Every business needs to be based on a business plan that covers the key aspects of its potential success. A business plan is supposed to guide you through the process of establishing and growing your small business, by using the facts and numbers you’ve gathered. And, the financial part of your business plan plays an essential role in making your small business stable and successful.
This is why you need to learn how to write a financial plan that helps you make smart business decisions and ensure your small business can grow and develop further. Since writing a financial plan can be a bit intimidating for most people, we’re here to help you out.
Here are 6 steps you need to take to write a brilliant financial plan for your business.
1. Understand Your Goal
First things first, you need to understand why having a well-written financial plan is crucial for your business. You’re not writing this plan to please the norm but to draw valuable conclusions that will help you run your business professionally.
So, understand the goal of writing a financial plan:
- overview of your financial situation
- projections for the future
- smart decisions
Your financial plan is crucial for your small business to flourish successfully. You may also use it to find investors or partners who’ll read it to decide whether to partner up with you or not.
2. Set-Up Expenses
If you’re only just getting started with your business, the first section of your financial plan should cover the set-up expenses you’ll need to cover. These expenses are usually easily defined, and you can make a fairly precise estimation.
Start-up expenses you’ll need to define include:
- registering your business
- acquiring licenses and permits
- buying your startup inventory
- property renting
- buying equipment
Make this report as precise as possible to determine what your startup budget needs to be.
3. Income Statement
The next section of your financial plan should be the income statement, also known as the profit and loss statement. Simply put, this section should cover your predicted income as well as the expenses you’re bound to face for a fixed period.
You can make it a monthly, quarterly, or annual statement.
To write your income statement, you’ll need to gather information and define the following elements of your small business’ financial forecast:
- sales or revenue forecast
Estimate the details regarding the sales or revenue for your small business, for every month, for at least the first year of its existence. Include details such as products, services, prices, cost of sales and create a calculation based on these numbers.
It would be best to do it in an Excel spreadsheet and have all the numbers presented together.
Next, you want to define the expenses you’ll be facing to keep your business up and running. These operating expenses include:
- employees’ salaries
- rent payments
- distribution and transportation
- marketing and promotion
- loan payments
- office supplies
- estimated taxes
Think of the expected expenses that you’ll need to cover to make the sales you’re predicting and keep your business running stably.
4. Cash-Flow Projection
The next thing you need to do is to create a cash-flow projection for a certain period. It’s one of the crucial accounting strategies that small businesses rely on. It’ll show you how money is going to come in and out of your business.
This will help you project how much money will be left in your budget over a specific period.
You need to have all the facts:
- where’s your cash coming from
- where is it going
- what is the schedule of the cash coming and going
Remember- this differs from your income statement since not all sales and expenses are handled through actual cash. So, don’t mix up those two.
5. Balance Sheet
Next, your financial plan will need to have a balance sheet that will show you or potential investors and partners what your business is worth in a selected moment in the future. It’s based on a simple formula:
- Assets = Liabilities + Equity
Let’s explain these concepts:
- Assets: what your business owns such as inventory, cash, objects, etc.
- Liabilities: what your business owes such as credit card payments, loan payments, etc.
- Equity: the result you get when total liabilities are subtracted from the total assets
Include this calculation in your financial plan as well.
6. Organize Information
You may have all the above-listed numbers, predictions, and information in your head or written chaotically across your notes. But, your financial plan needs to present this information successfully.
Make sure to:
- organize it in sections
- create spreadsheets and tables as a visual representation of your calculations
- be precise and concise
In case you need professional help to make your financial plan stand out, Edubirdie has the type of services you need. Then you’ll be able to proudly present it to partners and investors, and use it to make the right business decisions.
Your financial plan is the backbone of your small business operations and success. It shows you the way through upcoming plans and helps you stay on top of the situation at any point.
The 6 steps we’ve shared above are what you need to do to write a strong financial plan for your small business.
Author’s bio. Jessica Fender is a copywriter and blogger at Writeload with a background in marketing and sales. She enjoys sharing her experience with like-minded professionals who aim to provide customers with high-quality services.