Starting a small business is no easy task. It takes hard work, dedication, and of course, a well-thought out financial plan. Without one, you’re setting yourself up for failure before you even get started. So how do you go about creating a financial plan that works for your business? Here are some tips to help get you started.
What is a Financial Plan?
A financial plan is basically a written document that outlines the goals and objectives of your business, as well as the methods you will use to achieve them. It also includes estimated costs associated with starting and running your business, potential sources of income, projected cash flow statements, and contingency plans in case things don’t go according to plan.
Image by rawpixel.com on Freepik
What are the Elements of a Financial Plan?
Your financial plan should include the following:
A Balance Sheet – This will show the financial status of your business at a given moment, listing all assets and liabilities.
A Cash Flow Statement – This will track how much money is coming in and out of your business on a monthly basis.
A Profit & Loss Statement – This will allow you to project future sales, expenses, and profits.
A Break-Even Analysis – This will determine the point at which your business begins to turn a profit.
Set the Audience for Your Plan
The first step is to determine what you need the financial plan for. Is it for startup capital, expansion, or something else? Who will be reading it? Are you pitching your business to a potential partner, a potential investor, or a loan officer from the bank? Once you have an idea of why you need a financial plan, you can begin to create one.
Assess Your Situation
Start by assessing your current situation. What is your business worth? How much money do you have saved up? What debts do you have to pay off? Knowing where you stand financially will help give you a better idea of where your business should be heading.
Research Your Market
The next step is to research your market and competitors. Knowing the size of your potential customer base, as well as what services or products they are looking for, will help you make better decisions about how to allocate resources in your business plan.
Before you can begin to create your financial plan, it’s important to set goals. What do you want to achieve? How much revenue do you need to generate in order to break even? What are the long-term goals for your company? Establishing objectives will help guide the rest of your financial planning process.
Develop a Budget
Once you have determined your goals, create a budget and stick to it! This may be the most important part of any financial plan – if you don’t stick to a budget, then there’s no point in having one at all! Make sure to account for all expenses, both big and small, so that you can stay on track.
Set Your Plan to Paper
Yes, write it all down. It’s important to keep a physical record of your financial plan so that you can refer to it and make necessary adjustments as time goes on.
If you’re going to need financing for your small business, then it’s important to research the various loan options available and determine which one best suits your needs. It’s also a good idea to speak with an accountant or financial advisor who can help guide you through the process.
Many banks and other types of financial institutions also offer special financing packages for small businesses, so do look into those. Study each option well before you apply now for a loan.
Finalize Your Plan
Once you have all of the elements in place, it’s time to review and test your financial plan. Make sure that all of the numbers line up correctly and that your projections are realistic. Finally, make sure that your plan is flexible and can be adjusted as necessary.
Review, Evaluate, and Adjust
Finally, remember to review your plan periodically. Make sure to adjust it as needed in order to maintain a healthy cash flow. As the market changes, so too must your financial plan – otherwise you could find yourself facing unexpected losses or obstacles. Keep ensuring that you are meeting your goals and staying on track.
By taking the time to craft a well-thought-out financial plan, you’ll have a much better chance of success with your small business. A financial plan can help you set goals, manage cash flow, track expenses, and project future profitability. With a little effort and planning, your business will be much better positioned for success. Best of luck to you!