How to write a financial plan for your business 2022
The most difficult aspect of writing a business plan is putting together a financial plan. It is, however, one of the most important. Businesses with a comprehensive financial plan are better positioned to pitch investors, secure funding, and achieve long-term success.
Putting together a financial plan does not have to be difficult. It should be based on your business plan and kept simple. Keep in mind that your business plan should include market research and a solid marketing strategy. These will assist you in establishing a solid foundation for your numbers.
What is a financial plan?
According to Chron, a financial plan is a forecast of future performance for a business, usually prepared using spreadsheet software. Taking the time to create a financial plan at least once a year can be extremely beneficial to any business. The plan aids a business owner in better managing cash flow by anticipating situations that may cause cash shortages, such as seasonal revenue fluctuations. The financial plan is typically created as part of a larger business planning process that includes setting goals and selecting strategies to help the company grow in the coming year.
What should be included in a financial plan?
A financial plan is made up of five budgets that outline the minimum requirements for starting a business, as well as the investments you'll need to make and how you'll fund them. This will enable you to assess whether your business concept is viable.
What kind of revenue do you expect to bring in?
Is your business going to be profitable or not?
It also makes you think about your cash flow and whether you'll be able to pay your bills on time each month. The key to your success is to answer all of these questions in your business plan.
Your financial plan should include information on how you plan to fund your investment plan. Personal capital (equity capital) or loans (borrowed capital), such as from a bank, are two options, or a combination of both.
A list of the investments you'll need to start your business and those that can wait until later should be included in your investment budget. This is a rough estimate of how much money you'll need to get started.
Budget for general and administrative costs. Estimate the costs of your facilities, such as rent, utilities, insurance, and recurring legal fees. Use previous year's figures as a guide, if available, but make sure to account for typical increases. Your profit and loss statement should demonstrate that your company is profitable. You'll be able to forecast your turnover this way. The costs of running your business can then be examined. You can calculate whether you will make a profit or a loss by combining these factors.
What should your profit and loss statement contain?
• Your earnings (also called sales)
• Your "cost of sale" or "cost of goods sold" (COGS)—be aware that some businesses, such as service businesses, may not have COGS.
• Your gross margin is the difference between your revenue and your cost of goods sold.
Cash flow forecast
Over the course of a year, income and expenditures can vary dramatically. Your cash flow forecast should include all revenue and expenses for a specific time period, such as a month or quarter. This will show you when you'll have extra cash and when you'll need it.
You'll have a difficult time running a healthy business unless you have a thorough understanding of how much cash you have, where it comes from, where it's going, and on what schedule. You won't be able to raise funds if you don't have a cash flow statement, which neatly organizes that information for lenders and investors.
Personal expense plan
Prepare a forecast of personal costs. Include personal additions that will be required to implement the strategies you devised for the coming year. Increasing the amount forecasted as part of a strategy to improve response time to customer inquiries could necessitate adding customer service personnel.
One option is to figure out how much personal capital you have and then tailor your financial strategy to your unique circumstances. This entails figuring out how much money you'll need for yourself and your family, as well as how much tax you'll have to pay and what your operational costs will be. This allows you to figure out how much money you need to make ends meet.
Your sales forecast is a critical component of your business plan, particularly when lenders or investors are involved, and it should be updated on a regular basis.
There is no such thing as a one-size-fits-all sales forecast because each company's needs are unique. What kind of business you have and how meticulously you want to track your sales determine how you segment and organize your forecast.
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