Making a financial plan for your business is important to the success of your enterprise. A financial plan is critical because it is the roadmap that will lead to success or failure.
Financial plans are generated from financial goals and forms the final part of the business plan. Financial goals are targets that you set as a business for your future financial needs.
The financial part of your business is an important part of your business plan because it is what determines what financial goals your business shall be able to achieve.
It also places timelines and checks and balances on your operations as a business. It is also very important as it helps you operate on a budget.
As a business person, you need to have a mindset that plans ahead. Even though your business may already be in operation, it is never too late to stop and plan.
It gets to a point in life as an entrepreneur when you realize that the lessons you have learned along the way really do have to be implemented. Money mistakes in your business are not as detrimental to you as they will be in future. Managing finances does not come naturally or easily to everyone. Whether you have little experience with finances or you are unsure about how to handle certain costs or expenses, a financial planner would be useful.
Keeping yourself informed on a variety of financial planning basics can help you feel more confident about your financial future.
A financial plan is a self-supporting document intended to support and direct the actions of a business. It describes what your business can afford, how it can afford to do and what the expected profits will be.
For a small business, a well written financial plan can be the difference between you carrying on with the business or the business carrying you. Here are some tips to help you make a financial plan for your business.
A financial plan of a business contains various financial statements that show the current state of your companies operations and also where it intends to be.
A typical financial plan contains three crucial financial statements. They are:
- The income statement: This statement is a summary of the company’s revenue and expenses.
- The balance sheet: This is a detailed statement that shows your company’s assets and liabilities.
- The cash flow statement: This is the amount of money that you expect to be coming into and going out of the company.
A financial plan should indicate exactly how much the business needs and even though it may seem like a silly thing, you as the businessman needs to know exactly how much money they are going to need as a business.
Most entrepreneurs do not know how much money they need as a business. Especially as a business, when you will need funding from investors or lenders, you need to have the plan underway of how you intend to use the money.
When you are preparing your financial plan you will also be able to determine what type of financing you are going to need and at what points of the business you will need it.
Lenders shall also need this financial plan to determine how you will utilize the money and how you shall be intending to pay it back.
Therefore, a financial plan needs to be very accurate, try as much as possible not to make any typos, or mistake the financials.
Creating a financial plan is not very difficult, here are some steps you can follow:
- Estimate the start-up costs: Start estimating how much money you will need to get your business pf the ground. This includes fees like registration fees, accounting fees, various assets and equipment you may need. This is the initial costs that are necessary for your business to get off the ground.
- Create a balance sheet: This is an estimation of many assets and liabilities you have as a business. Make projections for the coming year.
- Write down your expected profits and losses: This is a projection of how much money you intend to make as well as loose out within the first year of operation.
- Create a cash flow forecast: These are statements of your business’s cash flows over the past couple of months.
- Make a break-even analysis: This is an estimation of how much revenue you will need to make in order to recoup back your initial investment.
Why Is It Important To Create A Financial Plan
- A financial plan will help you attract lenders and investors in your business.
- A financial plan will help you plan how you can recoup your initial investment.
- A financial plan can help you plan out your resources and allocate them accordingly.
A financial plan shall help you to achieve your financial goals. Realistically, no business can flourish without a financial plan.
Building a financial plan does not have to be difficult, but it pays to have one. Do you think financial planning is important? Please let us know in the comments section below.