financial considerations in business plan

How to Write a Small Business Financial Plan

Noah Parsons

3 min. read

Updated January 3, 2024

Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully put your budget and forecasts together. Here is everything you need to include in your financial plan along with optional performance metrics, specifics for funding, and free templates.

• Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With all of your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios. While these metrics are entirely optional to include in your plan, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

Download Template

Accurate and easy financial forecasting

Get a full financial picture of your business with LivePlan's simple financial management tools.

Get Started

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• What to include for funding

Related Articles

10 Min. Read

How to Write the Company Overview for a Business Plan

How to Set and Use Milestones in Your Business Plan

How to Write a Competitive Analysis for Your Business Plan

24 Min. Read

The 10 AI Prompts You Need to Write a Business Plan

The Bplans Newsletter

The Bplans Weekly

Subscribe now for weekly advice and free downloadable resources to help start and grow your business.

We care about your privacy. See our privacy policy .

The quickest way to turn a business idea into a business plan

Fill-in-the-blanks and automatic financials make it easy.

No thanks, I prefer writing 40-page documents.

Discover the world’s #1 plan building software

• Sample Plans
• WHY UPMETRICS?

Upmetrics AI Assistant: Simplifying Business Planning through AI-Powered Insights. Learn How

• 400+ Sample Business Plans

Customers Success Stories

Business Plan Course

Strategic Canvas Templates

E-books, Guides & More

Business consultants

Entrepreneurs and Small Business

Accelerators and Incubators

Educators & Business Schools

Students & Scholars

AI Business Plan Generator

Financial Forecasting

AI Assistance

Ai pitch deck generator

Stratrgic Planning

See How Upmetrics Works  →

Small Business Tools

Entrepreneurs & Small Business

Accelerators & Incubators

Business Consultants & Advisors

Strategic Planning

How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

Say goodbye to old-school excel sheets & templates

Make accurate financial plan faster with AI

Plans starting from $7/month

Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

Reach Your Goals with Accurate Planning

No Risk – Cancel at Any Time – 15 Day Money Back Guarantee

Popular Templates

Do you have the world's best boss? Enter them to win two tickets to Sandals!

• Starting a Business

Our Top Picks

• Best Small Business Loans
• Best Business Internet Service
• Best Online Payroll Service
• Best Business Phone Systems

Our In-Depth Reviews

• OnPay Payroll Review
• ADP Payroll Review
• Ooma Office Review
• RingCentral Review

Explore More

• Business Solutions
• Entrepreneurship
• Franchising
• Best Accounting Software
• Best Merchant Services Providers
• Best Credit Card Processors
• Best Mobile Credit Card Processors
• Clover Review
• Merchant One Review
• QuickBooks Online Review
• Xero Accounting Review
• Financial Solutions

Human Resources

• Best Human Resources Outsourcing Services
• Best Time and Attendance Software
• Best PEO Services
• Best Business Employee Retirement Plans
• Bambee Review
• Rippling HR Software Review
• TriNet Review
• Gusto Payroll Review
• HR Solutions

Marketing and Sales

• Best Text Message Marketing Services
• Best CRM Software
• Best Email Marketing Services
• Best Website Builders
• Textedly Review
• Salesforce Review
• EZ Texting Review
• Textline Review
• Business Intelligence
• Marketing Solutions
• Marketing Strategy
• Public Relations
• Social Media
• Best GPS Fleet Management Software
• Best POS Systems
• Best Employee Monitoring Software
• Best Document Management Software
• Verizon Connect Fleet GPS Review
• Zoom Review
• Samsara Review
• Zoho CRM Review
• Technology Solutions

Business Basics

• 4 Simple Steps to Valuing Your Small Business
• How to Write a Business Growth Plan
• 12 Business Skills You Need to Master
• How to Start a One-Person Business
• FreshBooks vs. QuickBooks Comparison
• Salesforce CRM vs. Zoho CRM
• RingCentral vs. Zoom Comparison
• 10 Ways to Generate More Sales Leads

6 Elements of a Successful Financial Plan for a Small Business

Table of Contents

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

Get Weekly 5-Minute Business Advice

B. newsletter is your digest of bite-sized news, thought & brand leadership, and entertainment. All in one email.

Our mission is to help you take your team, your business and your career to the next level. Whether you're here for product recommendations, research or career advice, we're happy you're here!

Call Us (877) 968-7147

Most popular blog categories

• Payroll Tips
• Accounting Tips
• Accountant Professional Tips

How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.  

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.  

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses. 

Why it matters 

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers. 

Through the financial section, you can:

• Forecast your business’s future finances
• Budget for expenses (e.g., startup costs)
• Get financing from lenders or investors
• Grow your business

• Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
• Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section. 

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup. 

Your financial section should detail:

• Business expenses 

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses. 

Take a look at some common business expenses you may need to include in the financial section of business plan:

• Licenses and permits
• Cost of goods sold 
• Rent or mortgage payments
• Payroll costs (e.g., salaries and taxes)
• Utilities 
• Equipment 
• Supplies 
• Advertising 

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs). 

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes). 

How much do you anticipate earning from sales each month? 

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance. 

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period. 

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions. 

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements. 

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses. 

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover. 

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment). 

Back up your funding request by emphasizing your financial projections. 

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc. 

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it. 

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!

Stay up to date on the latest accounting tips and training

You may also be interested in:

Need help with accounting? Easy peasy.

Business owners love Patriot’s accounting software.

But don’t just take our word…

Explore the Demo! Start My Free Trial

Relax—run payroll in just 3 easy steps!

Get up and running with free payroll setup, and enjoy free expert support. Try our payroll software in a free, no-obligation 30-day trial.

Relax—pay employees in just 3 steps with Patriot Payroll!

Business owners love Patriot’s award-winning payroll software.

Watch Video Demo!

Watch Video Demo

4 Steps to Creating a Financial Plan for Your Small Business

When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan that sets forth a business’s short- and long-term financial goals and how it intends to reach them. Used by company decision-makers and potential partners, investors and lenders, alike, a financial plan typically includes the company’s sales forecast, cash flow projection, expected expenses, key financial metrics and more. Here is what small businesses should understand to create a comprehensive financial plan of their own.

What Is a Financial Plan?

A financial plan is a document that businesses use to detail and manage their finances, ensure efficient allocation of resources and inform a plethora of decisions — everything from setting prices, to expanding the business, to optimizing operations, to name just a few. The financial plan provides a clear understanding of the company’s current financial standing; outlines its strategies, goals and projections; makes clear whether an idea is sustainable and worthy of investment; and monitors the business’s financial health as it grows and matures. Financial plans can be adjusted over time as forecasts become replaced with real-world results and market forces change.

A financial plan is an integral part of an overall business plan, ensuring financial objectives align with overall business goals. It typically contains a description of the business, financial statements, personnel plan, risk analysis and relevant key performance indicators (KPIs) and ratios. By providing a comprehensive view of the company’s finances and future goals, financial plans also assist in attracting investors and other sources of funding.

Key Takeaways

• A financial plan details a business’s current standing and helps business leaders make informed decisions about future endeavors and strategies.
• A financial plan includes three major financial statements: the income statement, balance sheet and cash flow statement.
• A financial plan answers essential questions and helps track progress toward goals.
• Financial management software gives decision-makers the tools they need to make strategic decisions.

Why Is a Financial Plan Important to Your Small Business?

A financial plan can provide small businesses with greater confidence in their short- and long-term endeavors by helping them determine ways to best allocate and invest their resources. The process of creating the plan forces businesses to think through how different decisions could impact revenue and which occasions call for dipping into reserve funds. It’s also a helpful tool for monitoring performance, managing cash flow and tracking financial metrics.

Simply put, a financial plan shows where the business stands; over time, its analysis will reveal whether its investments were worthwhile and worth repeating. In addition, when a business is courting potential partners, investors and lenders, the financial plan spotlights the business’s commitment to spending wisely and meeting its financial obligations.

Benefits of a Financial Plan

A financial plan is only as effective as the data foundation it’s built on and the business’s flexibility to revisit it amid changing market forces and demand shifts. Done correctly, a financial plan helps small businesses stay on track so they can reach their short-term and long-term goals. Among the benefits that effective financial planning delivers:

• A clear view of goals and objectives: As with any type of business plan, it’s imperative that everyone in a company is on the same financial page. With clear responsibilities and expected results mapped out, every team member from the top down sees what needs to be done, when to do it and why.
• More accurate budgets and projections: A comprehensive financial plan leads to realistic budgets that allocate resources appropriately and plan for future revenue and expenses. Financial projections also help small businesses lay out steps to maintain business continuity during periods of cash flow volatility or market uncertainty.
• External funding opportunities: With a detailed financial plan in hand, potential partners, lenders and investors can see exactly where their money will go and how it will be used. The inclusion of stellar financial records, including past and current liabilities, can also assure external funding sources that they will be repaid.
• Performance monitoring and course correction: Small businesses can continue to benefit from their financial plans long after the plan has been created. By continuously monitoring results and comparing them with initial projections, businesses have the opportunity to adjust their plans as needed.

Components of a Small Business Financial Plan

A sound financial plan is instrumental to the success and stability of a small business. Whether the business is starting from scratch or modifying its plan, the best financial plans include the following elements:

Income statement: The income statement reports the business’s net profit or loss over a specific period of time, such a month, quarter or year. Also known as a profit-and-loss statement (P&L) or pro forma income statement, the income statement includes the following elements:

• Cost of goods sold (COGS): The direct costs involved in producing goods or services.
• Operating expenses: Rent, utilities and other costs involved in running the business.
• Revenue streams: Usually in the form of sales and subscription services, among other sources.
• Total net profit or loss: Derived from the total amount of sales less expenses and taxes.

Balance sheet: The balance sheet reports the business’s current financial standing, focusing on what it owns, what it owes and shareholder equity:

• Assets: Available cash, goods and other owned resources.
• Liabilities: Amounts owed to suppliers, personnel, landlords, creditors, etc.

Shareholder equity: Measures the company’s net worth, calculated with this formula:

Shareholder Equity = Assets – Liability

The balance sheet lists assets, liabilities and equity in chart format, with assets in the left column and liabilities and equity on the right. When complete — and as the name implies —the two sides should balance out to zero, as shown on the sample balance sheet below. The balance sheet is used with other financial statements to calculate business financial ratios (discussed soon).

Balance Sheet

Cash flow projection: Cash flow projection is a part of the cash flow statement , which is perhaps one of the most critical aspects of a financial plan. After all, businesses run on cash. The cash flow statement documents how much cash came in and went out of the business during a specific time period. This reveals its liquidity, meaning how much cash it has on hand. The cash flow projection should display how much cash a business currently has, where it’s going, where future cash will come from and a schedule for each activity.

Personnel plan: A business needs the right people to meet its goals and maintain a healthy cash flow. A personnel plan looks at existing positions, helps determine when it’s time to bring on more team members and determines whether new hires should be full-time, part-time or work on a contractual basis. It also examines compensation levels, including benefits, and forecasts those costs against potential business growth to gauge whether the potential benefits of new hires justify the expense.

Business ratios: In addition to a big-picture view of the business, decision-makers will need to drill down to specific aspects of the business to understand how individual areas are performing. Business ratios , such as net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets, help evaluate the business’s financial health. Data used to calculate these ratios come from the P&L statement, balance sheet and cash flow statement. Business ratios contextualize financial data — for example, net profit margin shows the profitability of a company’s operations in relation to its revenue. They are often used to help request funding from a bank or investor, as well.

Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.

Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.

Income projections: Businesses can use their sales forecasts to estimate how much money they are on track to make in a given period, usually a year. This income projection is calculated by subtracting anticipated expenses from revenue. In some cases, the income projection is rolled into the P&L statement.

Assets and liabilities: Assets and liabilities appear on the business’s balance sheet. Assets are what a company owns and are typically divided into current and long-term assets. Current assets can be converted into cash within a year and include stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use, such as furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are also classified as current and long-term. Current liabilities are due to be paid within a year and include accrued payroll, taxes payable and short-term loans. Long-term liabilities include shareholder loans or bank debt that mature more than a year later.

Break-even analysis: The break-even point is how much a business must sell to exactly cover all of its fixed and variable expenses, including COGS, salaries and rent. When revenue exceeds expenses, the business makes a profit. The break-even point is used to guide sales revenue and volume goals; determination requires first calculating contribution margin , which is the amount of sales revenue a company has, less its variable costs, to put toward paying its fixed costs. Businesses can use break-even analyses to better evaluate their expenses and calculate how much to mark up its goods and services to be able to turn a profit.

Four Steps to Create a Financial Plan for Your Small Business

Financial plans require deliberate planning and careful implementation. The following four steps can help small businesses get started and ensure their plans can help them achieve their goals.

Create a strategic plan

Before looking at any numbers, a strategic plan focuses on what the company wants to accomplish and what it needs to achieve its goals. Will it need to buy more equipment or hire additional staff? How will its goals affect cash flow? What other resources are needed to meet its goals? A strategic financial plan answers these questions and determines how the plan will impact the company’s finances. Creating a list of existing  expenses  and assets is also helpful and will inform the remaining financial planning steps.

Create financial projections

Financial projections should be based on  anticipated expenses and sales forecasts . These projections look at the business’s goals and estimate the costs needed to reach them in the face of a variety of potential scenarios, such as best-case, worst-case and most likely to happen. Accountants may be brought in to review the plan with stakeholders and suggest how to explain the plan to external audiences, such as investors and lenders.

Plan for contingencies

Financial plans should use data from the cash flow statement and balance sheet to inform worst-case scenario plans, such as when incoming cash dries up or the business takes an unexpected turn. Some common contingencies include keeping cash reserves or a substantial line of credit for quick access to funds during slow periods. Another option is to produce a plan to sell off assets to help break even.

Monitor and compare goals

Actual results in the cash flow statement, income projections and relevant business ratios should be analyzed throughout the year to see how closely real-life results adhered to projections. Regular check-ins also help businesses spot potential problems before they can get worse and inform course corrections.

Three Questions Your Financial Plan Should Answer

A small business financial plan should be tailored to the needs and expectations of its intended audience, whether it is potential investors, lenders, partners or internal stakeholders. Once the plan is created, all parties should, at minimum, understand:

How will the business make money?

What does the business need to achieve its goals?

What is the business’s  operating budget ?

Financial plans that don’t answer these questions will need more work. Otherwise, a business risks starting a new venture without a clear path forward, and decision-makers will lack the necessary insights that a detailed financial plan would have provided.

Improve Your Financial Planning With Financial Management Software

Using spreadsheets for financial planning may get the job done when a business is first getting started, but this approach can quickly become overwhelming, especially when collaborating with others and as the business grows.

NetSuite’s cloud-based financial management platform simplifies the labor-intensive process through automation. NetSuite Planning and Budgeting automatically consolidates real-time data for analysis, reporting and forecasting, thereby improving efficiency. With intuitive dashboards and sophisticated forecasting tools, businesses can create accurate financial plans, track progress and modify strategies in order to achieve and maintain long-term success. The solution also allows for scenario planning and workforce planning, plus prebuilt data synchronization with NetSuite ERP means the entire business is working with the same up-to-date information.

Whether a business is first getting started, looking to expand, trying to secure outside funding or monitoring its growth, it will need to create a financial plan. This plan lays out the business’s short- and long-term objectives, details its current and projected finances, specifies how it will invest its resources and helps track its progress. Not only does a financial plan guide the business along its way, but it is typically required by outside sources of funding that don’t invest or lend their money to just any company. Creating a financial plan may take some time, but successful small businesses know it is well worth the effort.

#1 Cloud Accounting Software

Small Business Financial Plan FAQs

How do I write a small business financial plan?

Writing a small business financial plan is a four-step process. It begins with creating a strategic plan, which covers the company’s goals and what it needs to achieve them. The next step is to create financial projections, which are dependent on anticipating sales and expenses. Step three plans for contingencies: For example, what if the business were to lose a significant client? Finally, the business must monitor its goals, comparing actual results to projections and adjusting as needed.

What is the best financial statement for a small business?

The income statement, also known as the profit and loss (P&L) statement, is often considered the most important financial statement for small businesses, as it summarizes profits and losses and the business’s bottom line over a specific financial period. For financial plans, the cash flow statement and the balance sheet are also critical financial statements.

How often should businesses update their financial plans?

Financial plans can be updated whenever a business deems appropriate. Many businesses create three- and five-year plans and adjust them annually. If a market experiences a large shift, such as a spike in demand or an economic downturn, a financial plan may need to be updated to reflect the new market.

What are some common mistakes to avoid when creating a small business financial plan?

Some common mistakes to avoid when creating a small business financial plan include underestimating expenses, overestimating revenue, failing to plan for contingencies and adhering to plans too strictly when circumstances change. Plans should be regularly updated to reflect real-world results and current market trends.

How do I account for uncertainty and potential risks in my small business financial plan?

Small businesses can plan for uncertainty by maintaining cash reserves and opening lines of credit to cover periods of lower income or high expenses. Plans and projections should also take into account a variety of potential scenarios, from best case to worst case.

What is a typical business financial plan?

A typical business financial plan is a document that details a business’s goals, strategies and projections over a specific period of time. It is used as a roadmap for the organization’s financial activities and provides a framework for decision-making, resource allocation and performance evaluation.

What are the seven components of a financial plan?

Financial plans can vary to suit the business’s needs, but seven components to include are the income statement, operating income, net income, cash flow statement, balance sheet, financial projections and business ratios. Various financial key performance indicators and a break-even analysis are typically included as well.

What is an example of a financial plan?

A financial plan serves as a snapshot of the business’s current standing and how it plans to grow. For example, a restaurant looking to secure approval for a loan will be asked to provide a financial plan. This plan will include an executive summary of the business, a description and history of the company, market research into customer base and competition, sales and marketing strategies, key performance indicators and organizational structure. It will also include elements focusing on the future, such as financial projections, potential risks and funding requirements and strategies.

Financial Management

Small Business Financial Management: Tips, Importance and Challenges

It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.

More On This

Trending Articles

Learn How NetSuite Can Streamline Your Business

NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there’s continuity from sales to services to support.

Before you go...

Discover the products that 37,000+ customers depend on to fuel their growth.

Before you go. Talk with our team or check out these resources.

Want to set up a chat later? Let us do the lifting.

NetSuite ERP

Explore what NetSuite ERP can do for you.

Business Guide

Complete Guide to Cloud ERP Implementation

Does your business plan need a push?

Writting a business plan can be a springboard exercise for your business, and it's not as difficult as people think. All it takes is a bit of method, and some efficient tools. The good news our free articles and paid course have you covered!

Resources on Business Plan Writing :

An article of the Accelerated MBA written by:

Antoine Martin (Ph.D) | Business coach

Is this article relevant? Share it & help someone!

In this article:

Financial projections: how to write the financial plan in business plan.

So, you’ve decided to write a business plan? Good for you! It’s an important document that will help you outline your business goals, strategies, and tactics.

But it’s not just a document for you, as the business owner in charge of everything – it’s also important for potential investors and lenders.

In particular, one of the most important sections of your business plan should be your financial plan or, in other words, your overall financial projections for the next few years – understand, three to five years – distilled in a specific and highly codified format.

Why? Because the financial projections in a business plan are the numbers’ version of your pitch – if something doesn’t add-up, that’s where you see it.

Now, we know that numbers can be impressive (not to say daunting), so in this post, we’ll explain to you how to write a financial plan in your business plan.

We’ll also explain the logic you are supposed to follow to do things right (because financiers expect you to follow a very specific logic).

And we’ll explain what your business plan absolutely needs to include from a financial standpoint.

If that makes sense to you, then let’s get going!

By the way…

Before we dig into the financial projections’ discussion, let us give you a tiny bit of background!

We are professional business coaches, and our job is to push entrepreneurs and business owners to their next steps.

Business planning and business plans are part of that, obviously, therefore we have written a series of free articles on how to write a business plan – of which this page is a part.

We are on a mission to make entrepreneurship fun and accessible, so we provide about 80 percent of our content for free – including a free business plan template to be downloaded down this page.

Still, in case that’s not sufficient, we’ve also created our Business Plan Builder Module , which has been designed to make your life super easy.

Shameless plug: it gives you access to:

• a complete and solid business plan writing work-frame tool
• automated financial tables that take the hassle away (yayyy!)
• two designer-made templates (comprehensive + pitch deck)
• and two hours of tutorial videos recorded with a business coach to explain all the logic you’ll need to master if you plan on writing a business plan that converts.

There’s simply no way to make things easier!

Now, having said that, let’s get going.

As a reminder, what is a business plan about?

To start the discussion, remember that a business plan is about much more than just numbers. As we’ve explained in our article What are Business Plans For? , the role of such a document is to show that beyond a nice business plan pdf nobody really cares about, you have a real business and a plan to get it somewhere.

First, a business plan’s purpose is to help you explain what your project is about. In that sense, the document you need to write should be written as a storytelling instrument, designed, and formulated to tell people a story they will want to read AND remember.

Second, it should give you a way to showcase your main business objectives for the next few years, as well as the strategy you will put into place to get there and deliver on your promises.

Third, your business plan should also provide a market analysis, and a description of your main target segment. That gives the reader a better understanding of your ecosystem’s potential, but more importantly the exercise forces you to look around, open your eyes and do some meaningful research.

You wouldn’t want to drive blindfolded, would you?

Of course, your document should also have a financial component – which is the topic of this article – and there the challenge is to ensure that your financial projections make sense, that they are clear, accurate and easy to follow.

Long things short, investors and bankers expect you to match a very specific business plan outline and format (there’s a code!) and you don’t have much wiggle room there – so be careful in your approach!

What is a Financial Plan & what should it include?

Now, let’s get into the core of this article: financial plans and financial projections. What are they, why are they important – there is a lot to explore.

First things first, what is a financial plan? How important is it in a business plan? And what type of elements is it made of? What are the projected financial statements you need to provide? Oh, and what do we mean by ‘financial projections’ in the first place, by the way?

What is the role of a financial plan in business plan?

A financial plan is the financial part of your business plan. Its purpose is simple: explain to the reader what should be the ins and outs of your project from a financial perspective, and help them see if their own business projections are aligned with yours.

On the one hand, the idea is to put numbers on your project, to make it tangible and show that your vision includes the end and the means.

On the other, it is also to show that you are capable of defending your big idea as well as the projected financials that need to come with it – something that many wannabe entrepreneurs are actually unable to do…

As a side note, and as silly as that might sound, this means that your business plan should include a lot more than just a financial plan and a smart cash flow projection!

That point brings us back to the one we made earlier when we said that a business plan should follow a specific structure (go read that article!), but we mention it again because we want things to be very clear: your business plan should be a matter of storytelling, not just a matter of financial projections!

Typically, we often see accountants work on business plans, and what they produce is rarely enough because they only deliver financial estimates that make no real sense to non-accountants (even less to the entrepreneurs at stake) and leave aside the rest of the topics – particularly the storytelling!

Said differently? The numbers are one aspect of the story, but you still have to come up with the pitch – which is where the rest of the business plan comes in handy.

Make sure to deliver an easy-to-read mix!

Your financial plan must provide your financial projections

To get into the technical part of the discussion, the financial plan in your business plan should include your financial projections, organized in a very formal format.

That makes two distinct points to consider!

On the one hand, you should be able to show with clear numbers what money should come in and when (that’s the income forecasts), for this year but also for the next, the ones after that for three to five years.

On the other, you should also be able to show what money needs to go out to make the business roll. What are the production costs, the fixed and variable expenses, the salaries, and of course the various marketing expenses needed to generate the development you are planning on getting to.

On that point, remember that your cost of client acquisition should also be part of the formalized projections – otherwise your numbers will be flawed (and doomed).

Ultimately, you need to be very clear as to when your new business (or existing business) should break even, as to when should profits be expected, as to when lenders and investors will get their money back, so forth and so on.

It must include specific financial documents people will expect to see

From a very formal perspective, you shouldn’t be trying to make one single projection sheet. Nope! Your readers will expect to see three important financial documents in the financial section of the business plan you will introduce to them.

• A profit and loss statement – also known as your P&L statement, or as an income statement
• A cash flow statement
• And a balance sheet.

First, the P&L table or income statement should show what money is expected to come in or go out, but it should also show if and when the business will make a profit or a loss, year by year, for the next five years.

The sales forecast and the operating expenses should be easy to understand at that stage, and you should also be able to provide your estimated gross profit, your gross margin, as well as your net profit and net margin.

In case you are wondering, your gross profit corresponds to your sales minus your cost of production. Your net profit corresponds to the gross profit minus all the remaining costs.

It’s okay to read that twice…

Not being profitable is also okay, by the way. That’s the game. However, you must be able to explain why you won’t be profitable in a given year, and how you plan on filling the gap in the bank – otherwise your business dies, right?

Second, the cashflow statement should explain your cash flow management strategy and indicate when you will need to fill the bank account in, and why.

For instance, important account receivables could justify a temporary cashflow need, but the gaps left from the previous years should also be visible. Obviously, the funding needs should also be there and aligned with the financial situation of the business.

Third, the balance sheet is a summary of the previous two tables, except that it shows the various elements in terms of assets or liabilities. For instance, the account receivables we mentioned just before would be an asset (because some money is owed to the business) while account payables would be a liability (since the business owes money to someone else).

Does all this sound a little complex?

That’s because it is.

No need to worry, though. We have you covered and will provide all the templates and tools you need further below. For now, just keep reading.

So, what’s the financial plan in a business plan for?

To conclude, the financial plan in business plan should act as a financial cartography of what you have in mind for that business of yours.

• The financial plan should illustrate the plan you have for the business in terms of numbers
• It should include precise financial projections of what you think can be achieved
• It should clearly illustrate your cashflow management strategy
• And it should summarize the information clearly
• All of this through highly standardized tables financiers will understand very easily

What documents should a financial business plan contain?

Getting your financial business plan right is a lot simpler than it seems.

Now, when you’re pitching that business of yours to potential partners, investors or lenders, you’ll need to provide them with a series of financial statements.

Yet, how to produce those documents without jumping into a living nightmare? How to come up with cash flow projections that make sense instead of being purely random?

Word of caution: financial planning for businesses is typically complex.

The question is not only fair, but it is also super-duper common and literally blocks tons of entrepreneurs and small business owners on a daily basis.

Because financial planning for businesses is typically complex.

Because most people aren’t comfortable with numbers.

And because the vast majority of small business owners simply don’t know where to start.

That’s probably why you were looking for either a financial plan pdf template or an example of financial plan for small business owners a few minutes ago, isn’t it?

Typically, here is what happens.

Some try and do their best, but then they don’t feel confident with pitching and defending their financial analysis, so they keep delaying and nothing happens.

Others end up having recourse to external help, even though external business plan consultants usually aren’t a good idea at that stage.

And the rest gives up.

That’s a shame, especially if consider that financial planning for a small business and building a financial plan for a business plan are only a matter of having access to the right method and tools!

Yes, a big (big) part of the work is to guestimate, but the rest is about trusting the process with the right logic, method and tools – and there’s nothing you can’t manage here.

Especially with the right tools!

How to build your financial forecasts?

Now that you understand the different sections of a financial plan, let us talk about how to build financial forecasting.

In plain English, this part of the exercise is where you’ll estimate your company’s income and expenses for the next few years. Therefore, you should keep a few things in mind.

One, you need to have a good understanding of your business in order to create realistic forecasts.

Sounds silly? Maybe, but this is a mistake people make way too much, and when they fail at justifying their financial projections, everything else goes down.

Two, you absolutely want to make sure that your projections can explore various trends, i.e. your pessimistic, optimistic, and most likely scenarios.

• If everything goes extremely well, we’ll get there.
• If everything goes wrong, we’ll get there.
• But… we should reasonably expect to achieve this and that if we obtain the funding we need…

Can you see the idea?

Be sure to also factor in any potential changes or risks that could affect your business.

For example, if you’re expecting a new competitor to enter the market, you’ll need to account for that in your projections. By being realistic and accounting for as many variables as possible, you’ll give yourself the best chance of success so give it some thought!

Pragmatically, how do I come up with reasonable financial forecasts for my business plan?

It’s all a question of common sense, really.

• How much do you plan on selling?
• What are your short, medium and long term financial goals?
• What would be the cost of production?
• What margin does that leave you with?
• What fixed costs would you expect?
• How about variable costs?
• Have you included transaction fees and credit card fees in your costs?
• What is the cost of insurance premiums?
• Will there be any debt to repay?
• What type of budget do you need for marketing purposes?
• What is the cost of acquisition of the client?
• What operational margin does it leave before the taxman comes in?
• What kind of money do you need to meet your long term goals?
• Have you planned for any emergency fund at all?

Right, that’s a long list. But! Answering those questions should give you a strong basis to build financial projections that make sense, because that’s literally how you would read your income statement in the end.

If you were trying to translate boring numbers into a meaningful story, that’s exactly where you would start!

Again, we have you covered with all this.

If you are looking for a concrete and practical financial plan example, make sure to download our business plan template down the page. It will give you the basic pro forma financials you’ll need.

If you need to understand the logic behind the template and would rather use an automated spreadsheet to get everything done, however, then it’s time to stop struggling.

The Impactified Business Plan Builder will provide everything you need: the automated tables and two hours of business coaching videos designed to explain all the logic you’ll need – what are you waiting for?

Why Are Financial Projections so Important in the end?

So, overall, why is creating financial projections so important? Are there various types of financial projections anyway? There are several things to keep in mind here.

First, your financial projections are important because they give bankers and investors the numbers they need (to make an informed decision) in a format they expect to see.

Second, your projections show whether your strategy is aligned with the means at your disposal to achieve it and whether you are aware of the financial engineering required to make your business roll.

Third, and in a related way, forecasts will give you, as the entrepreneur in charge, an opportunity to show if you understand the business for real (or if someone else not present during the discussion wrote the plan for you).

All of these documents are important, but you (nobody else!) will need to be able to tell a story around them.

Investors aren’t just looking for numbers! They invest in teams and people before investing in projects, so they want to know that you understand your business and that you have a plan for the future!

So, make sure your financial projections are accurate and be prepared to answer any questions investors have about them.

Understanding the investment process

To understand how to handle the exercise properly, understanding the investment and funding process in general is important.

What do bankers and investors expect when they are looking at a business plan? How do they decide whether to invest or not? And how do the financial projections help them make that decision?

In short, investors are looking for a return on their investment. So, they want to know what they can expect to earn from their investment, and how that compares to the risks they’re taking.

Your projected income statement is important there, but so are your cashflow projections!

Your financial estimates should therefore show how your business will grow and what profits you’ll generate, both in the short-term and long-term. This information will help investors determine whether or not your business is a good investment.

In contrast, bankers have a much lower risk tolerance and are not interested in funding you – they lend money to those who have money to repay the debt (or some assets to engage as collateral in case something goes wrong). Hence, what they look for is not a high return on investment based on risk, but a repayment capacity based on predictability and wise financial management.

Said differently? You need to create financial projections that make sense and adapt your financial pitch to your audience accordingly.

Show investors that there is a great opportunity to make money at a later stage and show bankers you will be able to start repaying as soon as possible.

Again, if you need to explore the question of investors’ mindsets, we elaborate on that in our video module – it’s time to give it a try!

Business valuation and exit thinking

Last but not least, understanding the investment process means that you also need to start thinking in terms of valuation and exit.

Or, said differently, the financial plan in your business plan must lead you to think about what your business will be worth a few years from now, and about how you will be able to make money (for you and your investment partners) by selling it.

On the one hand, exit thinking relates to the idea that investors invest in a business with the expectation that the business will raise more money later on, at which stage a larger investor will come in and buy the existing investors out.

To make your investors some money, therefore, you have to start thinking in terms of exiting the business at some point – which means progressively turning the business into an asset that works on its own, for you and as much as possible without you.

This mindset is absolutely key – think about it!

On the other hand, the discussion leads us to think in terms of business valuation – understand, how much is the business worth, and how much could it be sold for.

That topic is probably getting too technical for this article’s discussion, so we’ll explore it in another post.

Meanwhile, make sure to listen to the exit & valuation video in The Business Plan Builder module . We explain all this and even go as far as giving you an automated valuation calculator in the financial tables part of the tool – again, you have no excuse!

Avoiding the typical mistakes small businesses make with financial planning

To finish with the discussion, what should you keep in mind if you wanted to turn your financial plan into an asset that generates money rather than frustration?

Like it or not, but small business financial planning isn’t an intuitive thing and people tend to make very typical mistakes you should avoid at all costs!

Know your business

First piece of advice, you really (really, really) want to know your business from every angle.

When you are writing the financial plan in your business plan, it’s important to remember that your projections should represent an estimate of future performance. That’s how investors and lenders will read your numbers anyway.

So, your financial projections and forecasts should be based on realistic assumptions and calculations that you should always be prepared to adjust as needed.

In order to make accurate projections, it is therefore extremely important to have a good understanding of your business and the industry it operates in. You should also consult with industry experts and other professionals who can help you make informed decisions about your business.

Do the exercise yourself!

When you’re writing your financial plan, it’s important to avoid making common mistakes. One of the most common errors is underestimating how much money your business will need to operate.

Another is to rely on business plan consultants to write your financial projections without being able to understand the numbers yourself. This can lead to mistakes if the numbers are incorrect, and it can lead to embarrassing ahem! moments if you can’t explain how this or that number ended up in the document.

The best way to ensure accuracy is to do the exercise yourself with the right tools in hand and the brainstorming support of someone you trust to challenge your thoughts and conclusions.

This can be done with your acting CFO or close financial advisor if you have one, or with a fellow entrepreneur if anyone around you has the right mindset to dig into the discussion with you.

Alternatively, hiring a business coach is another way to brainstorm and challenge yourself – follow the link to find out more about that.

Don’t be a tourist. That’s stupid.

Third piece of advice: don’t enter into a discussion with a potential partner as a tourist – this is stupid, and that could very well kill you.

We have seen countless entrepreneurs walk into a room (let alone into a large startup event) saying that they were raising money for their startup. Yet, more often than not, their financial targets are not set or beyond approximative, which means they can’t explain why they need money and how they are going to spend it.

When you do that, the only thing you do is be stupid and make sure everyone knows about it.

First, because they won’t take you seriously. Would you invest money into someone who can’t tell you how they’ll use it and with what return on investment expectations?

And second, because the people you talk to will most likely ask you to come back to them once you have more information to provide. Which either means “don’t come back before six months to a year” or “please don’t come back at all, I have better things to do with my time and more competent people to talk to”.

Don’t be a tourist or you’ll just burn yourself. That’s stupid.

Turn your numbers into a story

The fourth piece of advice is going to be a repeat from earlier, but it’s important so let’s be redundant.

Now that you’ve written your financial projections, it’s time to go beyond the numbers and start telling your business story. The financial plan in your business plan is a great place to start but remember that it’s just one part of your overall pitch.

You’ll also need to be ready to pitch your idea, product, or service, and be ready to defend your financial plan against questions from investors or lenders.

Think holistically and build a story people will want to listen to, remember and act on. Period!

TL;DR: Get your financial projections right!

Now that you understand the different components of a financial plan, it’s time to learn how to write it. The key to writing a good financial plan is to be realistic. Don’t make assumptions that are unrealistic or impossible to achieve.

Start by estimating your sales and expenses for the first year of business. Be as specific as possible, and remember to include both fixed and variable costs. From there, you can create a cash flow statement that shows how your business will generate and spend money over time.

The goal of a financial plan is to paint a realistic picture of your business’s financial future. So make sure to update your plan as your business changes and grows. With careful planning and accurate numbers, you can ensure that your business will be successful for years to come.

What should your business plan financial plan include?

• A profit and loss statement – also known as your P&L statement, or as an income statement
• A cash flow statement showing if your business plan financial projections are realistic

What is the purpose of your business plan’s financial projections?

• To how the plan you have for the business in terms of numbers
• To show a financial overview of what you think can be achieved, by when, with what means
• To show you have a cashflow management strategy that makes sense
• To show you understand the standardized expectations and know how to play by the book
• To show that, overall, your business proposal makes sense whatever the angle!

Need a reliable template and video tutorial to get your financial business plan & financial projections right?

It’s built around over 2 hours of explanatory videos and comes with everything you’ll need to:

• Figure out what you need to figure out – powerful, uh?
• Understand the business plan code!
• Write a top business plan – with just the right amount of words and pages!
• Build your financial estimates – with an automated financial projections template excel spreadsheet!
• Create a visually appealing pitch deck people will want to read thanks to our designer-made templates!

If you want to stop wasting your time, this is THE most simple business plan template, and you can’t afford to miss it!

Wanna’ start with something free? Our free business plan template is also here to help !

Psss! Share this Article!

Topics related to Financial Projections: How to write the financial plan in business plan:

• Financial plan in business plan coffee shop
• Financial plan in business plan template

Need help with building & scaling your business?

At Impactified , we are on a mission to make you build, grow, and scale businesses you can be proud of, and we do that by making our business coaching expertise available to you, in person and through kick-ass self-coaching modules. You will love the experience either way, the only question is, what makes the most sense to you?

More Insights on Business Plan Writing

Hey coach! I’m writing a business plan and I’m wondering how to build the financial projections part of the document. What’s the importance of financial projections exactly – I mean, isn’t it absolute BS? How do I write the financial plan in business plan, and even more importantly, how can I make sense of all those messy tables? Can you help me understand this? Thanks in advance!

Do I Need a Business Plan Consultant? No, You Don’t!

Hey there Coach! I’m a small business owner and I need to find some support with my business plan. People suggested that I find a business plan consultant near me, but that’s a big cost and I’m not too sure about what to expect from that. What’s your opinion about business plan consultants in general? Is there any alternative you would highly recommend? Thanks!

How Much Does a Business Plan Cost? Just Under $100!

Hey coach! I was wondering – how much does a business plan cost? I need one, and I’m thinking about having it written for me, so I’d love your insights. Also, I’ve heard business plan writers cost a lot of money, so I’m interested if you have tips for writing a low-cost business plan! Thanks!

The #1 Growth & Scale Facilitation Platform for Entrepreneurs

Building & scaling a business is tough, so we’ve built easy-to-use tools & programs you can leverage anytime to make your business rock. The rest is up to you!

Get Started

• Book a Call!
• Pitch Your Biz!
• Read our Entrepreneurs' blog!

Business Facilitation

• Why Hire a Facilitator?
• Entrepreneur Training
• Our Brochures
• Team performance Survey
• The FREE Coaching Newsletter
• Impactified News
• Get in touch

© 2019-Present - All Rights Reserved - Impactified.com

How to Develop a Small Business Financial Plan

By Andy Marker | April 29, 2022

• Share on Facebook
• Share on LinkedIn

Link copied

Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.

Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .

What Is a Small Business Financial Plan?

A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”

Why Is It Important for a Small Business to Have a Financial Plan?

All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.

Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”

To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .

What Does a Small Business Financial Plan Include?

All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.

• Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
• Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
• Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
• Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
• Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .

How to Write a Small Business Financial Plan

Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.

“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”

1. Create a Plan

Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.

2. Gather Financial Information

Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.

3. Create an Income Statement

Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.

4. Create a Balance Sheet

Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.

5. Create a Cash Flow Statement

As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”

6. Create Other Documents as Needed

Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.

• Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”

7. Save the Plan for Reference and Share as Needed

The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.

Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at  Highway Title Loans.

Small Business Financial Plan Example

Download Small Business Financial Plan Example Microsoft Excel | Google Sheets

Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.

Small Business Financial Plan Starter Kit

Download Small Business Financial Plan Starter Kit

We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.

Small Business Income Statement Template 

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.

Small Business Balance Sheet Template 

Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets

This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter. 

Small Business Cash Flow Statement Template 

Download Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.

Break-Even Analysis Template 

Download Break-Even Analysis Template Microsoft Excel | Google Sheets

This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.

Personnel Plan Template  

Download Personnel Plan Template Microsoft Excel | Google Sheets

Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.

Sales Forecast Template

Download Sales Forecast Template Microsoft Excel | Google Sheets

Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets

This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.

Tips for Completing a Financial Plan for a Small Business

You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:

• Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
• Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
• Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
• Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
• Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”

Do Small Business Owners Need a Financial Planner?

Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.

Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run. 

Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”

For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .

Drive Small Business Success with Financial Planning in Smartsheet

Discover a better way to connect your people, processes, and tools with one simple, easy-to-use platform that empowers your team to get more done, faster.

With Smartsheet, you can align your team on strategic initiatives, improve collaboration efforts, and automate repetitive processes, giving you the ability to make better business decisions and boost effectiveness as you scale. 

When you wear a lot of hats, you need a tool that empowers you to get more done in less time. Smartsheet helps you achieve that. Try free for 30 days, today .

Connect your people, processes, and tools with one simple, easy-to-use platform.

Please subscribe to our blog

• May 6, 2019

Key Considerations When Writing a Business Plan for Your Startup

• --> Written by Nick Price

Steve Jobs said, “If you really look closely, most overnight successes took a long time.”

Starting a business is an exciting venture! It takes a lot of time, dedication and perseverance. The emotional and financial payoffs can be memorable.

Every business needs a business plan no matter how large or small it begins. Writing a business plan isn’t a difficult task. To write a good business plan takes a lot of thought and consideration. There are many templates available to help you get started. Think beyond the blank lines to how you can customize your business plan so that you can really make it your own.

There are countless things to consider as you prepare to write your business plan that will have a major impact on the final result.

If your business plan includes forming a board of directors, it’s wise to factor the cost of a BoardEffect board management software system into your plans to help your business get off the ground based on sound good corporate governance principles.

Here are a few things to give you some food for thought before you get started writing your business plan:

Key Considerations for Startup Businesses

It’s been said that timing is everything, and there’s certainly a lot of truth to that when it comes to deciding the best time to launch your business. Starting a business is incredibly time-consuming in the early months, so it’s wise to consider whether your lifestyle will allow you to dedicate the necessary time to pursuing a successful startup.

Think about what is going on in your life and how that may (or may not) change in the next few years. If you’re getting married, having a child or dealing with a debilitating illness, it might not be the best time to launch a startup.

Finances play a big role in timing a startup business . Do you have the funds to start a company? Do you have a plan for how to obtain startup funding? Will you be quitting a job that currently pays the bulk of your bills?

If you’re ready to go, complete your business plan, make those important decisions and stick by them!

Be sure to bear down on your budget. Large chunks of startup money whittle away quickly. Think through your startup and maintenance expenses thoroughly so you know what to expect. Get advice from other business owners and account for every expense and every penny.

If you lack discipline, starting a business might not be for you. You’ll need to form a budget and stick to it. Set goals for the day, week and month until you settle on a good flow. Establish benchmarks and put in overtime as needed. Don’t forget to think about work/life balance so you don’t burn out before you get started.

Sharpen your social skills. Build on your current network or get started building a new one. Talk up your new business at every opportunity.

Be sure to tie up all loose ends at the end of each day. If you don’t know how to do something, take the necessary steps to figure it out. Be flexible. There may be more than one way to do something. Don’t be afraid to step outside of the box and try something new.

Parts of a Business Plan

Writing a business plan is as easy as following directions or making a recipe. A business plan has distinct parts with specific instructions. The following is an outline for a standard business plan.

The Executive Summary

The Executive Summary is a one- to four-page summary that spells out the key points that you will describe in each section of the business plan that follows. The Executive Summary should stand alone as its own separate document.

Business Overview

The Business Overview heads up the first page of your business plan. This part of the business plan describes your business. It should include your business’s legal structure, a short history of how you formed your business, the type of business and the location. The Business Overview should also include a description of the means of how you will do business, whether it’s a brick-and-mortar store, the internet, mail order, a subscription box or something else.

Operations Plan

The Operations Plan provides a brief explanation of how the business will function. Describe the physical setup, who will fulfill various responsibilities and who will tend to certain tasks.

Market Analysis

The next section is the Market Analysis. Provide a brief overview of the market as a whole. Graphs, charts and infographics may be useful to paint an accurate picture of your business, at it will be in the scope of the industry. Clearly define your target market and how you plan to reach them.

Products and Services

In this section, you will provide a description of your products or services. Classify and categorize them and provide a succinct description of each.

Sales and Marketing

This is the place to outline your pricing and sales information. Describe your reasons for why you believe these are the best price points and what will attract your target audience to your products or services. Describe your plans for the marketing and advertising efforts that will lead you to your target audience.

Competitive Analysis

Figure out who your direct and indirect competitors are and analyze their strengths and weaknesses. Describe your plans to gain an edge over your competition.

Management Team

Describe in this section who your top leaders will be. Provide biographical information on all key staff.

Financial Plan

Outline the amount needed to start and maintain the business. Project how much will be required to maintain the business for the next two to five years. Describe how you plan to use the funds and whether you have a plan for additional funding. The costs for your board portal go in this section as a business expense. Carefully think through all business costs, including business supplies, business expenses, salaries, insurance costs, promotional expenses, marketing and any other financial information.

Projections

Write up income statements with financial projections for at least two or three years.

Finally, attach all supporting documents to your business plan. Include biographies of key managers, articles or media on the company, and any other relevant documents.

A board management software system such as BoardEffect is essential to a successful business. The portal is highly secure and provides unlimited cloud-based document storage for all of your startup documents. It’s a valuable tool that will help you keep your company in legal compliance and assist you in getting off the ground on the best possible footing. BoardEffect commits to adding innovative solutions as your business evolves to support business growth now and in the future.

INTERESTED IN LEARNING MORE?

Learn why 180k+ users are using BoardEffect for their board portal solution!

How to Run a Board Meeting Using Video Conference

Face-to-face meetings are gradually giving way to video conference and teleconference meetings in nearly every…

How a Company Secretary Should Prepare for a Board Meeting

Private companies are not subject to the strict regulations that publicly traded corporations must abide…

What Are the Three Types of Organizational Conflict of Interest?

A conflict of interest occurs when an individual or an entity has a clash between…

• previous post: The Problem With Using Free Sharepoint for Boards of Directors
• next post: How Small and Midsize Businesses Can Leverage Boardroom Technology

©BOARDEFFECT 2023 •  ALL RIGHTS RESERVED •  PRIVACY POLICY

• BOARD PORTAL SOFTWARE
• BOARD MEETING CYCLE
• ANNUAL MEETING CYCLE
• BOARD DEVELOPMENT CYCLE
• CLIENT SUCCESS
• WHITEPAPERS
• BOARD PORTAL BUYER’S GUIDE
• CONTACT SUPPORT
• REQUEST A DEMO

Business Financial Plan Example: Strategies and Best Practices

Any successful endeavor begins with a robust plan – and running a prosperous business is no exception. Careful strategic planning acts as the bedrock on which companies build their future. One of the most critical aspects of this strategic planning is the creation of a detailed business financial plan. This plan serves as a guide, helping businesses navigate their way through the complex world of finance, including revenue projection, cost estimation, and capital expenditure, to name just a few elements. However, understanding what a business financial plan entails and how to implement it effectively can often be challenging. With multiple components to consider and various economic factors at play, the financial planning process may appear daunting to both new and established business owners.

This is where we come in. In this comprehensive article, we delve into the specifics of a business financial plan. We discuss its importance, the essential elements that make it up, and the steps to craft one successfully. Furthermore, we provide a practical example of a business financial plan in action, drawing upon real-world-like scenarios and strategies. By presenting the best practices and demonstrating how to employ them, we aim to equip business owners and entrepreneurs with the tools they need to create a robust, realistic, and efficient business financial plan. This in-depth guide will help you understand not only how to plan your business finances but also how to use this plan as a roadmap, leading your business towards growth, profitability, and overall financial success. Whether you're a seasoned business owner aiming to refine your financial strategies or an aspiring entrepreneur at the beginning of your journey, this article is designed to guide you through the intricacies of business financial planning and shed light on the strategies that can help your business thrive.

Understanding a Business Financial Plan

At its core, a business financial plan is a strategic blueprint that sets forth how a company will manage and navigate its financial operations, guiding the organization towards its defined fiscal objectives. It encompasses several critical aspects of a business's financial management, such as revenue projection, cost estimation, capital expenditure, cash flow management, and investment strategies.

Revenue projection is an estimate of the revenue a business expects to generate within a specific period. It's often based on market research, historical data, and educated assumptions about future market trends. Cost estimation, on the other hand, involves outlining the expenses a business anticipates incurring in its operations. Together, revenue projection and cost estimation can give a clear picture of a company's expected profitability. Capital expenditure refers to the funds a company allocates towards the purchase or maintenance of long-term assets like machinery, buildings, and equipment. Understanding capital expenditure is vital as it can significantly impact a business's operational capacity and future profitability. The cash flow management aspect of a business financial plan involves monitoring, analyzing, and optimizing the company's cash inflows and outflows. A healthy cash flow ensures that a business can meet its short-term obligations, invest in its growth, and provide a buffer for future uncertainties. Lastly, a company's investment strategies are crucial for its growth and sustainability. They might include strategies for raising capital, such as issuing shares or securing loans, or strategies for investing surplus cash, like purchasing assets or investing in market securities.

A well-developed business financial plan, therefore, doesn't just portray the company's current financial status; it also serves as a roadmap for the business's fiscal operations, enabling it to navigate towards its financial goals. The plan acts as a guide, providing insights that help business owners make informed decisions, whether they're about day-to-day operations or long-term strategic choices. In a nutshell, a business financial plan is a key tool in managing a company's financial resources effectively and strategically. It allows businesses to plan for growth, prepare for uncertainties, and strive for financial sustainability and success.

Essential Elements of a Business Financial Plan

A comprehensive financial plan contains several crucial elements, including:

• Sales Forecast : The sales forecast represents the business's projected sales revenues. It is often broken down into segments such as products, services, or regions.
• Expenses Budget : This portion of the plan outlines the anticipated costs of running the business. It includes fixed costs (rent, salaries) and variable costs (marketing, production).
• Cash Flow Statement : This statement records the cash that comes in and goes out of a business, effectively portraying its liquidity.
• Income Statements : Also known as profit and loss statements, income statements provide an overview of the business's profitability over a given period.
• Balance Sheet : This snapshot of a company's financial health shows its assets, liabilities, and equity.

Crafting a Business Financial Plan: The Steps

Developing a business financial plan requires careful analysis and planning. Here are the steps involved:

Step 1: Set Clear Financial Goals

The initial stage in crafting a robust business financial plan involves the establishment of clear, measurable financial goals. These objectives serve as your business's financial targets and compass, guiding your company's financial strategy. These goals can be short-term, such as improving quarterly sales or reducing monthly overhead costs, or they can be long-term, such as expanding the business to a new location within five years or doubling the annual revenue within three years. The goals might include specific targets such as increasing revenue by a particular percentage, reducing costs by a specific amount, or achieving a certain profit margin. Setting clear goals provides a target to aim for and allows you to measure your progress over time.

Step 2: Create a Sales Forecast

The cornerstone of any business financial plan is a robust sales forecast. This element of the plan involves predicting the sales your business will make over a given period. This estimate should be based on comprehensive market research, historical sales data, an understanding of industry trends, and the impact of any marketing or promotional activities. Consider the business's growth rate, the overall market size, and seasonal fluctuations in demand. Remember, your sales forecast directly influences the rest of your financial plan, particularly your budgets for expenses and cash flow, so it's critical to make it as accurate and realistic as possible.

Step 3: Prepare an Expense Budget

The next step involves preparing a comprehensive expense budget that covers all the costs your business is likely to incur. This includes fixed costs, such as rent or mortgage payments, salaries, insurance, and other overheads that remain relatively constant regardless of your business's level of output. It also includes variable costs, such as raw materials, inventory, marketing and advertising expenses, and other costs that fluctuate in direct proportion to the level of goods or services you produce. By understanding your expense budget, you can determine how much revenue your business needs to generate to cover costs and become profitable.

Step 4: Develop a Cash Flow Statement

One of the most crucial elements of your financial plan is the cash flow statement. This document records all the cash that enters and leaves your business, presenting a clear picture of your company's liquidity. Regularly updating your cash flow statement allows you to monitor the cash in hand and foresee any potential shortfalls. It helps you understand when cash comes into your business from sales and when cash goes out of your business due to expenses, giving you insights into your financial peaks and troughs and enabling you to manage your cash resources more effectively.

Step 5: Prepare Income Statements and Balance Sheets

Another vital part of your business financial plan includes the preparation of income statements and balance sheets. An income statement, also known as a Profit & Loss (P&L) statement, provides an overview of your business's profitability over a certain period. It subtracts the total expenses from total revenue to calculate net income, providing valuable insights into the profitability of your operations.

On the other hand, the balance sheet provides a snapshot of your company's financial health at a specific point in time. It lists your company's assets (what the company owns), liabilities (what the company owes), and equity (the owner's or shareholders' investment in the business). These documents help you understand where your business stands financially, whether it's making a profit, and how your assets, liabilities, and equity balance out.

Step 6: Revise Your Plan Regularly

It's important to remember that a financial plan is not a static document, but rather a living, evolving roadmap that should adapt to your business's changing circumstances and market conditions. As such, regular reviews and updates are crucial. By continually revisiting and revising your plan, you can ensure it remains accurate, relevant, and effective. You can adjust your forecasts as needed, respond to changes in the business environment, and stay on track towards achieving your financial goals. By doing so, you're not only keeping your business financially healthy but also setting the stage for sustained growth and success.

Business Financial Plan Example: Joe’s Coffee Shop

Now, let's look at a practical example of a financial plan for a hypothetical business, Joe’s Coffee Shop.

Sales Forecast

When constructing his sales forecast, Joe takes into account several significant factors. He reviews his historical sales data, identifies and understands current market trends, and evaluates the impact of any upcoming promotional events. With his coffee shop located in a bustling area, Joe expects to sell approximately 200 cups of coffee daily. Each cup is priced at $5, which gives him a daily sales prediction of $1000. Multiplying this figure by 365 (days in a year), his forecast for Year 1 is an annual revenue of $365,000. This projection provides Joe with a financial target to aim for and serves as a foundation for his further financial planning. It is worth noting that Joe's sales forecast may need adjustments throughout the year based on actual performance and changes in the market or business environment.

Expenses Budget

To run his coffee shop smoothly, Joe has identified several fixed and variable costs he'll need to budget for. His fixed costs, which are costs that will not change regardless of his coffee shop's sales volume, include rent, which is $2000 per month, salaries for his employees, which total $8000 per month, and utilities like electricity and water, which add up to about $500 per month.

In addition to these fixed costs, Joe also has variable costs to consider. These are costs that fluctuate depending on his sales volume and include the price of coffee beans, milk, sugar, and pastries, which he sells alongside his coffee. After a careful review of all these expenses, Joe estimates that his total annual expenses will be around $145,000. This comprehensive expense budget provides a clearer picture of how much Joe needs to earn in sales to cover his costs and achieve profitability.

Cash Flow Statement

With a clear understanding of his expected sales revenue and expenses, Joe can now proceed to develop a cash flow statement. This statement provides a comprehensive overview of all the cash inflows and outflows within his business. When Joe opened his coffee shop, he invested an initial capital of $50,000. He expects that the monthly cash inflows from sales will be about $30,417 (which is his annual revenue of $365,000 divided by 12), and his monthly cash outflows for expenses will amount to approximately $12,083 (his total annual expenses of $145,000 divided by 12). The cash flow statement gives Joe insights into his business's liquidity. It helps him track when and where his cash is coming from and where it is going. This understanding can assist him in managing his cash resources effectively and ensure he has sufficient cash to meet his business's operational needs and financial obligations.

Income Statement and Balance Sheet

With the figures from his sales forecast, expense budget, and cash flow statement, Joe can prepare his income statement and balance sheet. The income statement, or Profit & Loss (P&L) statement, reveals the profitability of Joe's coffee shop. It calculates the net profit by subtracting the total expenses from total sales revenue. In Joe's case, this means his net profit for Year 1 is expected to be $220,000 ($365,000 in revenue minus $145,000 in expenses).

The balance sheet, on the other hand, provides a snapshot of the coffee shop's financial position at a specific point in time. It includes Joe's initial capital investment of $50,000, his assets like coffee machines, furniture, and inventory, and his liabilities, which might include any loans he took to start the business and accounts payable.

The income statement and balance sheet not only reflect the financial health of Joe's coffee shop but also serve as essential tools for making informed business decisions and strategies. By continually monitoring and updating these statements, Joe can keep his finger on the pulse of his business's financial performance and make necessary adjustments to ensure sustained profitability and growth.

Best Practices in Business Financial Planning

While crafting a business financial plan, consider the following best practices:

• Realistic Projections : Ensure your forecasts are realistic, based on solid data and reasonable assumptions.
• Scenario Planning : Plan for best-case, worst-case, and most likely scenarios. This will help you prepare for different eventualities.
• Regular Reviews : Regularly review and update your plan to reflect changes in business conditions.
• Seek Professional Help : If you are unfamiliar with financial planning, consider seeking assistance from a financial consultant.

The importance of a meticulously prepared business financial plan cannot be overstated. It forms the backbone of any successful business, steering it towards a secure financial future. Creating a solid financial plan requires a blend of careful analysis, precise forecasting, clear and measurable goal setting, prudent budgeting, and efficient cash flow management. The process may seem overwhelming at first, especially for budding entrepreneurs. However, it's crucial to understand that financial planning is not an event, but rather an ongoing process. This process involves constant monitoring, evaluation, and continuous updating of the financial plan as the business grows and market conditions change.

The strategies and best practices outlined in this article offer an invaluable framework for any entrepreneur or business owner embarking on the journey of creating a financial plan. It provides insights into essential elements such as setting clear financial goals, creating a sales forecast, preparing an expense budget, developing a cash flow statement, and preparing income statements and balance sheets. Moreover, the example of Joe and his coffee shop gives a practical, real-world illustration of how these elements come together to form a coherent and effective financial plan. This example demonstrates how a robust financial plan can help manage resources more efficiently, make better-informed decisions, and ultimately lead to financial success.

Remember, every grand journey begins with a single step. In the realm of business, this step is creating a well-crafted, comprehensive, and realistic business financial plan. By following the guidelines and practices suggested in this article, you are laying the foundation for financial stability, profitability, and long-term success for your business. Start your journey today, and let the road to financial success unfold.

Related blogs

Stay up to date on the latest investment opportunities

Financial Assumptions and Your Business Plan

Written by Dave Lavinsky

Financial assumptions are an integral part of a well-written business plan. You can’t accurately forecast the future without them. Invest the time to write solid assumptions so you have a good foundation for your financial forecast.

Download our Ultimate Business Plan Template here

What are Financial Assumptions?

Financial assumptions are the guidelines you give your business plan to follow. They can range from financial forecasts about costs, revenue, return on investment, and operating and startup expenses. Basically, financial assumptions serve as a forecast of what your business will do in the future. You need to include them so that anyone reading your plan will have some idea of how accurate its projections may be.

Of course, your financial assumptions should accurately reflect the information you’ve given in your business plan and they should be reasonably accurate. You need to keep this in mind when you make them because if you make outlandish claims, it will make people less likely to believe any part of your business plan including other financial projections that may be accurate.

That’s why you always want to err on the side of caution when it comes to financial assumptions for your business plan. The more conservative your assumptions are the more likely you’ll be able to hit them, and the less likely you’ll be off by so much that people will ignore everything in your plan.

Why are Financial Assumptions Important?

Many investors skip straight to the financial section of your business plan. It is critical that your assumptions and projections in this section be realistic. Plans that show penetration, operating margin, and revenues per employee figures that are poorly reasoned; internally inconsistent, or simply unrealistic greatly damage the credibility of the entire business plan. In contrast, sober, well-reasoned financial assumptions and projections communicate operational maturity and credibility.

For instance, if the company is categorized as a networking infrastructure firm, and the business plan projects 80% operating margins, investors will raise a red flag. This is because investors can readily access the operating margins of publicly-traded networking infrastructure firms and find that none have operating margins this high.

As much as possible, the financial assumptions should be based on actual results from your or other firms. As the example above indicates, it is fairly easy to look at a public company’s operating margins and use these margins to approximate your own. Likewise, the business plan should base revenue growth on other firms. 

Many firms find this impossible, since they believe they have a breakthrough product in their market, and no other company compares. In such a case, base revenue growth on companies in other industries that have had breakthrough products. If you expect to grow even faster than they did (maybe because of new technologies that those firms weren’t able to employ), you can include more aggressive assumptions in your business plan as long as you explain them in the text.

The financial assumptions can either enhance or significantly harm your business plan’s chances of assisting you in the capital-raising process. By doing the research to develop realistic assumptions, based on actual results of your or other companies, the financials can bolster your firm’s chances of winning investors. As importantly, the more realistic financials will also provide a better roadmap for your company’s success.

    Finish Your Business Plan Today!

Financial assumptions vs projections.

Financial Assumptions – Estimates of future financial results that are based on historical data, an understanding of the business, and a company’s operational strategy.

Financial Projections – Estimates of future financial results that are calculated from the assumptions factored into the financial model.

The assumptions are your best guesses of what the future holds; the financial projections are numerical versions of those assumptions. 

Key Assumptions By Financial Statement

Below you will find a list of the key business assumptions by the financial statement:

Income Statement

The income statement assumptions should include revenue, cost of goods sold, operating expenses, and depreciation/amortization, as well as any other line items that will impact the income statement.

When you are projecting future operating expenses, you should project these figures based on historical information and then adjust them as necessary with the intent to optimize and/or minimize them.

Balance Sheet

The balance sheet assumptions should include assets, liabilities, and owner’s equity, as well as any other line items that will impact the balance sheet. One of the most common mistakes is not including all cash inflows and outflows.

Cash Flow Statement

Cash flow assumptions should be made, but they do not impact the balance sheet or income statement until actually received or paid. You can include the cumulative cash flow assumption on the financial model to be sure it is included with each year’s projections. 

The cumulative cash flow assumption is useful for showing your investors and potential investors how you will spend the money raised. This line item indicates how much of the initial investment will be spent each year, which allows you to control your spending over time.

Notes to Financial Statements

The notes to financial statements should explain assumptions made by management regarding accounting policies, carrying value of long-lived assets, goodwill impairment testing, contingencies, and income taxes. It is important not only to list these items within the notes but also to provide a brief explanation.

What are the Assumptions Needed in Preparing a Financial Model?

In our article on “ How to Create Financial Projections for Your Business Plan ,” we list the 25+ most common assumptions to include in your financial model. Below are a few of them:

For EACH key product or service you offer:

• What is the number of units you expect to sell each month?
• What is your expected monthly sales growth rate?

For EACH subscription/membership you offer:

• What is the monthly/quarterly/annual price of your membership?
• How many members do you have now or how many members do you expect to gain in the first month/quarter/year?

Cost Assumptions

• What is your monthly salary? What is the annual growth rate in your salary?
• What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
• What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?

Assumptions related to Capital Expenditures, Funding, Tax and Balance Sheet Items

• How much money do you need for capital expenditures in your first year  (to buy computers, desks, equipment, space build-out, etc.)
• How much other funding do you need right now?
• What is the number of years in which your debt (loan) must be paid back

Properly Preparing Your Financial Assumptions

So how do you prepare your financial assumptions? It’s recommended that you use a spreadsheet program like Microsoft Excel. You’ll need to create separate columns for each line item and then fill in the cells with the example information described below.

Part 1 – Current Financials

Year to date (YTD) units sold and units forecast for next year. This is the same as YTD revenue, but you divide by the number of days in the period to get an average daily amount. If your plan includes a pro forma financial section, your financial assumptions will be projections that are consistent with the pro forma numbers.

Part 2 – Financial Assumptions

Estimated sales forecasts for next year by product or service line, along with the associated margin. List all major items in this section, not just products. For instance, you might include “Professional Services” as a separate item, with revenue and margin information.

List the number of employees needed to support this level of business, including yourself or key managers, along with your cost assumptions for compensation, equipment leasing (if applicable), professional services (accounting/legal/consultants), and other line items.

Part 3 – Projected Cash Flow Statement and Balance Sheet

List all key assumptions like: sources and uses of cash, capital expenditures, Planned and Unplanned D&A (depreciation & amortization), changes in operating assets and liabilities, along with those for investing activities. For example, you might list the assumptions as follows:

• Increases in accounts receivable from customers based on assumed sales levels
• Decreases in inventory due to increased sales
• Increases in accounts payable due to higher expenses for the year
• Decrease in unearned revenue as evidenced by billings received compared with those projected (if there is no change, enter 0)
• Increase/decrease in other current assets due to changes in business conditions
• Increase/decrease in other current liabilities due to changes in business conditions
• Increases in long term debt (if necessary)
• Cash acquired from financing activities (interest expense, dividends paid, etc.)

You make many of these assumptions based on your own experience. It is also helpful to look at the numbers for public companies and use those as a benchmark.

Part 4 – Future Financials

This section is for more aggressive financial projections that can be part of your plan, but which you cannot necessarily prove at the present time. This could include:

• A projection of earnings per share (EPS) using the assumptions above and additional information such as new products, new customer acquisition, expansion into new markets
• New product lines or services to be added in the second year. List the projected amount of revenue and margin associated with these items
• A change in your gross margins due to a specific initiative you are planning, such as moving from a high volume/low margin business to a low volume/high margin business

Part 5 – Calculations

Calculate all critical financial numbers like:

• Cash flow from operating activities (CFO)
• Operating income or loss (EBITDA)  (earnings before interest, taxes, depreciation, and amortization)
• EBITDA margin (gross profits divided by revenue less cost of goods sold)
• Adjusted EBITDA (CFO plus other cash changes like capital expenditure, deferred taxes, non-cash stock compensation, and other items)
• Net income or loss before tax  (EBT)
• Cash from financing activities (increase/decrease in debt and equity)

Part 6 – Sensitivity Analysis

If your assumptions are reasonably accurate, you will have a column for “base case” and a column for “worst case.”  If you have a lot of variables with different possible outcomes, just list the potential range in one cell.

Calculate both EBITDA margins and EPS ranges at each level.

Part 7 – Section Highlights

Just list the two or three key points you want to make. If it is hard to distill them down, you need to go back and work on Part 3 until it makes sense.

Part 8 – Financial Summary

Include all the key numbers from your assumptions, section highlights, and calculations. In one place, you can add up CFO, EPS at different levels, and EBITDA margins under both base case and worst-case scenarios to give a complete range for each assumption.

The key to a successful business plan is being able to clearly communicate your financial assumptions. Be sure to include your assumptions in the narrative of your plan so you can clearly explain why you are making them. If you are using the business plan for financing or other purposes, it may also be helpful to include a separate “financials” section so people unfamiliar with your industry can quickly find and understand key information.

How to Finish Your Business Plan in 1 Day!

Don’t you wish there was a faster, easier way to finish your business plan and financial projections?

With Growthink’s Ultimate Business Plan Template you can finish your plan in just 8 hours or less!

It includes a full financial model. It lists all the key financial assumptions and you simply need to plug in answers to the assumptions and your complete financial projections (income statement, balance sheet, cash flow statement, charts and graphs) are automatically generated!

Click here to see how Growthink’s professional business plan consulting services can create your business plan for you.

OR, Let Us Develop Your Plan For You

Since 1999, Growthink has developed business plans for thousands of companies who have gone on to achieve tremendous success.

Click here to see how our professional business plan writers can create your business plan for you.

If you just need a financial model for your business plan, learn more about our financial modeling services .  

Other Resources for Writing Your Business Plan

• How to Write an Executive Summary
• How to Expertly Write the Company Description in Your Business Plan
• How to Write the Market Analysis Section of a Business Plan
• The Customer Analysis Section of Your Business Plan
• Completing the Competitive Analysis Section of Your Business Plan
• How to Write the Management Team Section of a Business Plan + Examples
• How to Create Financial Projections for Your Business Plan
• Everything You Need to Know about the Business Plan Appendix
• Business Plan Conclusion: Summary & Recap

Other Helpful Business Plan Articles & Templates

• Find a Lawyer
• Ask a Lawyer
• Research the Law
• Law Schools
• Laws & Regs
• Newsletters
• Justia Connect
• Pro Membership
• Basic Membership
• Justia Lawyer Directory
• Platinum Placements
• Gold Placements
• Justia Elevate
• Justia Amplify
• PPC Management
• Google Business Profile
• Social Media
• Justia Onward Blog
• How to Draft an Effective Business Plan Considering the Legal Implications

The road to the creation of a new business is a long one that is often filled with unexpected challenges and accomplishments. While the unpredictable nature of starting a business can be appealing to some, for many there is value in developing a plan to help guide new owners through the first months and years of operation. For this reason, one of the most important steps that entrepreneurs can take when starting out is to carefully and thoughtfully develop a comprehensive business plan.

What Is a Business Plan?

A business plan is both a map and a marketing tool for your business. A business plan helps you carefully set forth the purpose, goals, and priorities of your new business, along with guideposts to help ensure that you stay on the right path. For instance, a business plan may require you to consider what the primary purpose of your business is, or the good or service you intend to provide, who your potential customers are, and how you intend to reach them in an effective and efficient manner. A business plan also allows you to make an honest evaluation of the current status of your business and what you will need to do to get to where you would like to be. This includes taking the time to compile your business balance sheet, analyze existing income and expenses, and determine anticipated financial needs.

Creating a detailed business plan can help business owners acquire outside funding .

In addition, a business plan serves as a marketing tool for new business owners who are attempting to gain financial backing, operational support, or mentoring for their new business. The financial aspects of a business plan lets potential funders or lenders analyze your current income streams and the likelihood of repayment, while the detailed explanation of your business objectives and operational plans helps to convince interested parties that you have taken the time to carefully plan your business endeavors and are invested in the success of your company.

How to Write a Business Plan

There is no one specific way to write a business plan. However, there are key components that most business plans should include, and these are good starting points when working on your own plan. It may also be worth reaching out to an experienced corporate attorney to help you review and revise your business plan before presenting it to others in the business community.

Business plans typically start with a summary of the business and its objectives, and then they describe the operations of the business, the good or service it will be providing, and potential income streams in more detail. Business plans should also include a detailed description of the proposed management structure of the business, including officers or directors and possibly the envisioned composition of the board. Additionally, business plans typically include extensive financial documentation, such as balance sheets, income projections or growth model projections, any pending loan applications, tax returns of the entity, and copies of any relevant legal agreements. If the business has already been in operation for some time, the business plan may also include financial records for the months of operation.

• Summarize the business and its objectives
• Outline how the business is organized and managed
• Describe what the business sells
• Identify potential income streams
• Include financial information, such as balance sheets and projections

Using Your Business Plan

Once you have completed a business plan that you are happy with, you will find that you will often continue to refer to your plan even months or years after it was initially completed. In the initial stages, you can use your business plan to attract investors, partners, board members, or other advisors who are interested in the model you have proposed and would like to contribute to its success. As your business develops, you can continue to refer to the plan to guide you in business decisions, as well as to track timelines or certain goals that you hoped to meet. Even after your business is well-developed, returning to your business plan can help guide your yearly planning for your company, allowing you to modify your goals as they are achieved.

Last reviewed October 2023

Small Business Legal Center Contents   

• Small Business Legal Center
• Starting a Business & Choosing a Legal Ownership Structure
• Hiring and Managing Employees & Relevant Legal Considerations
• Financing a Business & Relevant Legal Considerations
• Tax Law Compliance for Business Owners
• Contract Law & Business Transactions
• Business Law Compliance
• Business Assets and Equipment — Legal & Practical Considerations
• Collections and Credit Laws for Businesses
• E-Commerce Laws in Business Operations
• Emergency Planning for Businesses — Legal & Practical Considerations
• Selling or Closing a Business & Potential Legal Issues
• Growing Your Small Business — Legal & Financial Concerns
• Business Disputes & Related Lawsuits
• Social Media Influencer Marketing & Related Legal Issues
• Making a Business Contract
• Commercial Real Estate & the Law
• Small Business Law FAQs
• Find a Business Law Lawyer

Related Areas   

• Employment Law Center
• Intellectual Property Law Center
• Banking and Finance Law Center
• Tax Law Center
• Immigration Law Center
• Insurance Law Center
• Workers’ Compensation Law Center
• Bankruptcy Law Center
• Administrative Law Center
• Agricultural Law Center
• Cannabis Law Center
• Related Areas
• Bankruptcy Lawyers
• Business Lawyers
• Criminal Lawyers
• Employment Lawyers
• Estate Planning Lawyers
• Family Lawyers
• Personal Injury Lawyers
• Estate Planning
• Personal Injury
• Business Formation
• Business Operations
• Intellectual Property
• International Trade
• Real Estate
• Financial Aid
• Course Outlines
• Law Journals
• US Constitution
• Regulations
• Supreme Court
• Circuit Courts
• District Courts
• Dockets & Filings
• State Constitutions
• State Codes
• State Case Law
• Legal Blogs
• Business Forms
• Product Recalls
• Justia Connect Membership
• Justia Premium Placements
• Justia Elevate (SEO, Websites)
• Justia Amplify (PPC, GBP)
• Testimonials

THIS MONDAY APR 15TH 9AM US EASTERN Two-Day LIVE Summit With 20+ Ecommerce Trailblazers.

• Skip to primary navigation
• Skip to main content

A magazine for young entrepreneurs

The best advice in entrepreneurship

Subscribe for exclusive access, what does a business financial plan include a painless, step-by-step walkthrough.

Written by Rebeca Seitz | February 24, 2020

Comments -->

Get real-time frameworks, tools, and inspiration to start and build your business. Subscribe here

While your incredible, unique, surefire business idea will be sure to captivate investors, you won’t get very far in finding financial support unless you can also tell its financial story. That’s the purpose of your business financial plan—to show your potential funders what a good bet this is. You aren’t just a dreamer. You’re a doer . You’re business financial plan shows this.

“The goal is to show your lender that you are a reliable and resilient borrower to give them confidence in their decision,” Bill Phelan, CEO of PayNet , an Equifax Company, told Foundr.

Foundr understands that this part of getting your business off the ground can be intimidating. You might even be tempted to put it off or ignore it entirely, hoping a magical unicorn will notice how hard you’re working and how good your idea is and just pop up with a check.

Come on back to reality and let’s do this.

On the major plus side, this endeavor doesn’t only serve the people who are holding the cash you need. Creating the five elements of your business financial plan (income forecast, expense budget, cash flow snapshot, assets and liabilities disclosure, and break even analysis) serves you .

Writing your business financial plan forces you to take an honest look at what you’re about to attempt. You’ll have to think not just about today’s exciting idea, but the intricacies of how that idea will come to fruition in a nearby tomorrow.

Chances are high that you will spot any potential financial pitfalls as you create this plan, instead of crashing into them six months from now and watching all your work go down in flames.

This isn’t rocket science, it’s entrepreneurship. And you’re here for that—for all of that—right?

Then let’s get to it.

Elements of a Business Financial Plan, Explained

Financial plans typically include five elements:

• Income forecast
• Expense budget
• Cash flow snapshot
• Assets and liabilities disclosure
• Break even analysis

The exact order and terminology may vary, but the information that should be included boils down to those five areas. Let’s walk through each one and you’ll see how simple this is.

Sales Forecast

Just write, “I’m going to make a million dollars in three weeks!”

Do not write that, or anything remotely resembling it. Yes, even if you just know that it is absolutely 100% true for your amazing idea.

The sales forecast is your opportunity to show a lender or investor that you are not a starry-eyed dilettante who will blow through their cash. This is your moment to be reasonable and mature. Feel free to drink a cup of tea (pinky raised) and speak in a lofty British accent while you write out the list of ways you will make money. Is it product sales? Advertising? Memberships?

Now, the time has come to validate your dreams with a warm, comforting coat of research-based estimates. Find a product or service that is similar to yours. Now find two more. Look at the sales of those products or services. Consider how they are each similar to or different than yours. What do you plan to do differently? How will your product or service cause a different reaction in the market?

Now assign sales figures to each item listed in your income source list, based on similar sales in your industry and  your reflection on your idea’s potential compared to their reality. Keep in mind that your numbers here are not set in stone. They are your  informed best estimate,  and you will explain how you arrived at that estimate when you sit with a lender or investor discussing the plan you’re now writing.

For instance, let’s say you have designed a beautiful, one-of-a-kind fork. It provides all the services of the billions of existing forks on the planet—but it also records how many calories it forks into your mouth and reports those to the health app on your iPhone. (Also, it’s dishwasher safe!)

You could research sales of forks and sales of health gadgets, then use the information from that to form best guesses for how your new Fork Dork could sell.

Later, when you’re sitting with Mrs. Josephine Banker and telling her how you need a $2.3 million loan to create a prototype, you will be able to say, “Look at all the forks that sell every year already, Mrs. Banker. Obviously, forks are in major use. Now take a look at the billions that are spent on calorie counters and food trackers. See what a credible profit potential this holds?”

Insider word of advice: Once you’ve created your estimate, cut it by 20%.

Trust me on this.

That way, when you’re sitting with Mr. Igor Investor, you’ll be able to say, “To be conservative and reasonable, I lowered my projections by 20%.” He’s going to appreciate this display of reason and perhaps attach more credibility, not only to your entire financial business plan, but to your business idea as a whole.

And here are some of the fun graphs that can be made with sales projections.

Download templates to create your own sales projection worksheets and charts at vertex42.com. Find the sales projection worksheets here .

Expense Budget

Wouldn’t it be awesome if you had every dollar you needed before you needed it to build your business? What a fun fantasy.

And that’s all it will be, unless you put fantasy to paper. For your next business financial plan element, you’ll create an expense budget.

This is not the place to skimp or ignore . Here’s your opportunity to ask for everything you envision needing. You may not get it all, but you should absolutely include it all in the ask.

Remember that this is your opportunity to show how reasonable and logical you are. So, while you will include every potential expense you can imagine, you will also refrain from granting yourself a million dollar salary in the first six weeks with a half million dollar bonus two weeks later.

Be realistic. Learn to pronounce “boot strap” and “grow to go” (yes, you can do it in that British accent you perfected during the income forecasting).

In your expense budget, you’ll list salaries, contract worker fees, costs for equipment, research, office rent, supplies, software, subscriptions, travel, and more.

If this is your first go-round, a strong word of advice: Don’t forget to budget for legal (attorneys), accounting (bookkeepers and tax professionals), and tax payments (on payroll and sales). Some founders think they can skimp on these areas and squeak through with fingers crossed.

But if you want to build a business financial plan that reflects a mature, responsible approach (and not ruin yourself financially if this doesn’t work out), then you will include money for attorneys, accountants, and the government’s cut.

Also, include a line item for contingencies and miscellaneous. It should be 10-20% of your entire expense budget. So, if you tallied up everything you anticipate needing to spend for the year and it comes to $1 million, add $100,000-$200,000 in the “contingencies/miscellaneous” column.

It will feel excessive.

Mrs. Banker and Mr. Investor know it is not.

It is, instead, the line they know you will pull from when something unexpected inevitably happens, and that means you will most likely not be coming in their door with your hand out again.

For my fellow visual learners, here’s an example of an expense budget:

Cash Flow Snapshot

Now that you’ve thought through where the money is coming from and where it’s going, you can create a Cash Flow Snapshot. This document gives you an idea of how much money you’ll have on hand for operations on any given day. It also lets your lender or investor see why you need operational money to get (or keep) going.

At first, the Cash Flow Snapshot can seem redundant. If 1,000 Fork Dorks are projected to sell in August for $40 each, then August income is $40,000, right?

Well, who bought the Fork Dorks? (There’s another business idea: a band called “Who Bought the Fork Dorks?”) If wholesalers bought them to re-sell in stores, then they might not be paying you for your product for 30, 60, or 90 days. So, $40,000 of product can go out in August, but it could be November before that $40,000 comes in as income. This is accrual accounting and something you can talk about with the accountant you intend to hire because you are a serious entrepreneur. By using accrual accounting to create your Cash Flow Snapshot, you’ll see that, if there is no other source of income than that $40,000 sale in August, the busy workers in the factory making Fork Dorks might well walk off the job.

You’d wind up Fork Dork-less!

Also, you’d be back in the banker or investor’s office with your hand out and a sheepish expression, explaining how you really, really are a smart, serious, trustworthy entrepreneur but you didn’t take into account something as simple as the gap between sale and payment.

Aren’t Cash Flow Snapshots awesome?

Visual learners, here’s your example of a blank Cash Flow Snapshot  (download a template from SCORE here ):

Assets and Liabilities Sheet (aka Balance Sheet)

Okay, so we have a sheet that shows where the money is coming from, another one that shows where the money is being spent, and another that shows the ebb and flow of all that in monthly time. Lovely!

Now you’ll incorporate in whatever Mrs. Banker, Mr. Investor, and you have put into the business, as well as other elements, to create your Assets and Liabilities Sheet.

Assets include the money you have in the bank (both pennies!), the money that’s coming in (that $40,000 in November), the value of what you could sell but haven’t yet ($100,000 worth of Fork Dorks sitting on your warehouse shelves), Mr. Igor’s investments, any other investments (don’t group short-term and long-term investments into one line), any real estate or vehicles the company owns, any equipment—basically anything the company owns that could be sold for money.

Liabilities include everything the company owes. Imagine the company goes belly up. Now think about who would be owed money. Mrs. Banker’s loan (and interest that would be due). Payroll and taxes for your employees. Contracted worker fees. Other contracted fees (e.g. office rent for the remainder of the lease). List all of these in the liabilities section.

To figure out the net worth of your company, subtract your liabilities from your assets. For instance, if you owe $100,000 (liabilities) and you have $200,000 in assets, then your company’s net worth is $100,000. This is also called the owner’s equity  because it’s the value of what the owners own by being owners of this business.

The Assets and Liabilities Sheet shows how the net worth of your business/owner’s equity changes from month to month or year to year as you pay off the liabilities and accrue assets.

Resist the urge to rub your hands together and giggle as you see the number head into a positive range and grow.

Well, go ahead, nobody’s watching. But only for a second.

Visual learners, here’s your example of an Assets and Liabilities Sheet  (download a template to create yours from Vertex42 here ):

Break Even Analysis

At last, you have reached the Final Frontier. Okay, not really. You’ve just come to the final element of writing a business financial plan: the Break Even Analysis.

This document is exactly what it sounds like, a reflection of when your company is going into the black and not going back. At what point do the numbers reflect that your company is making more than it’s spending? Mr. Investor is particularly interested in this part because it shows him when and how his gamble might pay off.

Remember how you absolutely, 100% are not going to show your sales hitting $1 million in three weeks? (If you’ve already forgotten that part of this article, then you might need to pause here and go Google “ginkgo biloba.”) A big reason for that is to avoid a “hockey stick” in your break even analysis.

They look like this:

Now, before a bunch of pucks get thrown at the Foundr offices, let’s be clear that this is not a bias against hockey. No, this is a bias against unrealistic expectations and projections (aka googly-eyed entrepreneurs). Put your most posh British accent back on and tell yourself, “I must be reasonable.”

Now create a spreadsheet that shows when your income moves beyond your expenses and stays there.

Here’s what one looks like (download yours from SCORE here ):

Ta Da! Business Financial Plan, Done

You did it! You made it to the end of an article that had nothing to do with your creative product or service and everything to do with math, finance, accounting, and reasonable entrepreneurial endeavors. You now know how to create a business financial plan.

You are a boss.

Or, you’re soon going to be.

But not of Fork Dork, Inc.

That one’s mine.

Any questions? Feel free to blast them in the comments below!

About Rebeca Seitz

Rebeca Seitz is a best-selling writer and producer, and the founding CEO of 1C Productions, Inc. She recently raised over $3M for a single business venture and helped create, distribute, and promote products with sales of over $34M. Her books are published by HarperCollins and B&H Group and her last screenplay was produced with Out of Order Studios and written with Disney veteran Bob Burris. She has appeared on NPR, CNN, Huffington Post Live, and more regarding the responsible use of mass media.

Related Posts

How To Develop a Million-Dollar Pitch Deck For Potential Investors

Business Not Making Money? Here’s the Reason(s) Why

What Is ROI? And How Can You Calculate It like a Pro?

Profit and Loss Statement: What Is It and Why Your Business Needs One

How Much Do Consultants Make? Get Ready to Consult.

Business Startup Funding: A Beginner’s Guide

These Founders Bought Back Their Business: Chris Savage and Brendan Schwartz of Wistia

Annual Recurring Revenue: Calculate Your Subscription Revenue

Revenue vs Profit: What’s the Difference and Why it Matters

How to Build Business Credit Fast: Everything You Need to Know

Series Funding for Startups: Terms and Jargon Explained

16 Financial Concepts Every Entrepreneur Needs to Know

Is Your Business Not Making Enough Money? Here’s How to Fix It

How Much To Unapologetically Charge For Public Speaking

How to Get Sponsored: From 0 to $50,000 in 4 Weeks

FREE TRAINING FROM LEGIT FOUNDERS

Actionable Strategies for Starting & Growing Any Business.

FREE Finance Masterclass!

Set up your business finances “the smart way” to earn and keep more money....

• Plancorp App
• Charles Schwab
• TD Ameritrade

3 Financial Considerations for Setting Up Your Business

Personal Finances | InspireHer: Plancorp Women’s Initiative | Business Strategy

If you have a groundbreaking entrepreneurial idea floating around your head, then you may be wondering what to consider before starting a business. One simple mentality will help — the more planning you do upfront, the better off your new business venture will be. It's just like taking a vacation. You likely knock out all the logistical tasks first, such as reserving a rental car and booking your hotel. You may hunt around for the best deals on flights and accommodations. And that planning will pay off by saving you time and money.

Of course, much like with a vacation, there will always be moments that don't go as planned with a new business. But making strategic decisions  before opening up your doors will help you avoid some of the common pitfalls. So, where to start? Unsurprisingly, finances are at the top of the planning list. Financial considerations for setting up your business, such as cash flow management and forecasting, should always be your baseline before going any further.

Why Financial Planning for Business Owners Is Key Before Opening

It's no secret that starting a business requires capital. Even so, your business may not provide income for some time. Knowing what resources you have on hand before you get in too deep can provide peace of mind that you'll have the funds you need to support your startup phase, or that you need to save more before you order those new business cards and call yourself CEO.

While it's tempting to get scrappy and assume you'll learn and create a financial plan for your new business on the fly, it's better to think ahead so you can  avoid costly mistakes  that you can't afford.

Creating a Financial Plan for a New Business

1. do your prep work.

Researching as much as you can before going into business is critical to your financial success. Of course, find out who the competition is, assess how many hours you'll need to devote to your business, and define who your target audience is. You'll also need to determine  what type of business entity  to create and operate under. There are several different business structures to consider — LLC , partnership , S Corp , or a C Corp — and the taxes and liability are different for each. It can be complex, so it's one area where it's beneficial to get assistance from an attorney or financial advisor.

When you know which entity to label your business as, you can determine how you'll be taxed. Because you won't be withholding taxes from a paycheck, you have to set aside money for taxes and likely pay quarterly estimated payments throughout the year. This will help you avoid any underpayment penalties, and prevent sticker shock in April when you'd have to write a big tax check otherwise.

2. Determine where your funds will come from.

Once you do the prep work and assess your current cash flow and resources, determine if you can or should finance the business yourself or will need outside capital. If you have the ability to finance the business yourself, you have the benefit of keeping control and keeping all profits – but you have to be prepared to make sacrifices particularly if you don’t have the funds to pay yourself an income for a time. If instead you decide to seek outside capital, look at your options and review the pros and cons.

Borrowing funds from a friend or family member, for example, can put a strain on relationships. Borrowing from a bank, on the other hand, can be costly due to interest rates and down payments. You could also go through the process of borrowing from venture capitalists and angel investors. Investors generally seek ownership so while you may save on interest versus a loan from a bank, you may also have to give up some profits and control. Ultimately, decide which route is best for your unique business — and especially financial — needs.

3. Consider Cash Flow Management and Forecasting

In addition, consider how to manage your cash flow, the anticipated amount, and when that cash flow will actually create a revenue stream to support growth. It's one of the common mistakes business owners make before starting their ventures, but it's very preventable with proper planning. For example, do research ahead of time to predict the average accounts receivable timelines for your industry. It will help you set better expectations. That, in turn, will help you work with vendors and line up those timelines so your accounts receivable comes in first. Remember to discuss payment terms with vendors and customers in the early stages of the relationship, and get them set up for electronic payments.

Once you get further along with your business, be sure to maintain accurate customer information, automate invoicing, and send invoices promptly. Schedule time once a week that's dedicated to assessing your accounts receivable and following up on past-due bills. This all works to make your cashflow more predictable.

Because business growth requires capital to support payroll, AR, inventory, and more, it's a good idea to establish forecasting models. These estimates are generally prepared every week, and they project expected inflows and outflows over a 90-day period to help determine whether a working line of credit could be useful to establish or if you'll need to find other sources of working capital.

4. Plan for your personal finances.

It's important to consider how to manage cashflow for your  personal financial situation , not just what you'll need to operate your business and cover work expenses. One of the most common statements I’ve heard from business owners who left a corporate job is that going from a steady paycheck to having variable income is challenging. Having a good handle on your monthly expenses and savings to cover unexpected, non-discretionary costs can help offset the uneasiness that comes with this adjustment. Tools like Mint and YNAB (You Need a Budget) are great resources for budgeting and tracking this key financial information.

When you have a variable income, it is even more important to have an emergency fund in place. Your emergency fund should contain at least 3-6 months of non-discretionary expenses . It can also be helpful to list all of your expense and prioritize them – start with the most important and move to the less important (and likely more fun) things if your monthly income allows. And if you have an exceptionally good month, add some of the “extra” into your emergency fund.

There are so many things to consider before starting a business, so don't hesitate to reach out for help. A financial advisor, attorney, accountant, or business consultant may be able to help with your financial planning. And of course, network with other business owners to learn from them and the financial obstacles they've had to overcome. Running a business and its financials can be very daunting. It requires time, energy, and resources. But if you plan well now, you can reap the benefits in the future.

Additional Resources:

Check out my video series - common mistakes business owners make and how to avoid them..

1. No Worst Case Scenario Plan

2. Bad Cash Flow Management

Next Steps:

There are many complex decisions to make when it comes to finances. If you haven't already done so, we invite you to complete our brief 9-question financial analysis to discover your biggest areas of opportunity to improve your finances.

Disclosure:

This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

Related Posts

New Contribution Limits for Retirement Plans, Health & Dependent Savings Accounts, and Estate & Gift Tax for 2024

With a new year comes many new changes – putting up a new calendar, making New Year’s resolutions, AND new contribution and gifting limits imposed by the IRS.

The IRS reviews the contribution limits.

Good vs. Bad Debt: The Differences and Risks

We’ve all heard the phrase “too much of a good thing.” Usually we’re talking about something relatively harmless, but it’s a different story when it comes to borrowing money.

The Ins and Outs of Intrafamily Loans

In today’s high interest rate environment (with current AFR sitting well over 4%) many people are turning to intrafamily loans to assist with major investments as opposed to commercial lenders.

Sara came to Plancorp in 2013 with a strong financial background and an even stronger commitment to financial education—particularly for women. A Wealth Manager and Founder of InspireHer (Plancorp's Women's Initiative), Sara is also a new mom. More »

Get Our Insights

Emails with the latest financial tips & insights.

No spam. Unsubscribe anytime.

• Awards & Recognition
• Industry News
• Plancorp News
• Market Trends
• InspireHer: For Women

Financial Topics

• Business Strategy
• Education Planning
• Equity Compensation
• Estate Planning
• Family Finances
• Institutional Asset Management
• Investment Strategy
• Retirement Planning
• Retirement Tax Planning
• Stock Purchase Programs
• Sudden Wealth
• Tax Strategy
• Wealth Management
• Wealth Transfer
• February 2024
• January 2024
• December 2023
• November 2023
• October 2023
• September 2023
• August 2023
• Amy Jones (6)
• Austin Lewis (6)
• Becky Bone (2)
• Ben Schwartz (3)
• Beth Thomas (1)
• Brian King (22)
• Brian Watson (1)
• Brian Wiedermann (1)
• Charley Meyer (1)
• Chris Arnold (3)
• Chris Kerckhoff (12)
• Derek Hartley (2)
• Derek Jess (11)
• Emily Beilman (1)
• InspireHer (32)
• Jackie Kelly (1)
• Jacob Malina (7)
• Jamie Cailteux (1)
• Jeff Buckner (2)
• Katie Rummel (3)
• Kelsey Abbott (1)
• Kyle Attarian (6)
• Larry Guess (2)
• Matt Baisden (21)
• Meaghan Faerber (4)
• Mike Esson (2)
• Nicole Hodgins (1)
• Peter Lazaroff (112)
• Plancorp Team (139)
• Ranie Verby (6)
• Robert Tucker (4)
• Samantha Dombek (1)
• Sara Gelsheimer (45)
• Steven A. Frank (1)
• Susan Conrad (6)
• Susan Jones (5)
• Wes Garton (1)
• Wes Leftwich (2)

Like What You’re Reading? Get Insights to Your Inbox. Unsubscribe Anytime.

Schedule a call with a wealth manager to get started.

Let Plancorp help so you can focus on making the most of your wealth

• Family Office
• Corporate Retirement Plans
• Business Succession Planning
• Free Financial Analysis Tool
• Money Match Quiz
• Early Retirement Guide
• Equity Compensation Guide
• Estate Planning Guide
• Employee Stock Purchase Plan (ESPP) Guide
• Invest by Age Series
• Glossary of Financial Terms

St. Louis, MO | Nashville, TN | Boca Raton, FL | Sarasota, FL | San Francisco, CA Direct: 636-532-7824 | Toll Free: 888-220-1163 | [email protected]

• Legal Notices
• Privacy Policy
• ADV Part 2A
• View Cefex Certificate
• © 2024 Plancorp, LLC.

© 2024 Plancrop, LLC. All Rights Reserved.

Financial considerations for a new business

Table of Contents

The budget and expenses of your new business 

Business expenses, preparation and saving, the right budget , tax and legal requirements for setting up a business , registering your business , paying taxes, the best financial organisation for your new business, business current account , accounting software , simplify your new business finances with countingup.

Starting a new business can be an exciting and challenging time. If you want everything to go smoothly, you may want to be aware of some financial considerations for setting up your business. With this knowledge, you can approach your new business finances properly. 

This guide will discuss financial considerations for setting up your business, including:

• Expenses and budgeting
• Tax and legal requirements 
• Financial organisation 

One of the most important financial considerations for setting up your business is to ask yourself how much it will cost. 

Most businesses will come with startup costs , or the money you spend to get you up and running. These costs include one-time purchases like necessary equipment, tools, and registration fees. It could also include research, planning, and advertising or marketing. 

On top of the startup costs, there are also the operating expenses of your business, or money you need to spend to keep it running. These may include inventory costs, services and subscriptions, insurance, and shop rent. 

Calculating your startup costs and regular expenses will help you understand how much money you’ll need. It’s important to have the right cash to start your business because you won’t have revenue yet. 

You’ll need to give yourself time to save enough money for starting your business. Alternatively, you can look into funding options, such as loans or investors. If you want to take out a loan to start your business, this can speed up the process. But you will have to pay that loan back over time, which will decrease your early earnings. So, you’ll need to budget your money well to succeed. 

Creating a budget for starting your business will help you determine where to focus your finances for success. It’s also a legal requirement for businesses to budget and track their finances. But, a starting budget is critical to starting a business as it helps you determine how to spend your money with purpose. 

To build a starting budget, first look at your necessary expenses. Apart from startup costs and required expenses, you may want to budget for advertising and marketing expenses, travel expenses and incorporate savings for growth. Also, consider putting money aside from taxes when you earn revenue. 

Other financial considerations for setting up a business are the legal requirements and logistics for tax regulations. 

You’ll need to register your new business as a sole trader or a limited company . Your decision affects your tax requirements and regulations. 

As a sole trader, you’ll have fewer taxes and regulations, but you’ll be legally responsible for your business. Meanwhile, limited companies have more taxes and regulations but are separate legal entities. So, losses only affect the finances you put into the business.  

On top of this registration, your new business may require other licensing, registration, or training that you should account for.

You’ll also have to manage and report your own business taxes to the HMRC and may need to submit a Self Assessment tax return. These taxes likely include income tax, dividend tax, and national insurance. 

If you register as a limited company, you’ll also need to pay corporation tax. Plus, if you expect to earn over £85,000 annually, you’ll have to register for VAT. 

VAT registered businesses are also legally required to comply with Making Tax Digital (MTD) processes. MTD is a government initiative to transition to digital tax record keeping and filing for better accuracy and ease. Eventually, MTD will expand as a requirement for many businesses, so it’s a good idea to know about it now and plan for the future. 

Another key financial consideration for setting up your business is organisation. Companies are legally required to do financial accounting and keep records for about six years. But good record keeping can also help you understand your performance and make better financial decisions. 

The first step in organising your finances well is separating them from your personal ones . This is important because it helps you stay on top of your business finances without personal transactions in the mix. As a result, you can be more aware of the money you spend and earn for your business and keep accurate records.   

Separate your business finances by opening a business current account , a bank account specifically for your business. If you register as a limited company, you’ll be legally obligated to open one, but either way, it’s a critical part of maintaining clear records for better accounting. 

On top of a business current account, you’ll need accounting software to manage your finances well. Trusted by over 40,000 UK business owners, the Countingup app combines a business account with accounting software so you can easily manage all your financial data in one place. 

The app offers tools that help you manage your transactions, like automatic expense categorisation using HMRC approved categories. With this, you can track tax-deductible expenses and maintain updated records. Plus, Countingup offers a receipt capture tool that reminds you to snap a picture of your receipt as soon as you make a purchase. 

In addition, the app lets you create and send unlimited invoices on the go. Countingup will notify you when you receive an invoice and automatically match it to a payment. The app also generates cash flow insights so you can keep track of your business’s earnings and expenses. 

Countingup even provides ongoing tax estimates that let you plan. The app is also MTD compliant, helping to digitise your tax process. It automatically calculates VAT on each transaction and lets you share your bookkeeping with your accountant instantly without duplication errors, data lags or inaccuracies. Your accountant can then file with the free accounting software. Overall, the app lets you prepare for the future of taxes. Seamless, simple, and straightforward! 

With these features, you can save time on your financial management and confidently keep on top of your business finances wherever you are. 

Financial management can be stressful and time-consuming when you’re self-employed. That’s why thousands of business owners use the Countingup app to make their financial admin easier. Rated ‘Excellent’ on TrustPilot, people consider it ‘ fantastic .’ and ‘ easy and fast .’ As a new business owner, try your first three months free. 

Find out more here .

• Counting Up on Facebook
• Counting Up on Twitter
• Counting Up on LinkedIn

Related Resources

How to throw a launch party for a new business.

So your business is all set up and you’re ready to launch in

How to set up a TikTok shop (2024)

TikTok can be an excellent platform for growing a business, big or small.

Best side hustle ideas to start in 2024 (UK Edition)

Looking to start a new career? Or maybe you’re looking to embrace your

10 key tips to starting a business in the UK

10 things you need to know before starting a business in the UK

How to Register A Company in the UK

There are over four million companies registered in the UK – could your

How to set up your business: Sole trader or limited company

If you’ve just started a business, you’ll likely be faced with the early

How to register as a sole trader

Running a small business and considering whether to register as a sole trader? 

How to open a Barclays business account

When starting a new business, one of the first things you need to

6 examples of objectives for a small business plan

Your new company’s business plan is a crucial part of your success, as

How to start a successful business during a recession

Starting a business during a recession may sound like madness, but some big

What is a mission statement (and how to write one)

When starting a small business, you’ll need a plan to get things up

How does self-employment work?

The decision to become self-employed is not one to take lightly, and you

• Search Search Please fill out this field.
• Building Your Business

How To Create Financial Projections for Your Business

Learn how to anticipate your business’s financial performance

• Understanding Financial Projections & Forecasting

Why Forecasting Is Critical for Your Business

Key financial statements for forecasting, how to create your financial projections, frequently asked questions (faqs).

Maskot / Getty Images

Just like a weather forecast lets you know that wearing closed-toe shoes will be important for that afternoon downpour later, a good financial forecast allows you to better anticipate financial highs and lows for your business.

Neglecting to compile financial projections for your business may signal to investors that you’re unprepared for the future, which may cause you to lose out on funding opportunities.

Read on to learn more about financial projections, how to compile and use them in a business plan, and why they can be crucial for every business owner.

Key Takeaways

• Financial forecasting is a projection of your business's future revenues and expenses based on comparative data analysis, industry research, and more.
• Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts, which can be attractive to investors.
• Some of the key components to include in a financial projection include a sales projection, break-even analysis, and pro forma balance sheet and income statement.
• A financial projection can not only attract investors, but helps business owners anticipate fixed costs, find a break-even point, and prepare for the unexpected.

Understanding Financial Projections and Forecasting

Financial forecasting is an educated estimate of future revenues and expenses that involves comparative analysis to get a snapshot of what could happen in your business’s future.

This process helps in making predictions about future business performance based on current financial information, industry trends, and economic conditions. Financial forecasting also helps businesses make decisions about investments, financing sources, inventory management, cost control strategies, and even whether to move into another market.

Developing both short- and mid-term projections is usually necessary to help you determine immediate production and personnel needs as well as future resource requirements for raw materials, equipment, and machinery.

Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts. They can also be used to make informed decisions about the business’s plans. Creating an accurate, adaptive financial projection for your business offers many benefits, including:

• Attracting investors and convincing them to fund your business
• Anticipating problems before they arise
• Visualizing your small-business objectives and budgets
• Demonstrating how you will repay small-business loans
• Planning for more significant business expenses
• Showing business growth potential
• Helping with proper pricing and production planning

Financial forecasting is essentially predicting the revenue and expenses for a business venture. Whether your business is new or established, forecasting can play a vital role in helping you plan for the future and budget your funds.

Creating financial projections may be a necessary exercise for many businesses, particularly those that do not have sufficient cash flow or need to rely on customer credit to maintain operations. Compiling financial information, knowing your market, and understanding what your potential investors are looking for can enable you to make intelligent decisions about your assets and resources.

The income statement, balance sheet, and statement of cash flow are three key financial reports needed for forecasting that can also provide analysts with crucial information about a business's financial health. Here is a closer look at each.

Income Statement

An income statement, also known as a profit and loss statement or P&L, is a financial document that provides an overview of an organization's revenues, expenses, and net income.

Balance Sheet

The balance sheet is a snapshot of the business's assets and liabilities at a certain point in time. Sometimes referred to as the “financial portrait” of a business, the balance sheet provides an overview of how much money the business has, what it owes, and its net worth.

The assets side of the balance sheet includes what the business owns as well as future ownership items. The other side of the sheet includes liabilities and equity, which represent what it owes or what others owe to the business.

A balance sheet that shows hypothetical calculations and future financial projections is also referred to as a “pro forma” balance sheet.

Cash Flow Statement

A cash flow statement monitors the business’s inflows and outflows—both cash and non-cash. Cash flow is the business’s projected earnings before interest, taxes, depreciation, and amortization ( EBITDA ) minus capital investments.

Here's how to compile your financial projections and fit the results into the three above statements.

A financial projections spreadsheet for your business should include these metrics and figures:

• Sales forecast
• Balance sheet
• Operating expenses
• Payroll expenses (if applicable)
• Amortization and depreciation
• Cash flow statement
• Income statement
• Cost of goods sold (COGS)
• Break-even analysis

Here are key steps to account for creating your financial projections.

Projecting Sales

The first step for a financial forecast starts with projecting your business’s sales, which are typically derived from past revenue as well as industry research. These projections allow businesses to understand what their risks are and how much they will need in terms of staffing, resources, and funding.

Sales forecasts also enable businesses to decide on important levels such as product variety, price points, and inventory capacity.

Income Statement Calculations

A projected income statement shows how much you expect in revenue and profit—as well as your estimated expenses and losses—over a specific time in the future. Like a standard income statement, elements on a projection include revenue, COGS, and expenses that you’ll calculate to determine figures such as the business’s gross profit margin and net income.

If you’re developing a hypothetical, or pro forma, income statement, you can use historical data from previous years’ income statements. You can also do a comparative analysis of two different income statement periods to come up with your figures.

Anticipate Fixed Costs

Fixed business costs are expenses that do not change based on the number of products sold. The best way to anticipate fixed business costs is to research your industry and prepare a budget using actual numbers from competitors in the industry. Anticipating fixed costs ensures your business doesn’t overpay for its needs and balances out its variable costs. A few examples of fixed business costs include:

• Rent or mortgage payments
• Operating expenses (also called selling, general and administrative expenses or SG&A)
• Utility bills
• Insurance premiums

Unfortunately, it might not be possible to predict accurately how much your fixed costs will change in a year due to variables such as inflation, property, and interest rates. It’s best to slightly overestimate fixed costs just in case you need to account for these potential fluctuations.

Find Your Break-Even Point

The break-even point (BEP) is the number at which a business has the same expenses as its revenue. In other words, it occurs when your operations generate enough revenue to cover all of your business’s costs and expenses. The BEP will differ depending on the type of business, market conditions, and other factors.

To find this number, you need to determine two things: your fixed costs and variable costs. Once you have these figures, you can find your BEP using this formula:

Break-even point = fixed expenses ➗ 1 – (variable expenses ➗ sales)

The BEP is an essential consideration for any projection because it is the point at which total revenue from a project equals total cost. This makes it the point of either profit or loss.

Plan for the Unexpected

It is necessary to have the proper financial safeguards in place to prepare for any unanticipated costs. A sudden vehicle repair, a leaky roof, or broken equipment can quickly derail your budget if you aren't prepared. Cash management is a financial management plan that ensures a business has enough cash on hand to maintain operations and meet short-term obligations.

To maintain cash reserves, you can apply for overdraft protection or an overdraft line of credit. Overdraft protection can be set up by a bank or credit card business and provides short-term loans if the account balance falls below zero. On the other hand, a line of credit is an agreement with a lending institution in which they provide you with an unsecured loan at any time until your balance reaches zero again.

How do you make financial projections for startups?

Financial projections for startups can be hard to complete. Historical financial data may not be available. Find someone with financial projections experience to give insight on risks and outcomes.

Consider business forecasting, too, which incorporates assumptions about the exponential growth of your business.

Startups can also benefit from using EBITDA to get a better look at potential cash flow.

What are the benefits associated with forecasting business finances?

Forecasting can be beneficial for businesses in many ways, including:

• Providing better understanding of your business cash flow
• Easing the process of planning and budgeting for the future based on income
• Improving decision-making
• Providing valuable insight into what's in their future
• Making decisions on how to best allocate resources for success

How many years should your financial forecast be?

Your financial forecast should either be projected over a specific time period or projected into perpetuity. There are various methods for determining how long a financial forecasting projection should go out, but many businesses use one to five years as a standard timeframe.

U.S. Small Business Administration. " Market Research and Competitive Analysis ."

Score. " Financial Projections Template ."

• Customer Reviews
• Net 30 Account
• Wise Services
• Steps & Timeline
• Work at a Glance
• Market Research at a Glance
• Business Plan Writing Services
• Bank Business Plan
• Investor Business Plan
• Franchise Business Plan
• Cannabis Business Plan
• Strategic Business Plan
• Corporate Business Plan
• Merge and Acquisition Business Plan (M&A)
• Private Placement Memorandums (PPM)
• Sample Business Plans
• Professional Feasibility Study
• PowerPoint Presentations
• Pitch Deck Presentation Services
• Business Plan Printing
• Market Research
• L-1 Business Plan
• E-2 Business Plan
• EB-5 Business Plan
• EB-5 Regional Centers
• Immigration Attorneys
• Nonprofit Business Plan
• Exit Business Planning
• Business Planning
• Business Formation
• Business License
• Business Website
• Business Branding
• Business Bank Account
• Digital Marketing
• Business Funding Resources
• Small Business Loans
• Venture Capital
• Net 30 Apply

• Frequently Asked Questions
• Business Credit Cards
• Talk to Us 1-800-496-1056

10 Key Consideration For Writing a Business Plan

Creating a business plan is like building the foundation for your entrepreneurial journey. It’s the roadmap that turns your business dream into a reality. To do this effectively, you’ll need a combination of skills and a clear plan, all operating within a well-structured system. In this article, we’ll delve into the essential components of a business plan, from the initial dream to skill development, and how they fit into your mission and an organized system.

Business plan considerations: 10 key points

1. learn about your market:, 2. know your competitors:, 3. describe how you’ll get customers:, 4. explain how your business works:, 5. show your financial plans:, 6. identify and deal with risks:, 7. set goals:, 8. create an engaging executive summary:, 9. update your plan regularly:, 10. get advice from others:.

Creating a good business plan is like laying the foundation for your business dreams. It’s a roadmap that helps you navigate the ups and downs of starting a business. Here are 11 important things to include in your business plan: Explain What Makes You Special: In your plan, clearly state what makes your business unique. Who does it help, and why is it better than the competition? Keep it simple and easy to understand.

Use facts and figures to back up your claims. Find out who your competitors are, what the demand for your product or service is like, and any trends in your industry.

Learn how to write a DIY business plan now!

Study your competitors carefully. Understand what they do well and where they struggle. This will help you i dentify your own strengths and opportunities .

Explain how you plan to reach and attract customers. Cover everything from how you’ll advertise to how you’ll build relationships with your customers .

Tell the reader how your business is structured and what laws and regulations apply to it. Describe your day-to-day operations, what resources you need, and how you’ll get your products or services.

Paint a clear picture of your financial future . Explain how you’ll make money, how you’ll control your costs, and when you expect to start making a profit. Use charts and predictions to illustrate this.

Recognize the potential problems your business might face and explain how you’ll handle them. Base your plans on facts, not just hopes.

Explore our free sample business plans and kickstart your own business plan today!

Define your business goals clearly. Use the SMART method (Specific, Measurable, Achievable, Relevant, Time-bound) to set targets that will guide your journey.

Your executive summary should be a brief, clear, and interesting introduction to your business plan. Think of it as a trailer for your business story.

Your business plan is not set in stone. It should change as your business grows and evolves. Being flexible is important for success.

Don’t try to do it all by yourself. Seek feedback and advice from people who have experience in business, like mentors, advisors, peers, investors, and experts. Creating a business plan is both an art and a science. When done right, it’s a crucial tool for your business’s success. It showcases your vision and commitment, and it’s something others can trust. So, start writing your business plan today to set yourself on the path to success.

Connect with our experienced business plan writing consultant or our team of expert business plan writing consultants today to write a plan for your success.

Leave a reply.

Your email address will not be published. Required fields are marked *

Quick Links

• Investor Business Plans
• M&A Business Plan
• Private Placement
• Feasibility Study
• Hire a Business Plan Writer
• Business Valuation Calculator
• Business Plan Examples
• Real Estate Business Plan
• Business Plan Template
• Business Plan Pricing Guide
• Business Plan Makeover
• SBA Loans, Bank Funding & Business Credit
• Finding & Qualifying for Business Grants
• Leadership for the New Manager
• Content Marketing for Beginners
• All About Crowdfunding
• EB-5 Regional Centers, A Step-By-Step Guide
• Logo Designer
• Landing Page
• PPC Advertising

• Business Entity
• Business Licensing
• Virtual Assistant
• Business Phone
• Business Address
• E-1 Visa Business Plan
• EB1-A Visa Business Plan
• EB1-C Visa Business Plan
• EB2-NIW Business Plan
• H1B Visa Business Plan
• O1 Visa Business Plan
• Business Brokers
• Merger & Acquisition Advisors
• Franchisors

Proud Sponsor of

• 1-800-496-1056

• (613) 800-0227

• +44 (1549) 409190

• +61 (2) 72510077

CLICK HERE FOR COVID-19 TAX RESOURCES PORTAL

Financial Considerations When Starting a Business

• Maria Cruz-Garcia
• June 19, 2018
• Bookkeeping

Anyone who has ever started a business knows, there are innumerable financial considerations that must be made—from calculating how much money you need to eventually break even, to figuring out what you’re going to pay your employees or charge for your goods/services.

Some considerations are more important than others, however, because they dictate how likely your business is to succeed over both the short- and long-term. Let’s take a look at a few of the chief financial considerations to make from the get-go and why they’re so important.

Business entity structure

One of the earliest financial decisions you’ll make is one that affects the long-term prospects of your business: choosing a business entity structure. Depending on if you declare an LLC, corporation, sole proprietorship or other structure, there are taxes and liabilities that may or may not affect you. Choosing the wrong structure can mean paying unnecessarily when tax season comes around—or worse, having your personal finances impacted by your business’ status.

Make sure to do your research and choose a structure that best fits your business and one that you understand the tax implications of completely. Taking the time to take this first step in-stride means setting your business up for long-term financial stability.

Tax authority registration

Paying taxes is a big part of running a business. If you’re not set up with the right tax authorities, you’ll quickly get yourself in trouble and may end up with everything from back taxes to fines and penalties. Plus, it’ll make it hard for you to hire employees or apply for small business loans! Thankfully, registering with state and federal tax authorities is easy. With a few simple pieces of paperwork, you’ll get your business’ tax ID number, so you can start paying your taxes responsibly.

Short- and long-term financial goals and expenses

If you’re applying for a small business loan, you’ll likely need to present a financial plan and projections. This includes an overview of your short- and long-term revenue goals, which are essential in determining the viability of your business. As you create this plan, it’s important to think long and hard about these goals. Ask yourself several important questions, including:

• When do you plan to break even?
• What is your expected monthly burn rate, if any?
• What necessary expenses will you have this year? In 5 years?
• How do you plan to pay down debt?

Depending on the nature of your business, there are many more questions you can and should be asking and answering for yourself! Getting a grip on your finances means having the confidence to meet these goals.

Cash on hand, lines of credit and seed money

You need to spend money to make money, just like the old adage says! Startup costs are unavoidable, which means it’s crucial to know what they are and how you plan to fund them. This means taking stock of available cash as you bring your business to market. Some sources of cash to consider in the beginning include:

• Personal cash on hand
• Available lines of credit
• Seed or venture money
• Private funding

Take stock of the capital you have available and plan wisely for how to utilize it. How you handle the startup of your business with your available capital plays a pivotal role in your ability to succeed.

Paying mind to each of these financial considerations will do more than just make sure you’re on solid financial footing—it’ll also get you thinking critically about how to run your business in the best possible way.

Leave a Comment Cancel Reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

Accounting for Fixed Assets: Depreciation, Amortization, and Tax Implications

For any small business owner, keeping track of your finances is key. Good financial records give you a clear picture

Bookkeeping for Seasonal Businesses: Managing Fluctuations and Tax Planning

As the seasons change, your business’s cash flow may fluctuate. Whether it’s a ski resort bustling in winter or a

Managing Inventory and Sales Tax for E-commerce Businesses

Managing inventory and navigating sales tax can be tough tasks for small e-commerce businesses—but with the right tools and strategies,

Understanding Debit Card Processing Fees

Understanding the ins and outs of debit card processing fees is crucial for maintaining a healthy bottom line. As cash

How to Choose the Right E-Commerce Platform

Selecting the right e-commerce platform is a crucial decision for small business owners. Whether you’re just starting your online venture

Choosing the Right Credit Card Processor for Your Small Business

Cash is no longer king. Today, credit card payments are more popular than ever—and if you don’t offer that option,

Join our mailing list!

Join our mailing list for news and updates!

5 Financial Considerations to Make When Starting a Business

larry-alton

A new business means freedom like you’ve never experienced. It could also mean wealth untold, but only if you’re smart with your finances. Too many businesses shut down prematurely because their finances were out of order, but yours doesn’t have to be that way.

There are a few financial considerations to make at the start of a new business. After you’ve secured initial financing, keep the financial aspect of your business a priority.

Here are some considerations that will help you thrive.

1. Keep a Line of Credit

You’ll likely need access to funds other than your initial investment to keep your business going. Taking out a line of revolving credit helps many businesses stay afloat.

“Revolving credit is a unique form of credit that is much different than a traditional loan,” explains Jason Smith of Small Business Loans. “With revolving credit, a lender will extend you a set credit limit. This limit will be determined by a range of things, but will ultimately depend on what the lender thinks you are capable of borrowing. Once a limit is set, you can borrow from the limit when you need to. If you don’t end up using any of the limit, then you won’t end up paying any of it back – nor will you have to pay any interest on it.”

Credit cards and business lines of credit are the two most common forms of revolving credit, each with its own pros and cons. Having a line of credit available is vital to bridging gaps when cash is tight.

2. Minimize Overhead

Everything you spend in a business eats your profits. Prioritize purchases to minimize costs.

“Make a list of all the items you’ll need to purchase or lease to get a true sense of your start-up and operating costs,” suggests John Gin , a financial advisor and contributor for Nola.com. “Will you need big ticket items such as business or office space, manufacturing and computer equipment? What about smaller purchases like office supplies and software? It’s beneficial to have a detailed list of your needs when making a plan and figuring out your costs.”

Additionally, factor in labor costs, utilities, property-related expenses, and other costs of running a business. Look for ways to minimize spending so that you can maximize your profits.

3. Track and Monitor Spending

“Most startups fail for a variety of reasons, but one is far more common than others—running out of money,” says Jonathan Long , founder of Market Domination Media. “You need to know where every single dollar is coming from and where every single dollar is going. If you don’t stay on top of your cash flow, you are going to put your business in a very dangerous position.”

Consider hiring a full-time employee to manage your expenses. You might also invest in quality software like QuickBooks to handle accounts and send money to the right places. It will not only prevent a serious cash disruption, but will also help make tax season easier.

4. Invest Appropriately

Spending money is the best way to make money in business, but only if you’re smart with your investments.

“Thinking about investing also means you have to think about your priorities,” says Nazlin Amirudin of the online publication Entrepreneur Insight. “What does your startup really need as opposed to what you want it to have? For example, you can cut back on the expenses of renting an office at a popular area by starting off working at co-working spaces instead…Remember, this is just the beginning. There are many more things you will have to invest in in the future.”

Plan accordingly.

5. Maintain Cash Reserves

It won’t take long for your initial savings to dry up. You can rely on lines of credit and loans, but it’s often better to have liquid assets.

“Having a savings plan in place can help your business avoid paying interest when making major purchases, provide a financial cushion during economic downturns or enable you to expand your business when the time is right,” says Craig Sievertson , SVP, Small Business & Consumer Loan Manager at Banner Bank. “…No matter what your business goals are, having a solid financial cushion in place can help increase the long-term stability of the company.”

Each of these financial considerations requires careful planning and sharp monitoring. Money can work for or against you, so make it a priority as you manage your cash fl