A financial plan allows you to determine whether your business idea is viable, and it keeps you on the path towards financial health as your company grows. While it might seem a bit intimidating at first, making a good financial plan is necessary for the sustainability of your business, as it allows you to attract prospective investors, receive the necessary funding, and achieve success. And fortunately, you don’t have to be an accounting professional to put a financial plan together; all you have to know are some key aspects. To that end, here are the most important elements that are needed for a good business financial plan:
Start with income projections
Firstly, attempt to estimate how much money your business will make during a certain period, commonly a year. Then, subtract your expected expenses from this amount, and you will be able to calculate your income projections. Not only are these projections often rolled into other aspects of financial planning, thus being useful for a successful plan, but they can also be quite helpful with determining your company’s net profit.
Create a cash flow statement
The cash flow statement is possibly one of the most essential aspects of a good business financial plan. Based on balance sheet items, sales forecasts, and other projections, this statement represents the physical money that’s moving in and out of your business. Your company runs on money and knowing how much cash you are making and when you could expect it can easily show you the difference between your cash position and profit. A cash flow statement displays the money you currently have, where it will come from, where it’s going, as well as a schedule for all activities.
Make an expenses budget
You will also have to understand how much it will cost to actually run your business. It’s advised to distinguish between fixed costs like the payroll and rent and variable costs such as promotional and advertising expenses. Keep in mind that lower fixed costs will come with lower risks, while variable costs will come with additional expenses like taxes and interests. It’s worth taking these aspects into account when planning for expenses, but you don’t need to go into too much detail as this is, after all, only a projection.
Reduce unnecessary costs
Apart from projected expenses, there could also be some additional costs you might be paying for unwittingly. If you’ve taken out a loan, for instance, you could be spending on junk insurance that’s entirely unnecessary and useless to you. Although this form of insurance is quite commonly sold, it is done by using deceptive and unethical sales practices, leaving many individuals with large and avoidable expenses. If this is the case with you as well, requesting a refund with a claims specialist could help to reduce some common financial risks and allow you to make a more successful plan.
Include a sales forecast
Apart from income and expenses, you will also have to project your sales during a specific period. This forecast should be a continuous aspect of any financial plan, as it allows you to predict your cash flow more accurately, as well as your business’s overall health. While segmenting and organizing your sales forecast might depend on the type of company you own and how thoroughly you’d like to track your sales, this forecast should always be consistent with the projected sales numbers in your income statement.
Make a personnel plan
Every company needs a great staff to meet business objectives and maintain a healthy cash flow. A personnel plan will allow you to look at existing roles and even see when bringing on more employees is necessary, including the work model they should be taking on. This plan incorporates compensations levels such as employee benefits and forecasts these expenses as well. By considering the current costs and growth, you will have the opportunity to see whether the potential benefits of hiring more staff outweigh the expenses with a good personnel plan.
Don’t forget assets and liabilities
Assets represent what your business owns, encompassing current and long-term assets. Current assets such as inventory and stocks could be turned into cash within a year, whereas long-term assets are fixed or tangible items intended for extended use, like buildings, vehicles, and machines. On the other hand, liabilities are obligations divided into current obligations such as taxes, loans, and payrolls due within a year, as well as long-term liabilities like debts and loans that mature over a year. Considering both of these aspects is essential for a good financial plan for any business.
Creating a financial plan might be overwhelming when starting a business, but it is an absolutely essential aspect to understand. As long as you follow the guide mentioned above, you will be able to create a better, more strategic financial plan, and open a whole world of opportunities for the growth and success of your business.