5 steps to create your company’s financial plan
Knowing your initial and operational expenses in detail when you are starting a business is critical. This is why a financial plan is one of the key elements of a business plan. A good financial plan should be based on anticipated expenses and sales projections, and it should include different scenarios so you can be prepared for the effect they may have on your business.
Nevertheless, building a financial plan isn’t an easy task and requires a lot of effort and knowledge.
1. Learn the elements of a financial plan
A business’s financial plan is crucial in mapping out the future of the company. The business will need financing to meet its ambitious goals. It will need to incorporate factors such as changes in the workforce and external circumstances, which can drastically affect the business’s future growth. In addition, it will need to compare itself to other similar companies to gauge where it stands in terms of finances and priorities. Finally, financial planning is not a one-time event; it should be repeated at different stages of the business.
One of the most important aspects of the financial plan is the cash flow projection. Since businesses run on cash, the cash flow statement is essential. The cash flow statement should clearly show where the cash is going, and on what schedule each activity takes place. Another important component of a financial plan is income projections. These projections are what the company expects to earn over the course of a year. These figures are then subtracted from anticipated expenses and rolled up into the profit and loss statements.
2. Get professional help
To build a solid financial plan, you must know exactly what to include in it, and if this is not in your scope of expertise, you may want to work with a professional. Investing in outsourced bookkeeping services can be a great option for small businesses. It can help you reduce the risks associated with a non-expert employee and can eliminate human error. And it can also help you create the most comprehensive financial plan.
Plus, building an in-house team of accountants isn’t only much less cost-efficient but is also limited to local talent. Outsourcing allows you to hire the best talent available from all over the country or even the world. Regardless of how large your business is, hiring a third party can help you increase efficiency.
Professional accountants will be able to help you explain your financial plan to lenders and investors. Before choosing an outsourced provider, it is important to carefully analyze your needs and determine what services your company requires. By outsourcing your bookkeeping needs, you can access advanced accounting solutions and save money. These solutions can accurately predict problems with your cash flow and give you valuable insights that you would not have otherwise had.
3. Understand and analyze your company
To create a financial plan, you must know the ins and outs of your company, and each of its components. More importantly, you need to analyze them and make good financial assumptions and predictions. Besides knowing each aspect of the business, you should also know what to include in your plan—not only to satisfy lenders and investors but also to ultimately help you run your business more successfully.
4. Create the budget
After analyzing the key elements of the business, it is time to create a budget. This budget should include the expenses of the business, as well as savings and an emergency fund for unforeseen situations. It is natural for business owners to spend more than they initially anticipate. It is also necessary to take the competition into account when developing the financial plan. Ultimately, a financial plan will help business owners make informed decisions regarding how much they need to raise from investors and sales.
5. Include a powerful financial plan summary
The summary of your company’s financial plan should be short, concise, and powerful. It should summarize the most important information in a few paragraphs to persuade your investor to provide you with funding.
The points included in it will vary depending on the type of business you’re starting. Regardless of its length, the summary should highlight the most significant points of your plan. Of course, it doesn’t have to include all of the information in the plan, but it should be comprehensible and able to convince a lender to provide you with a loan.
Conclusion
It’s not difficult to understand what a financial plan is. But entrepreneurs must also understand its purpose. Namely, you need it for a clear and full picture of current finances, expected and unexpected, initial and ongoing expenses, financial goals, etc. This will help you reach your company’s objectives faster, more efficiently, and with minimum financial mistakes.
