or Google spreadsheet ...

  19. What is financial planning in business?

    Planning and organising your finances is one of the most crucial parts of running your own business. Financial planning helps you prepare for what the future may involve and uncover ways to grow your company. But a financial plan involves much more than simply tracking income and expenses. To help you understand what financial planning is, this ...

  20. Financial Planning: A Step-by-Step Guide

    4. Tackle high-interest debt. A crucial step in any financial plan: Pay down high-interest debt, such as credit card balances, payday loans, title loans and rent-to-own payments. Interest rates on ...

  21. The Importance of Financial Planning for your Businesses

    Here are 5 benefits of financial planning for your business: Financial planning can help you: Manage your cash flow properly: Good financial planning allows you to set clear expectations regarding your cash flow so that you know where you can spend and where you need to cut back. This is especially important after the initial startup ...

  22. Financial planning: A comprehensive guide

    First, make your financial goals specific. Instead of saying you want to get out of debt, for example, your goal might be to eliminate your $100,000 student loan.Next, make your goal measurable ...

  23. Financial Planning Basics: How to Create a Financial Plan

    6 steps to create a financial plan. Financial planning isn't as hard as you might think. Here are six steps you can take to create your own financial plan. 1. Set financial goals. The first step ...

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