When starting a business, writing a financial plan might seem incredibly intimidating. However, it is a crucial part of the process, as it allows you to successfully pitch your business idea to investors, acquire needed funding, and reach long-term business success. And fortunately, you don’t have to be a professional in order to properly put a financial plan together. All you truly need is to follow the essential steps and to keep in mind every expense that can affect your business success, such as a website checklist, a workspace checklist, and the workforce needed.
Begin with a sales forecast
The sales forecast represents your projections of what you presume you will be selling in a certain period. When creating a sales forecast, it’s recommended to set up a spreadsheet that will include one block for unit sales, one for pricing, one that multiplies price times units to determine sales, one for unit costs, and one for multiplying units and unit costs for calculating the cost of sales. While you will likely need to make educated guesses for a new business, a sales forecast can be quite helpful for tracking your sales, predicting your cash flow, and determining your company’s overall health.
Make some income projections
An income projection will be a good way to predict how much your company will be making in a given period, usually one year. This is often calculated by using the sales forecast and subtracting predicted expenses, giving you an estimate of your business’s income. In some instances, these projections can be included in profit and loss statements as well.
Create a cash flow statement
A cash flow statement represents the physical money that’s circulating through your business and will be among the most important parts of your financial plan. As your company likely depends on cash, understanding how much money is coming in and when you can expect it will show the difference between your cash position and profit. A good cash flow projection should show the amount of cash your business currently has, where that cash comes from, where it is going, as well as a schedule for each aspect.
Avoid unnecessary costs
Starting a business requires plenty of investments and initial expenses, making it quite easy to overlook certain aspects and not realize you are overpaying in others. If you have taken out a loan, for instance, you might have been paying for junk insurance unknowingly. Although a common type of add-on insurance offered even by the most trusted providers, junk insurance is often sold using deceptive and unethical practices as well, not to mention that it is absolutely useless for many users. Fortunately, a refund can be acquired through claims experts, allowing you to lower unnecessary expenses and create a more efficient financial plan.
Develop an expenses budget
Apart from reducing unnecessary costs, you should also understand the needed expenses for running your business in order to write a successful financial plan. It’s advised to differentiate between variable costs like promotional and marketing expenses and fixed costs such as your payroll and rent. This would also be a good time to calculate taxes and interest rates according to your best guess in order to get a more accurate estimate of your expenses. If possible, attempt to lower your fixed costs, as this will likely mean lower business risk as well.
Build a personnel plan
It’s a well-known fact that having the right teams is essential for meeting business objectives and maintaining a healthy cash flow. By developing a personnel plan, you will be able to look at existing roles and positions, determine when there’s a need for bringing on more staff, and select the best work model. A personnel plan will also look at compensation levels, along with benefits, and it will project these costs as well. Considering the necessary costs and growth opportunities then gives you the opportunity to determine whether the potential benefits of hiring new employees truly outweigh the expenses.
Include assets and liabilities
Assets represent the things your business owns and are divided into current and long-term assets. Current assets, such as your inventory and stocks, could potentially be converted into cash in less than a year, while long-term assets like machinery and buildings are fixed, or tangible aspects meant for long-term use. Liabilities, on the other hand, are the obligations of your business that are also divided into current liabilities like taxes and payroll and long-term liabilities such as debt and loans that mature in over a year. Both of these aspects will represent crucial elements of your financial plan.
Create a breakeven analysis
Your breakeven point shows how much you potentially have to sell in order to cover all your expenses and helps to guide your volume and sales revenue goals. Begin by calculating the contribution margin, which can be done by subtracting the actual costs of a product or service from the pricing you’ve set for it. If you understand your fixed costs, you will learn how to recognize the product markups that need to be made and which revenue and sales goals that need to be set in order to keep your company in business or even turn a good profit.
While a financial plan might seem too overwhelming to write when starting a business, it is a truly necessary aspect to understand. As long as you follow the guide above, you can provide more growth and success opportunities for your business and be well on your way toward financial health.
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