When you’re creating a business plan, either for yourself or for a client, the financial plan may be the hardest part to make. After all, how can you create a financial plan when you haven’t started the business? Or, what if you haven’t been in business long enough to know what the average expenses are?
Fortunately, creating a financial plan doesn’t have to be scary or hard. In this article, you’ll learn what the basics of a financial plan are and how to create one.
There are three basic parts of a financial plan:
We’ll talk about each of these parts in detail in the next few subheadings.
But first, to create your financial plan, you’ll need some of your financial information. Most of this information can be found by organizing your business expenses. You’ll need both your start-up costs and operating expenses to fill out your financial plan. And if your business is brand new, you’ll need to create projections for these costs.
The start-up costs consist of anything that you need to pay to get your business started. It includes things like rent deposits, down payments on property or equipment, business registration fees, and any other costs needed to get your business up and running. There will likely be many more start-up costs for your business, but hopefully this list can get you started.
The operating expenses are the costs of running your business on a daily basis. It includes salaries for employees and yourself, rent, utilities, inventory, and other monthly expenses. Once you’ve gotten all your financial data together, you’re ready to make your financial plan.
The balance sheet is useful for business plans because it organizes all your company’s assets, liabilities, and equity into one document. It shows what your assets are worth, how much you owe to creditors, and any investments you made to get the business started. It can give you a quick overview of your business’s financial standing at any given time and can be crucial when trying to make insightful business decisions.
The income statement is made up of your revenue, expenses, and profit for a specified length of time. It helps you get a clear picture of your monthly income and expenses so that you can understand how your business is performing. Small business owners can use this information figure out if they’re staying within their budget and find any problem areas before they grow out of control.
When you’re using an income statement as part of a business plan or if you’re the owner of a new business, you should make one income statement for each month. This will help you stay on target with your revenue goals and make it easier to anticipate possible financial issues. Once you’ve overcome these initial hurdles, then you can safely do one income statement per quarter instead of monthly.
Cash flow projections show how cash will flow in and out of your business for a specified length of time. Because it shows how cash will flow through your business in the future, cash flow projections make your financial plan more appealing to investors. This is useful when applying for a loan or credit line since loans officers can use it to determine if your business is a good credit risk. It can also help you predict when you may need to take out a loan in the future or when you’ll have extra cash on hand.
A cash flow statement consists of projected money left over from the previous month, your projected income for that month, and your expected expenses for that month. It’s important not to be overly optimistic about your projected revenue or expenses because an accurate projection is more helpful than an idealistic one.
After you’ve finished making all three documents, you should write a brief analysis of the three parts of your financial plan. This analysis should be short and emphasize only the main points. Doing so will help your team easily digest the insights from your financial plan and better use it to improve your business.
In this article, we’ve considered the different components of a financial plan and how to make one for your small business. After creating a successful plan and getting started, you may run into different small business challenges like hiring new employees.
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