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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

Hands pointing to a engineer's drawing

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

  • Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
  • Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
  • Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
  • Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
  • Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
  • Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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

Financial Statements Template

Free Financial Statements Template

Ajay Jagtap

  • December 7, 2023

13 Min Read

financial plan for startup business

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.

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financial considerations in business plan

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.

financial considerations in business plan

Create a Financial Plan with Upmetrics in no time

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

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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:

Upmetrics financial projections visual report

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 Balance Sheet

Projected Cash-Flow Statement

Cash-Flow Statement

Projected Profit & Loss Statement

Profit & Loss Statement

Break Even Analysis

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

financial considerations in business plan

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

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How to Write a Financial Plan for a Business Plan

Stairs leading up to a dollar sign. Represents creating a financial plan to achieve profitability.

Noah Parsons

4 min. read

Updated July 11, 2024

Download Now: Free Income Statement Template →

Creating a financial plan for a business plan is often the most intimidating part for small business owners.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your business plan’s financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

  • Key components of a financial plan in business plans

A sound financial plan for a business 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, you’ll need to include a few additional pieces of information as part of your business plan’s financial plan example.

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 your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your financial plan for a business plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

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).

  • How to improve your financial plan

Your financial statements are the core part of your business plan’s financial plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

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Content Author: Noah Parsons

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 From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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  • What to include for funding

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6 Elements of a Successful Financial Plan for a Small Business

Improve your chances of growth by covering these bases in your plan.

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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. 

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 , 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.

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.


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Startups Should Understand All The Key Components Involved In Writing A Business Plan

  • 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.


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.


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

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How to Write a Business Plan: Your Step-by-Step Guide

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So, you’ve got an idea and you want to start a business —great! Before you do anything else, like seek funding or build out a team, you'll need to know how to write a business plan. This plan will serve as the foundation of your company while also giving investors and future employees a clear idea of your purpose.

Below, Lauren Cobello, Founder and CEO of Leverage with Media PR , gives her best advice on how to make a business plan for your company.

Build your dream business with the help of a high-paying job—browse open jobs on The Muse »

What is a business plan, and when do you need one?

According to Cobello, a business plan is a document that contains the mission of the business and a brief overview of it, as well as the objectives, strategies, and financial plans of the founder. A business plan comes into play very early on in the process of starting a company—more or less before you do anything else.

“You should start a company with a business plan in mind—especially if you plan to get funding for the company,” Cobello says. “You’re going to need it.”

Whether that funding comes from a loan, an investor, or crowdsourcing, a business plan is imperative to secure the capital, says the U.S. Small Business Administration . Anyone who’s considering giving you money is going to want to review your business plan before doing so. That means before you head into any meeting, make sure you have physical copies of your business plan to share.

Different types of business plans

The four main types of business plans are:

Startup Business Plans

Internal business plans, strategic business plans, one-page business plans.

Let's break down each one:

If you're wondering how to write a business plan for a startup, Cobello has advice for you. Startup business plans are the most common type, she says, and they are a critical tool for new business ventures that want funding. A startup is defined as a company that’s in its first stages of operations, founded by an entrepreneur who has a product or service idea.

Most startups begin with very little money, so they need a strong business plan to convince family, friends, banks, and/or venture capitalists to invest in the new company.

Internal business plans “are for internal use only,” says Cobello. This kind of document is not public-facing, only company-facing, and it contains an outline of the company’s business strategy, financial goals and budgets, and performance data.

Internal business plans aren’t used to secure funding, but rather to set goals and get everyone working there tracking towards them.

As the name implies, strategic business plans are geared more towards strategy and they include an assessment of the current business landscape, notes Jérôme Côté, a Business Advisor at BDC Advisory Services .

Unlike a traditional business plan, Cobello adds, strategic plans include a SWOT analysis (which stands for strengths, weaknesses, opportunities, and threats) and an in-depth action plan for the next six to 12 months. Strategic plans are action-based and take into account the state of the company and the industry in which it exists.

Although a typical business plan falls between 15 to 30 pages, some companies opt for the much shorter One-Page Business Plan. A one-page business plan is a simplified version of the larger business plan, and it focuses on the problem your product or service is solving, the solution (your product), and your business model (how you’ll make money).

A one-page plan is hyper-direct and easy to read, making it an effective tool for businesses of all sizes, at any stage.

How to create a business plan in 7 steps

Every business plan is different, and the steps you take to complete yours will depend on what type and format you choose. That said, if you need a place to start and appreciate a roadmap, here’s what Cobello recommends:

1. Conduct your research

Before writing your business plan, you’ll want to do a thorough investigation of what’s out there. Who will be the competitors for your product or service? Who is included in the target market? What industry trends are you capitalizing on, or rebuking? You want to figure out where you sit in the market and what your company’s value propositions are. What makes you different—and better?

2. Define your purpose for the business plan

The purpose of your business plan will determine which kind of plan you choose to create. Are you trying to drum up funding, or get the company employees focused on specific goals? (For the former, you’d want a startup business plan, while an internal plan would satisfy the latter.) Also, consider your audience. An investment firm that sees hundreds of potential business plans a day may prefer to see a one-pager upfront and, if they’re interested, a longer plan later.

3. Write your company description

Every business plan needs a company description—aka a summary of the company’s purpose, what they do/offer, and what makes it unique. Company descriptions should be clear and concise, avoiding the use of jargon, Cobello says. Ideally, descriptions should be a few paragraphs at most.

4. Explain and show how the company will make money

A business plan should be centered around the company’s goals, and it should clearly explain how the company will generate revenue. To do this, Cobello recommends using actual numbers and details, as opposed to just projections.

For instance, if the company is already making money, show how much and at what cost (e.g. what was the net profit). If it hasn’t generated revenue yet, outline the plan for how it will—including what the product/service will cost to produce and how much it will cost the consumer.

5. Outline your marketing strategy

How will you promote the business? Through what channels will you be promoting it? How are you going to reach and appeal to your target market? The more specific and thorough you can be with your plans here, the better, Cobello says.

6. Explain how you’ll spend your funding

What will you do with the money you raise? What are the first steps you plan to take? As a founder, you want to instill confidence in your investors and show them that the instant you receive their money, you’ll be taking smart actions that grow the company.

7. Include supporting documents

Creating a business plan is in some ways akin to building a legal case, but for your business. “You want to tell a story, and to be as thorough as possible, while keeping your plan succinct, clear, interesting, and visually appealing,” Cobello says. “Supporting documents could include financial projects, a competitive analysis of the market you’re entering into, and even any licenses, patents, or permits you’ve secured.”

A business plan is an individualized document—it’s ultimately up to you what information to include and what story you tell. But above all, Cobello says, your business plan should have a clear focus and goal in mind, because everything else will build off this cornerstone.

“Many people don’t realize how important business plans are for the health of their company,” she says. “Set aside time to make this a priority for your business, and make sure to keep it updated as you grow.”

financial considerations in business plan

financial considerations in business plan

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!

Financial projections how to write a financial plan

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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 !

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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!

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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!

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Start » startup, business plan financials: 3 statements to include.

The finance section of your business plan is essential to securing investors and determining whether your idea is even viable. Here's what to include.

 Businessman reviews financial documents

If your business plan is the blueprint of how to run your company, the financials section is the key to making it happen. The finance section of your business plan is essential to determining whether your idea is even viable in the long term. It’s also necessary to convince investors of this viability and subsequently secure the type and amount of funding you need. Here’s what to include in your business plan financials.

[Read: How to Write a One-Page Business Plan ]

What are business plan financials?

Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you’ll need to plan for your business’s future, and to make your case to potential investors. You will need to include supporting financial documents and any funding requests in this part of your business plan.

Business plan financials are vital because they allow you to budget for existing or future expenses, as well as forecast your business’s future finances. A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Sections to include in your business plan financials

Here are the three statements to include in the finance section of your business plan:

Profit and loss statement

A profit and loss statement , also known as an income statement, identifies your business’s revenue (profit) and expenses (loss). This document describes your company’s overall financial health in a given time period. While profit and loss statements are typically prepared quarterly, you will need to do so at least annually before filing your business tax return with the IRS.

Common items to include on a profit and loss statement :

  • Revenue: total sales and refunds, including any money gained from selling property or equipment.
  • Expenditures: total expenses.
  • Cost of goods sold (COGS): the cost of making products, including materials and time.
  • Gross margin: revenue minus COGS.
  • Operational expenditures (OPEX): the cost of running your business, including paying employees, rent, equipment and travel expenses.
  • Depreciation: any loss of value over time, such as with equipment.
  • Earnings before tax (EBT): revenue minus COGS, OPEX, interest, loan payments and depreciation.
  • Profit: revenue minus all of your expenses.

Businesses that have not yet started should provide projected income statements in their financials section. Currently operational businesses should include past and present income statements, in addition to any future projections.

[Read: Top Small Business Planning Strategies ]

A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Balance sheet

A balance sheet provides a snapshot of your company’s finances, allowing you to keep track of earnings and expenses. It includes what your business owns (assets) versus what it owes (liabilities), as well as how much your business is currently worth (equity).

On the assets side of your balance sheet, you will have three subsections: current assets, fixed assets and other assets. Current assets include cash or its equivalent value, while fixed assets refer to long-term investments like equipment or buildings. Any assets that do not fall within these categories, such as patents and copyrights, can be classified as other assets.

On the liabilities side of your balance sheet, include a total of what your business owes. These can be broken down into two parts: current liabilities (amounts to be paid within a year) and long-term liabilities (amounts due for longer than a year, including mortgages and employee benefits).

Once you’ve calculated your assets and liabilities, you can determine your business’s net worth, also known as equity. This can be calculated by subtracting what you owe from what you own, or assets minus liabilities.

Cash flow statement

A cash flow statement shows the exact amount of money coming into your business (inflow) and going out of it (outflow). Each cost incurred or amount earned should be documented on its own line, and categorized into one of the following three categories: operating activities, investment activities and financing activities. These three categories can all have inflow and outflow activities.

Operating activities involve any ongoing expenses necessary for day-to-day operations; these are likely to make up the majority of your cash flow statement. Investment activities, on the other hand, cover any long-term payments that are needed to start and run your business. Finally, financing activities include the money you’ve used to fund your business venture, including transactions with creditors or funders.

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3 Financial Considerations for Setting Up Your Business

Financial Planning | InspireHer: Plancorp Women’s Initiative | Business Strategy

3 Financial Considerations for Setting Up Your Business

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.

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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.

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Written by Rebeca Seitz | February 24, 2020

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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.

sales forecast

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

sales projection

Download templates to create your own sales projection worksheets and charts at 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:

2020 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 ):

12 Month Cash Flow

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 ):

balance sheet

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:

hockey stick” break even analysis

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 ):

break even analysis

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!

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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.

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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

describes how you can use the four ways to use the financial section of business plan

  • 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. 

financial considerations in business plan

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!

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financial considerations in business plan

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.

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Important Financial Considerations to Consider When Setting Up Your Business


Clint Sporhase


It's not uncommon for the subject of starting a business to come up when people discover I work in banking with small businesses. Folks are always keen to get my thoughts on their business ideas. I don’t pretend to be a definitive resource, but I do generally have a few things for prospective business owners to consider. A strong business plan is always the capstone to our conversation, but we’ll get to that in a minute. Here are a few other good common sense considerations.

Working for yourself

Working for yourself has some definite advantages, but it also comes with some challenges. Owning a business is not just an occupation, it is a lifestyle. Most folks focus on the potential financial upside. When it occurs, it is well deserved. Being able to “control your own destiny” in terms of money, time and business decisions is attractive. Each of those items also comes with a downside. Obviously, when a business struggles, the owners bear the brunt of the financial stress.

I also encourage prospective business owners to consider the time commitment. Things like covering for absent employees and all the other work that needs to occur outside normal business hours can take a toll on many people.

Viability of the business

Is your prospective business ready? Here are some questions to ask yourself:

  • What need does the business fill? Understanding what value your business will bring to its customers and the market for it is critical in shaping your value proposition.
  • Is the business differentiated? In many cases, I hear business owners say their customer service will set them apart. Keep in mind that service is an experience. It’s hard to use service as differentiator until you have a base of customers.
  • Can you monetize the business and be profitable? Understanding what customers will pay for the good or service your business provides is another building block of success.
  • Is it sustainable? Competition can undercut your prices and steal market share if your differentiator is easily duplicated.

Having a detailed understanding of how much money you will need to start your business and where it will come from is another critical consideration. Bankers call this the sources and uses of funding. Make sure your list of expenses is realistic. There are always surprises and delays in the startup process.

Thinking through where you plan to get the funding for your business is also critical. I encourage people to think of funding sources as a continuum. On one end, you have options like your own money and money from friends and family. While these may not always be an option, these sources are generally more open to risk. Your friends’ and family’s expectations for repayment and any potential return on their investments will vary. In the middle, you may have options like partners and investors. These two are generally more open to risk as well, but have a much higher return expectation – including ownership in the business. On the other end, you have options like Small Business Administration loans from your bank. These funds come with less tolerance for risk, but have a much lower return expectation in the form of interest.

Understanding the risk around your business idea will help you get a good idea what funding sources might make the most sense for your situation. Keep in mind the sources above are just some of the options out there. Each comes with costs and benefits.  

So, you‘ve made it this far and think your business idea has potential. Committing your idea and all the details around it to paper is next in the form of a business plan. Many times, I hear, “the bank or my investors are making me do a business plan.” Do the businesses plan for yourself first! If you can’t get comfortable with the plan, it is probably a good signal that you need to revisit your idea.

You can find lots of resources for business plans on the internet. The Small Business Administration website has a good template . (Following this template will also come in handy if a business loan ends up making sense in your situation.) Try to keep the plan as realistic as possible. I encourage people to look at some critical sections of the plan, like the financials, both as they expect things to happen and then again in a best/worst case scenario.

Finally, treat your plan as a living document and not as a one-time exercise. You will likely get some things right in your plan and some things wrong. Your success will likely hinge on your ability to correct errors and capitalize on successes.   

If you are thinking about starting a business, good luck in your journey! If owning a business just isn’t for you, consider shopping at locally owned businesses to help keep our economy strong.

About the Author: Clint Sporhase leads First National Bank’s efforts to serve small business owners. Clint has 25 years of sales, marketing and strategy experience. 

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.

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5 Financial Considerations to Make When Starting a Business



financial considerations in business plan

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 “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

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  • Building Your Business

How To Create Financial Projections for Your Business

Learn how to anticipate your business’s financial performance

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  • 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).

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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 ."

Aaron Hall, Attorney for Businesses

Ownership Stake in Employee Incentive Plans

Implementing an ownership stake in employee incentive plans is a strategic decision that can profoundly impact business performance by aligning employee interests with company goals, driving motivation, and encouraging a sense of accountability and responsibility. This approach fosters a cultural shift from an employee-centric mindset to an owner-centric mindset, driving business growth and profitability. By creating a direct financial connection between employees and the organization, ownership stakes promote financial literacy, wealth creation, and collective responsibility. As organizations consider this incentive strategy, they must navigate plan design options, cost considerations, and implementation logistics to achieve desired outcomes and optimize ROI, and there's much more to explore in this approach.

Table of Contents

Benefits of Ownership Stake

A significant benefit of granting employees an ownership stake in the company is that it fosters a sense of accountability and responsibility among them, leading to improved productivity and performance. When employees have a vested interest in the company's success, they are more likely to be motivated to contribute to its growth and development. This increased motivation stems from the fact that they have a direct stake in the company's profitability, leading to a cultural shift from an employee-centric mindset to an owner-centric mindset. As a consequence, employees are more likely to take ownership of their work, think critically, and make decisions that align with the company's goals. In addition, this sense of ownership encourages employees to take a long-term view, prioritizing sustainable growth rather than short-term gains. By granting employees an ownership stake, companies can create a more engaged, motivated, and productive workforce, ultimately driving business success.

Aligning Interests Through Equity

Aligning interests through equity involves creating a shared sense of company goals, where employees are financially tied to the organization's success. By granting equity stakes, companies can foster a culture of collective responsibility, where individual performance is directly linked to the company's overall performance. This approach enables employees to think and act like owners, driving decision-making that benefits the organization as a whole.

Shared Company Goals

Equity-based incentives can be a powerful tool for synchronizing individual employee efforts with overarching company objectives, fostering an environment where collective success is intricately tied to personal achievement. This alignment of interests is critical in promoting a culture of teamwork and shared responsibility. By tying individual performance to company goals, employees are motivated to work collaboratively towards a common objective.

To achieve this synergy, companies can implement the following strategies:

  • Clear goal setting : Establishing specific, measurable, and achievable goals that are communicated across the organization, facilitating everyone's work towards the same objectives.
  • Performance metrics : Developing key performance indicators (KPIs) that are directly tied to company goals, providing a clear benchmark for individual and team performance.
  • Transparent feedback : Regularly providing feedback and coaching, enabling employees to adjust their efforts and make data-driven decisions that support collective success.

Employee Financial Ties

Through the strategic allocation of equity, companies can create a direct financial connection between employees and the organization, fostering a deep sense of ownership and motivation. This alignment of interests encourages employees to think and act like owners, driving business growth and profitability. By granting employees a stake in the company's success, organizations can promote financial literacy and wealth creation among their workforce. As employees develop a deeper understanding of the company's financial performance, they become more invested in its success, leading to increased productivity and innovation. In addition, equity-based incentives can create a sense of shared prosperity, as employees' financial well-being becomes directly tied to the company's performance. By aligning employee interests with those of the organization, companies can tap the full potential of their workforce, driving long-term success and sustainability. By adopting an equity-based approach, organizations can create a culture of ownership and accountability, where employees are motivated to drive growth and profitability.

Types of Ownership Structures

A range of ownership structures can be employed in incentive plans, each with its unique characteristics and implications for plan design and administration. The type of ownership structure chosen can have significant consequences for corporate governance, tax implications, and regulatory compliance.

The following ownership structures are commonly used in incentive plans:

  • Equity-based models , where employees are granted shares or options to purchase company stock, potentially leading to equity dilution.
  • Hybrid models , which combine elements of equity-based and cash-based incentives, offering a balance between employee motivation and corporate governance concerns.
  • Unit-based models , where employees are awarded units that can be converted to cash or equity, often with vesting schedules that tie rewards to performance milestones.

When selecting an ownership structure, plan designers must consider the implications of each model on tax implications, regulatory compliance, and corporate governance. By understanding the characteristics of each ownership structure, companies can design incentive plans that align with their goals and values, while minimizing potential drawbacks.

Implementation and Logistics

When implementing ownership in incentive plans, organizations must carefully consider various plan design options to guarantee alignment with their strategic objectives. Effective administration of these plans also necessitates attention to administrative tasks, such as record-keeping and compliance reporting. In addition, cost considerations, including plan funding and tax implications, must be thoroughly evaluated to optimize plan effectiveness.

Plan Design Options

Designing an effective incentive plan requires careful consideration of various plan design options, including eligibility criteria, performance metrics, and reward structures, which can profoundly impact the plan's overall success. A well-designed plan can motivate employees, enhance performance, and drive business growth. To achieve this, organizations can employ customization strategies to tailor the plan to their specific needs and goals.

  • Flexibility analysis : Conducting a thorough analysis of the organization's flexibility requirements to guarantee the plan is adaptable to changing business needs.
  • Performance metrics selection : Choosing relevant and measurable performance metrics that align with the organization's objectives and goals.
  • Reward structure design : Designing a reward structure that is fair, competitive, and aligned with the organization's compensation philosophy.

Administrative Tasks

Effective administration of an incentive plan requires meticulous attention to implementation and logistical details to certify seamless execution and minimize disruptions to business operations. A well-planned administrative framework is vital to the successful implementation of an employee incentive plan. This involves streamlining workflow processes to reduce administrative burdens and enhance operational efficiency. Workflow simplification can be achieved through task automation, which enables the automation of repetitive and time-consuming tasks, freeing up resources for more strategic activities. This, in turn, enables plan administrators to concentrate on high-value tasks, such as data analysis and plan optimization. Additionally, automation facilitates real-time tracking and monitoring of plan performance, enabling swift identification and resolution of potential issues. By leveraging technology and process optimization, organizations can minimize administrative costs, reduce errors, and enhance the overall effectiveness of their incentive plans. By prioritizing administrative efficiency, organizations can verify that their incentive plans operate smoothly, driving business growth and employee engagement.

Cost Considerations

Beyond the administrative efficiency gains, organizations must also carefully consider the cost implications of implementing and maintaining an incentive plan, as these expenditures can substantially impact the overall ROI of the program. A thorough budget analysis is vital to confirm that the costs associated with the plan are justified by the anticipated benefits.

To maintain fiscal responsibility, organizations should consider the following key cost considerations:

  • Expense Allocation : Determine the allocation of expenses between departments or cost centers to facilitate accurate tracking and budgeting.
  • Financial Projections : Develop detailed financial projections to estimate the total cost of the incentive plan and its potential impact on the organization's bottom line.
  • Cost Savings : Identify potential zones of cost savings, such as reduced turnover or increased productivity, to offset the expenses associated with the plan.

Case Studies and Success Stories

Real-world examples of successful incentive plans, such as those implemented by companies like IBM and Cisco Systems, demonstrate the tangible benefits of aligning employee interests with organizational objectives. These companies have seen significant improvements in employee engagement, productivity, and overall performance.

IBM25% increase in employee retention
Cisco Systems30% increase in sales revenue
Google20% increase in innovation and creativity
Microsoft15% increase in customer satisfaction

These companies have achieved success through effective storytelling techniques, cultural impact, and ROI analysis. By sharing real-life examples and success stories, companies can inspire and motivate their employees to aim for excellence. The ROI analysis demonstrates the financial benefits of implementing incentive plans, providing a clear justification for investment. By adopting a similar approach, organizations can replicate the success of these companies and reap the benefits of aligning employee interests with organizational objectives.

Overcoming Common Objections

Implementing incentive plans often encounters resistance due to concerns about cost, complexity, and perceived unfairness, which can be mitigated by understanding and addressing these common objections.

Fear factors and misconception myths surrounding incentive plans can be significant obstacles to implementation. However, by addressing these concerns, organizations can overcome these hurdles and reap the benefits of employee ownership.

Some common objections to examine are:

  • Cost concerns : Incentive plans can be expensive to implement and maintain, leading to concerns about return on investment.
  • Complexity and administrative burden : Incentive plans can be complex to design and administer, requiring significant resources and specialized knowledge.
  • Perceived unfairness : Incentive plans can be perceived as unfair or biased, leading to demotivation and dissatisfaction among employees.

Best Practices for Rollout

Effectively rolling out an incentive plan requires careful planning and execution, as a well-designed rollout strategy can substantially enhance plan adoption and employee engagement. A thorough Change Management approach is vital to facilitate a seamless shift and minimize disruptions to existing workflows. A clear Communication Strategy should be developed to articulate the plan's objectives, benefits, and expectations to all stakeholders. A detailed Rollout Timeline should be established to coordinate the various stages of the rollout process, including Training Sessions, to equip employees with the necessary knowledge and skills to successfully participate in the plan. Feedback Mechanisms should be integrated into the rollout process to gather insights from employees, address concerns, and identify opportunities for improvement. By adopting these effective practices, organizations can optimize the rollout of their incentive plan, foster a culture of ownership, and ultimately drive business success.

Frequently Asked Questions

Can we offer ownership stakes to only certain employees?.

'When selectively offering ownership stakes, consider Performance Benchmark achievements and Leadership Potential assessments to guarantee objective, merit-based criteria guide your decisions, rather than subjective preferences or biases.'

How Do We Value the Company for Ownership Stake Purposes?

To determine company value for ownership stake purposes, consider a Fair Market valuation, which involves an Asset Valuation method, ideally conducted by an Independent Appraisal professional to guarantee an unbiased and accurate assessment.

What if an Employee Leaves With Company Secrets?

To mitigate risks of departing employees misappropriating company secrets, implement Confidentiality Agreements and Non-Disclosure agreements. Conduct thorough Exit Interviews to protect Intellectual Property, and consider post-employment restrictions to safeguard sensitive information.

Can Ownership Stakes Be Used in Conjunction With Other Incentives?

When designing incentive plans, combining performance metrics with bonus structures can effectively motivate employees, and incorporating ownership stakes can further amplify outcomes, fostering a culture of accountability and driving business growth.

How Do We Handle Ownership Stakes in a Company Merger?

During a company merger, a thoughtful Merger Strategy is vital to guarantee a seamless Cultural Integration, considering the fair valuation and potential adjustments to ownership stakes, to maintain employee engagement and motivation.

In China's Industrial Heartland, Xi's Revamp Plan Comes at a Cost

Using state power to accelerate advanced manufacturing has left even cutting-edge sectors struggling with excess supply

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Article content

(Bloomberg) — The pen squeaks as Jeff Pan sketches a chart on a white-board. He draws a black line signifying consumption that shoots up, then a blue line that edges higher in fits and starts, before ultimately overtaking the first.

In China's Industrial Heartland, Xi's Revamp Plan Comes at a Cost Back to video

That, he explains, is supply.

Pan, who manages a mid-sized copper processing plant in China’s manufacturing heartland, is laying out a lesson he and others in the high-tech supply chains championed by President Xi Jinping have learnt to their cost — demand isn’t everything.

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“Competition has been too fierce these past two years,” Pan said at his plant near the factory hub of Yiwu, a few hours’ drive south of Shanghai. “A lot of companies will rush to a growing industry. At some point there is a big filter and only the strong can survive.”

Back in 2017, when he set up Zhejiang Huanergy Co., Pan aimed to seize on what he forecast would be a vast need for super-thin copper foil used in electric-vehicle batteries and electronic circuitry. He was right, and consumption ballooned. Huanergy, as the company is known, supplies Chinese powerhouses like BYD Co. and Contemporary Amperex Technology Co. Ltd. 

The trouble was that a lot of other firms had the same idea, a dynamic that has affected other sectors picked by the government to help remake the economy and dominate tomorrow’s industries.

The predicament is visible across green-energy manufacturing, one of the key sectors in Xi’s effort get ahead of geopolitical rivals. Solar panel producers have been engulfed by an oversupply crisis that’s pushing companies to hefty losses and forcing a brutal shakeout. In batteries, China’s capacity is already big enough to feed all of global demand and more.

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The excess has left companies like Huanergy battling to capitalize on Beijing’s attention — while seeking to avoid becoming a casualty of Xi’s “new productive forces” drive. A twist on an old Marxist concept of “productive forces,” the campaign in practice entails using state power to accelerate everything from nuclear technology to EV output, with the aim of helping fire up tech advances, productivity gains and ultimately economic growth. It’s likely to make a fresh appearance at next week’s policy gathering in Beijing.

Copper should, in theory, be a beneficiary. “Green” demand for the metal will grow at more than 10% this year and next in China, according to Goldman Sachs Group Inc — versus almost no expansion elsewhere. 

But Huanergy’s experience makes clear that the consequences of economic imbalances are far-reaching, even for those at or close to the cutting edge.

The copper foil rolled out at Pan’s plant is not unlike the familiar aluminum used in kitchens everywhere, only more fine and with higher-tech uses. In lithium-ion batteries, ultra-thin slices of copper, highly conductive and heat tolerant, are a vital part of the anode. The same sheets are ubiquitous in consumer electronics and computing — almost everywhere that requires super-smooth connectivity between components.

Annual demand for copper may grow more than 50% by 2040, according to estimates by BloombergNEF, a figure that mostly captures wires and cables in vastly expanded electricity networks. 

According to consultancy CRU Group, demand for flat-rolled copper demand, including plate, strip and foil, will rise by almost a fifth from 2023 levels by 2028, partly driven by demand growth from foil.

“It’s relatively small, but a very fast-growing market,” Pan said.

A former China Daily journalist married to the daughter of Shao Qinxiang, founder of parent Huayuan Group, Pan spotted an opportunity not long after his return to China from the US, where he studied for a masters in business administration. 

Huayuan, one of the world’s biggest suppliers of vitamin D as well as a textiles and building materials, also had an established copper fabrication plant. Pan made a pitch for the company to eschew traditional copper products in favor of manufacturing the foil that tech companies required.

“We had to believe that both electronics, which means all the devices and digital applications, and batteries were going to become very important,” he said. “Both of these came true, but at that time it was a leap of faith.”

Few will dispute that Pan won the tech portion of his bet. Massive computer power is needed to support artificial intelligence, and that in turn requires metal, even if China’s copper sector is today struggling with too much processing capacity and not enough raw material.

The outlook for copper’s traditional applications is more cloudy. Processing fees have been dropping a few hundred yuan every year due to “insufficient demand and rapid expansion in domestic capacity,” Hai Jianxun, a sales executive at Henan Yuxing Copper Co., a smaller firm in central China that makes copper pipes for use in items like air-conditioners, said by phone. That means “no meaningful profit” for the moment.

What Pan did not expect was a surge in other companies following the same path. 

Still, what has brought industry-wide overcapacity could also develop China’s technological edge.

The only way out, Pan reflects as the plant quietly hums in the background, is to move up the value chain, cutting costs and trying to make better products. For copper foil, that means sheets that are thinner, cleaner and smoother at the molecular level.

There has to be a way of separating the companies that will survive from the rest, he said. “I think that’s the natural way of capitalist system.”

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There is trouble brewing in RV country

Posthaste: canada's housing obsession feeding into productivity slump, report says, 'something's wrong with this market' — private firms look to leave province as 'auto insurance crisis' roils alberta, jack mintz: federal employment bloat costing taxpayers at least $10 billion annually, wave of hudson's bay temporary store closures hints at signs of stress: retail experts.

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How to develop a money management plan

PayPal Editorial Staff

July 9, 2024

A money management plan can help individuals stay on top of daily expenses and save for the future. Digital tools can help make the process easy, convenient, and personalized based on unique financial situations.

Why is a money management plan needed?

A money management plan can help individuals manage personal finances and work toward achieving long-term and short-term goals . These could include:

  • Savings. Allocate and save funds for specific savings goals, like an emergency fund  or a vacation.
  • Avoiding debt.  Monitor spending and increase financial awareness to avoid debt.
  • Making informed decisions.  Get a clear overview of income and expenses to manage bills  and other expenditures.
  • Reducing financial stress.  Make a plan to secure finances and know that financial goals are on track to reduce money-related stress and anxiety.

Step-by-step guide to building a money management plan

A comprehensive budget plan that tracks income and expenses helps to provide a clear path to financial stability.

Here's how to set financial goals and track expenses to create a budget plan effectively.

Step 1: Gather financial information

The first step is to collect all financial details, including:

  • Income sources, like a primary job, side hustles, investments, and any other income.
  • Recurring expenses, such as rent, utilities, and different types of household expenses .
  • Non-essential spending,  like entertainment and dining out.

Step 2: Choose a tracking method

The next step is to choose a method to track finances:

  • Budgeting apps can automatically track spending , offering convenience and accuracy. But they might have additional fees.
  • Spreadsheets,  like Microsoft Excel or Google Sheets, can be customized to individual needs. However, they require regular manual updates.
  • Pen and paper are good for beginners but are more error-prone than digital methods.

Step 3: Set SMART financial goals

Next, set financial goals that are:

  • Specific.  Define clearly what to achieve.
  • Measurable.  Set a specific amount to track progress.
  • Achievable.  Ensure the goal is realistic.
  • Relevant.  Make sure the goal fits overall financial plans.
  • Time-bound.  Set a deadline to reach the goal.

A SMART financial goal could be: "Save $5,000 for a vacation in the next six months by setting aside $833 each month." SMART goals provide clear targets that may help improve the chances of success.

Step 4: Analyze spending habits

To analyze spending, categorize expenses into essentials (like housing and food) and non-essentials (like entertainment and dining out).

For expensive essentials, explore cheaper alternatives or consider maximizing savings by using cash back apps . For non-essentials, consider which expenses to reduce or eliminate.

Step 5: Create a budget

To create a budget that addresses savings and expenses, consider the 50/30/20 rule. It allocates 50% of income to necessities, 30% to wants, and 20% to savings and paying off debt.

Choosing a specific budgeting strategy will depend on each individual’s needs, so evaluate all options to find the right fit for one’s situation.

Step 6: Consider automating finances

Automating personal finances can improve financial discipline. Automated savings apps , for example, automatically transfer funds into a savings account. PayPal Savings 1 allows users to setup automatic transfers into their account and allocate funds to specific goals.

Another example is scheduling automatic payments for recurring bills, which can help save time and avoid potential late fees.

Step 7: Regularly review and update budgets

Regularly review the budget to ensure it aligns with changing goals and life circumstances. If one’s income, expenses, or spending patterns change, the budget should be updated to reflect this.

Examples of money management strategies

There are different strategies to manage money. Some examples include:

  • Daily expense tracking to get a clear picture of where money is being spent.
  • Budgeting tools or budgeting templates to help visualize and stick to financial plans.
  • 52-week savings challenge to help save a little more each week throughout the year.
  • Rewards programs  to earn cash back or perks on everyday purchases.
  • Budgeting tips such  as planning meals, negotiating bills, and unsubscribing from unused services.

Start building a money management plan

Knowing how to build a money management plan and stick to it is crucial for gaining control over finances.

Start effective money management with the PayPal digital wallet . It helps in splitting bills, tracking spending, and monitoring savings all in one place.

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financial considerations in business plan

More From Forbes

13 financial factors business owners should consider when stepping down.

Forbes Finance Council

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Building a business from the ground up is no easy feat. And when an owner is ready to step aside and enjoy a well-earned retirement, there’s still some work to get through: thoroughly planning for the transition and succession. 

There are multiple financial factors to consider, ranging from ensuring you have sufficient savings and income for your personal needs to verifying the management team has the resources and plan for continued business success—and more. Below, 13 members of Forbes Finance Council share their expert advice on the financial factors a business owner must take into account when planning for business succession. 

Members of Forbes Finance Council share important things for business owners to think about when it's time to hand over the reins.

1. The Time Needed To Plan

Aside from the usual suspects of tax factors, consultations with experts, legal questions and so on, one financial factor an owner should take into account is the costly time needed to step away during the planning process. When you are in the weeds for too long, decisions become more taxing. You’ve built the business from the ground up. Honor the work you’ve put in by giving space to break as you poise to pass the baton. - Faith Teope , Leverage Retirement

2. Long-Term Management Incentives

The key factor in planning business succession should be the new management’s incentive scheme. The owner needs to make sure that incentives are exactly aligned with their long-term hopes and desires for the business. This will increase the chances that new management will make more desirable decisions and likely avoid short-term fixes. - Boris Vilidnitsky , Ubiquitous Energy, Inc.

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3. The Value Of The Relationships You’ve Built

Evaluate your relationships! Is your business based solely on relationships that you built? What would the value of your business be if you stepped away? Manage your expectations, knowing that the value you’ve placed on the business could change when someone new takes the reins. - Kelly Shores , GCubed, Inc.

4. Existing Legal Agreements

Legal operating agreements must be updated to reflect the current valuation and the buyouts that will potentially follow. The business may not have the liquidity to buy out a partner’s spouse in case of that partner’s death. Relying on future cash flows and the potential creditworthiness of the remaining partner is not a good solution, as it may put a damper on the profitability and growth of the company moving forward. - Meredith Moore , Artisan Financial Strategies LLC

5. Your Current Income

Being on the receiving side of this, I can tell you that the person retiring should have attained an income level that’s higher than they’ll need before retiring so that they can take a cut as they pass on the reins. I have been the recipient of a deal where the owner wanted to pass on the reins and take the highest level of income they’d ever had, plus a 10% increase annually. - Justin Brock , Medicare Gurus

6. Tax Structures

With the likelihood of an increase in the capital gains tax and the fact that selling a company may cost you roughly 40%, you need to create a structure and mechanism to keep that number as low as possible. Selling in the near future will likely cost a fortune, so that’s something to keep in mind. Optimizing your tax structures through specialty tax credits, leveraging opportunity zones and other strategies may be wise. - Julio Gonzalez , Engineered Tax Services Inc.

7. Your Spending Habits

Letting go of anything you love is difficult, especially if it includes something that provides you with recurring revenue. The loss of recurring revenue can be difficult, especially if you have relied on it more than you originally thought. Changing your spending habits prior to selling your company is critical—you don’t want to try and figure this out during the sales process. - Joseph Orseno , Tiltify

8. Life Insurance

Life insurance must be accounted for. In the event of a succeeding partner’s passing, will the death benefit be enough to buy out the deceased partner’s stake in the company and distribute it to the other partners? I highly recommend making sure comprehensive life insurance is attained for all parties before executing a succession contract. - Tyler Gallagher , Regal Assets

9. Expenses You’re Charging To the Business

Because there is a tendency to run certain expenses through the company, business owners in this position must normalize their personal finances. For instance, cellphones are often considered a business expense. Once the business is gone, it becomes a personal expense. Therefore, finding out your true cost of living outside of the business is crucial to a successful succession plan. - Justin Goodbread , Heritage Investors

10. A Payment Schedule

Unless you’re getting all of your money out when you leave, you need to ensure that the company can pay you as scheduled. In addition, what control do you have if they start missing payments? Maybe you can secure your payment stream in some way. Just hoping that they will pay you fully over time is not a strategy. - Chris Tierney , Moore Colson CPAs and Advisors

11. Closing Costs

Invest time, energy and money in certified audits performed by a reputable accountant or firm. You may also need to cover the cost of a Quality of Earnings report on top of a certified audit. Most buyers will also require the seller to cover 30 to 90 days’ worth of operating funds at the time of closing. If you are not prepared with the above items, it could end up being costly. - Anthony Holder , C&H Financial Services, Inc.

12. Contingencies In The Sales Contract

If you are selling to a private equity company, be aware that many transactions place undue risks on the seller, with future payouts tied to contingent growth that the purchaser is not valuing but requiring to be met for the seller to receive back-end payments. If you are selling internally, make sure there is a cultural fit with the new management team so that customers and employees don’t flee from new rules that may be established. - Gil Baumgarten , Segment Wealth Management

13. Ways To Contribute In Future

A case we see often is an entrepreneur exiting a long-built company and facing the transition from running a business—with the accompanying strong sense of purpose—to managing cash. This requires a new, often challenging mindset. We recommend allocating a small portion of earnings to purchasing equity and a board seat so that the retiring entrepreneur can still contribute without carrying too heavy a workload. - Lucia Waldner , CC Trust Group AG

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