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Financial Management
4 Steps to Creating a Financial Plan for Your Small Business
When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan. It helps you pitch investors, anticipate growth and weather cash flow shortages. To get started, you need to learn some of the key elements to financial planning.
What is a Financial Plan?
A financial plan helps determine if an idea is sustainable, and then keeps you on track to financial health as your business matures. It’s an integral part to an overall business plan and is made up of three financial statements—cash flow statement, income statement and balance sheet. In your plan, each of these will include a brief explanation or analysis.
Key Takeaways
- A financial plan helps you know where your business stands and lets you make better informed decisions about resource allocation.
- A financial plan has three major components: a cash flow projection , income statement and balance sheet.
- Your financial plan answers essential questions to set and track progress toward goals.
- Using financial management software gives you the tools to make strategic decisions efficiently.
Why is a Financial Plan Important to Your Small Business?
A well-put-together financial plan can help you achieve greater confidence in your business while generating a better understanding of how to allocate resources. It shows your business is committed to spending wisely and its ability to meet financial obligations. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.
It’s also an important tool when asking investors to consider your business. Your financial plan shows how your organization manages expenses and generates revenue. It shows where your business stands and how much it needs from sales and investors to meet important financial benchmarks.
Components of a Small Business Financial Plan
Whether you’re modifying your plan or starting from scratch, a financial plan should include:
Income statement: This shows how your business experienced profit or loss over a specific period—usually over three months. Also known as a profit-and-loss statement (P&L) or pro forma income statement, it lists the following:
- Cost of sale or cost of goods (how much does it costs to produce your goods or services?)
- Operating expenses like rent and utilities
- Revenue streams, usually in the form of sales
- Amount of total net profit or loss, also known as a gross margin
Balance sheet: Rather than looking backward or peering into the future, the balance sheet helps you see where you stand right now. What do you own and what do you owe? To figure it out, you’ll need to consider the following:
- Assets: How much cash, goods and resources do you have available?
- Liabilities: What do you owe to suppliers, personnel, landlords, creditors, etc.?
Shareholder equity (the amount of money generated by your business): Use this formula to calculate it:
Shareholder Equity = Assets – Liability
Now that you have these three items, you’re ready to create your balance sheet. And just as the name implies, when complete, you’ll want this to balance out to zero. On one side, list your assets, such as cash on hand. And on the other side list your liabilities and equity (or how much money is generated by the business). The balance sheet is used along the other financial statements in order to calculate business financial ratios, discussed further below.
Balance Sheet
Why have a balance sheet? It can provide insight into your business and show important measures like how much cash you have, what your obligations are and what kind of profit you’re making all at a glance.
Personnel plan: You need the right people to meet goals and retain a healthy cash flow. A personnel plan looks at existing positions and helps you see when it’s time to bring on more team members, and whether they should be full-time, part-time, or work on a contractual basis. It looks at compensations levels, including benefits, and forecasts those costs. By looking at growth and costs you can see if the potential benefits that come with a new employee justify the expense.
Business ratios: Sometimes you need to look at more than just the big picture. You need to drill down to specific aspects of your business and keep an eye on how individual areas are doing. Business ratios are a way to see things like your net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets. Numbers used to calculate these ratios come from your P&L statement, balance sheet and cash flow statement and are often used to help request funding from a bank or investors.
Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.
Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.
Income projections: How much money will your company make in a given period, usually a year. Take that and then subtract the anticipated expenses and you’ll have the income projections . In some cases, these are rolled into profit and loss statements.
Assets and liabilities: Both of these elements are part of your balance sheet. Assets are what your company owns, including current and long-term assets. Current assets can be converted into cash within a year. Think of things such as stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use like furniture, fixtures, buildings, machinery and vehicles.
Liabilities are business obligations that are divided into current and long-term categories. Examples of current liabilities in a financial plan are accrued payroll, taxes payable, short-term loans and other obligations due within a year. Long-term liabilities include shareholder loans or bank debt that matures more than a year later.
Break-even analysis: Your break-even point—how much you need to sell to cover all your expenses—will guide your sales revenue and volume goals. Start by calculating your contribution margin by subtracting the costs of a good or service from the amount you pay. In the case of a bicycle store, the sale price of a new bike minus what you paid for it and the salary of your bike salesperson, your rent, etc. By understanding your fixed costs, you can then begin to understand how much you’ll need to markup goods and services and what sales and revenue goals to set in order to stay afloat or turn a profit.
Create a strategic plan: Starting with a strategic plan helps you think about what you want your company to accomplish. Before looking at the numbers, think about what you’ll need to achieve these goals. Will you need to buy more equipment or hire more staff? Is there a chance of new goals affecting your cash flow? What other resources will you need?
Determine the impact on your company’s finances and create a list of existing expenses and assets to help with your next steps.
Create financial projections: This should be based on anticipated expenses and sales forecasts . Look at your goals and plug in the costs needed to achieve them. Include different scenarios. Create a range that is optimistic, pessimistic and most likely to happen, so you can anticipate the impact each one will have. If you’re working with an accountant, go over the plan together to understand how to explain it when seeking funding from investors and lenders.
Plan for contingencies: Look at your cash flow statement and assets, and create a plan for when there’s no money coming in or your business has taken an unexpected turn. Consider having cash reserves or a substantial line of credit if you need cash fast. You may also need to plot ways to sell off assets to help break even.
Monitor and compare goals: Look at the actual results in your cash flow statement, income projections and even business ratios as necessary throughout the year to see if you need to modify your plan or if you’re right on target. Regularly checking in helps you spot potential problems before they get worse.
Three Questions Your Financial Plan Should Answer
Once you’ve created your plan, you should have answers to the following questions:
- How will your business make money?
- What does your business need to get off of the ground?
- What is the operating budget ?
Financial plans that can’t answer these questions need more tweaking. Otherwise, you risk starting a new venture without a clear path and leave behind valuable insight.
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Using spreadsheets can get the job done when you’re just getting started. However, it’s easy to get overwhelmed, especially if you’re collaborating with others in your organization.
Financial management software is worth the expense because it offers automated capabilities such as analysis, reporting and forecasting. Plus, using cloud-based financial planning tools like NetSuite can help you automatically consolidate data and improve efficiency. Everyone across your organization can access and analyze up-to-date information, which leads to better informed decisions.
Whether you’re looking to secure outside funding or just monitor your business growth, understanding and creating a financial plan is crucial. Once you have an overview of your business’ finances, you can make strategic decisions to ensure its longevity.
Small Business Financial Management: Tips, Importance and Challenges
It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.
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Financial planning & cash flow projection for your company
"Businesses that don’t plan thoroughly are more likely to struggle."
This axiom is particularly true when it comes to financial planning. Financial planning analyzes current and future costs and income to help determine the best plan of action. It touches every aspect of an organization, including payroll, workforce training, marketing, inventory and research and development.
Business financial planning allows companies to determine how to allocate their resources with greater confidence. Does the company have the capital to invest in a new technology platform or new office space? Is it a good time to dip into reserve funds? How will signing a new client impact revenue?
Comprehensive financial planning demonstrates a company's commitment to sound business practices - an ongoing ability to meet financial obligations and spend wisely . That can encourage outside investors and increase the likelihood of long-term success.
Yet, many companies bypass planning or don't pay enough attention to it. In some cases, they may find the thought of creating a financial plan intimidating.
Below you’ll find guidelines to help you focus your financial planning efforts, which will make the process less daunting.
Crafting a solid financial plan
To create a solid financial plan, you'll need to analyze the main components of your business. Make assumptions about cash flow – how much money you're taking in and paying out. What are your biggest costs, and where are they likely to increase spending the most in the near future? Where will you be able to cut costs? How is competition likely to affect your business?
You'll also be looking at potential changes to your workforce and at external circumstances, such as fluctuations in the economy - a recession or growth cycle - and inflation. These can have dramatic effects on business growth. You may also consider how your business compares to similar companies in your industry. Their stories, particularly if they're a little further down the road in terms of experience and success, can inform your decisions. How have they tended to invest their earnings? What are their priorities?
Remember, too, that a financial plan isn't a one-time event. Conditions change. You’ll likely repeat the process at different stages of your business and see different results.
All these variables will help steer your company's actions. Some of the important elements to include in your plan should be:
- Amount of capital required for operations
- Planned use of this revenue
- Future earnings
- Balance sheet: a line-by-line account breakdown of your debts and income
Revenue projections should be detailed and broken down quarterly for the first two years, and then the plan should offer annual projections for years three through five. Among other things, a financial plan should explain how you'll finance your venture.
Mastering cash flow projection
Cash flow projections ensure that you handle income and expenditures properly. They let you know how much money you have and how long it's likely to last.
Because income can rise and fall unexpectedly , projections can miss the mark. The point is to be as accurate as possible with them so you can create a reasonable budget.
You want to be able to plan several months in advance - or more. For example, you might know there's going to be a short-term dry spell or that you're about to see an infusion of cash based on renewal fees for a service-oriented business. You also might anticipate the start date for a large, new client. In these cases, you can plan accordingly. You'll know when you’ll have funds to pay back a loan or if it's better to hold off on borrowing 2 . Banks and other lenders weigh this type of information heavily in their lending decisions.
A sound business practice
The more detailed you are in your planning and cash flow forecast, the better it'll be for your business. You’ll have a solid framework for making major business decisions and smaller ones in every area of your organization, and you'll be better equipped to set achievable milestones and goals. As you proceed, you'll also more readily see where your missing projections alter courses quickly. In today’s rapidly changing economy, the ability to adjust is increasingly important.
Like most entrepreneurs, you have a personal interest in seeing your venture succeed. Taking the time to project cash flow and develop a solid financial plan can ensure that your business thrives. Nationwide can provide your business with coverage and other resources to help you achieve this goal.
[2] "Projecting Your Business Cash Flow, Made Simple," https://www.sba.gov/blogs/projecting-your-business-cash-flow-made-simple
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6 steps to create your company’s financial plan
2-minute read
A financial plan is different from your financial statements.
Instead of looking at what’s already happened, you make projections for the coming months, forecasting income and outlays. Your projections will act as an early warning system, helping you to plan for cash flow dips, identify financing needs and pinpoint the best timing for projects.
It also gives you a tool for monitoring your finances, allowing you to gauge your progress and quickly head off trouble. Here are six steps to create your financial plan.
1. Review your strategic plan
Financial planning should start with your company’s strategic plan . You should think about what you want to accomplish at the start of a new year and ask yourself a series of questions:
- Do I need to expand?
- Do I need more equipment?
- Do I need to hire more staff?
- Do I need other new resources?
- How will my plan affect my cash flow?
- Will I need financing? If yes, how much?
Then, determine the financial impact in the next 12 months, including spending on major projects.
2. Develop financial projections
Create monthly financial projections by recording your anticipated income based on sales forecasts and anticipated expenses for labour, supplies , overhead, etc.. (Businesses with very tight cash flow may want to make weekly projections.) Now, plug in the costs for the projects you identified in the previous step.
For this job, you can use simple spreadsheet software or tools available in your accounting software . Don’t assume sales will convert to cash right away. Enter them as cash only when you expect to get paid based on prior experience.
Also prepare a projected income (profit and loss) statement and a balance sheet projection. It can be useful to include various scenarios—most likely, optimistic and pessimistic—for your projections to help you to anticipate the impacts of each one.
It may be a good idea to seek advice from your accountant when developing your financial projections. Be sure to go over the plan together, as it is you, and not your accountant, who will be seeking financing and who will be explaining the plan to your banker and investor.
3. Arrange financing
Use your financial projections to determine your financing needs. Approach your financial partners ahead of time to discuss your options. Well-prepared projections will help reassure bankers that your financial management is solid.
4. Plan for contingencies
What would you do if your finances suddenly deteriorated? It’s a good idea to have emergency sources of money before you need them. Possibilities include maintaining a cash reserve or keeping lots of room on your line of credit.
Through the year, compare actual results with your projections to see if you’re on target or need to adjust. Monitoring helps you spot financial problems before they get out of hand.
6. Get help
If you lack expertise, consider hiring an expert to help you put together your financial plan.
Download our free financial plan template to start building your financial plan now.
- What is strategic planning?
- Strategic planning: Realize your company's potential
- 2 valuable business planning tools: Management dashboard and benchmarking
- Taking Control of Your Cash Flow
- Business plan template
- Apply online for a flexible small business loan up to $100k
- Protect your cash flow with a working capital loan
- Improve your financial management to stay profitable
- Develop a strategic plan to guide your company's success
How to Write a Financial Plan for Your Small Business — 2022 Guide
Building a financial plan can be the most intimidating part of writing your business plan . It’s also one of the most vital. Businesses that have a full financial plan in place more prepared to pitch to investors, receive funding, and achieve long-term success.
Thankfully, you don’t need an accounting degree to successfully put one together. All you need to know is the key elements and what goes into them. Read on for the six components that need to go into your financial plan and successfully launch your business.
What is a financial plan?
A financial plan is simply an overview of your current business financials and projections for growth. Think of any documents that represent your current monetary situation as a snapshot of the health of your business and the projections being your future expectations.
Why is a financial plan important for your business?
As said before, the financial plan is a snapshot of the current state of your business. The projections, inform your short and long-term financial goals and gives you a starting point for developing a strategy.
It helps you, as a business owner, set realistic expectations regarding the success of your business. You’re less likely to be surprised by your current financial state and more prepared to manage a crisis or incredible growth, simply because you know your financials inside and out.
And aside from helping you better manage your business, a thorough financial plan also makes you more attractive to investors. It makes you less of a risk and shows that you have a firm plan and track record in place to grow your business.
Components of a successful financial plan
All business plans, whether you’re just starting a business or building an expansion plan for an existing business, should include the following:
- Profit and loss statement
- Cash flow statement
- Balance sheet
- Sales forecast
- Personnel plan
- Business ratios and break-even analysis
Even if you’re in the very beginning stages, these financial statements can still work for you.
How to write a financial plan for your small business
The good news is that they don’t have to be difficult to create or hard to understand. With just a few educated guesses about how much you might sell and what your expenses will be, you’ll be well on your way to creating a complete financial plan.
1. Profit and loss statement
This is a financial statement that goes by a few different names—profit and loss statement, income statement, pro forma income statement, P&L (short for “profit and loss”)— and is essentially an explanation of how your business made a profit (or incur a loss) over a certain period of time.
It’s a table that lists all of your revenue streams and all of your expenses—typically over a three-month period—and lists at the very bottom the total amount of net profit or loss.
There are different formats for profit and loss statements, depending on the type of business you’re in and the structure of your business (nonprofit, LLC, C-Corp, etc.).
What to include in your profit and loss statement
- Your revenue (also called sales)
- Your “cost of sale” or “cost of goods sold” (COGS)—keep in mind, some types of companies, such as a services firm, may not have COGS
- Your gross margin, which is your revenue less your COGS
These three components (revenue, COGS, and gross margin) are the backbone of your business model — i.e., how you make money.
You’ll also list your operating expenses, which are the expenses associated with running your business that isn’t directly associated with making a sale. They’re the fixed expenses that don’t fluctuate depending on the strength or weakness of your revenue in a given month—think rent, utilities, and insurance.
How to find operating income
To find your operating income with the P&L statement you’ll take the gross margin less your operating expenses:
Gross Margin – Operating Expenses = Operating Income
Depending on how you classify some of your expenses, your operating income will typically be equivalent to your “earnings before interest, taxes, depreciation, and amortization” (EBITDA). This is basically, how much money you made in profit before you take your accounting and tax obligations into consideration. It may also be called your “profit before interest and taxes,” gross profit, and “contribution to overhead”—many names, but they all refer to the same number.
How to find net income
Your so-called “bottom line”—officially, your net income, which is found at the very end (or, bottom line) of your profit and loss statement—is your EBITDA less the “ITDA.” Just subtract your expenses for interest, taxes, depreciation, and amortization from your EBITDA, and you have your net income:
Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income
For further reading on profit and loss statements (a.k.a., income statements), including an example of what a profit and loss statement actually looks like, check out “ How to Read and Analyze an Income Statement.” And if you want to start building your own, download our free Profit and Loss Statement Template .
2. Cash flow statement
Your cash flow statement is just as important as your profit and loss statement. Businesses run on cash —there are no two ways around it. A cash flow statement is an explanation of how much cash your business brought in, how much cash it paid out, and what its ending cash balance was, typically per-month.
Without a thorough understanding of how much cash you have, where your cash is coming from, where it’s going, and on what schedule, you’re going to have a hard time running a healthy business . And without the cash flow statement, which lays that information out neatly for lenders and investors, you’re not going to be able to raise funds.
The cash flow statement helps you understand the difference between what your profit and loss statement reports as income—your profit—and what your actual cash position is.
It is possible to be extremely profitable and still not have enough cash to pay your expenses and keep your business afloat. It is also possible to be unprofitable but still have enough cash on hand to keep the doors open for several months and buy yourself time to turn things around —that’s why this financial statement is so important to understand.
Cash versus accrual accounting
There are two methods of accounting—the cash method and the accrual method.
The accrual method means that you account for your sales and expenses at the same time—if you got a big preorder for a new product, for example, you’d wait to account for all of your preorder sales revenue until you’d actually started manufacturing and delivering the product. Matching revenue with the related expenses is what’s referred to as “the matching principle,” and is the basis of accrual accounting.
The cash method means that you just account for your sales and expenses as they happen, without worrying about matching up the expenses that are related to a particular sale or vice versa.
If you use the cash method, your cash flow statement isn’t going to be very different from what you see in your profit and loss statement. That might seem like it makes things simpler, but I actually advise against it.
I think that the accrual method of accounting gives you the best sense of how your business operates and that you should consider switching to it if you aren’t using it already.
Why you should use accrual accounting for cash flow
For the best sense of how your business operates, you should consider switching to accrual accounting if you aren’t using it already.
Here’s why: Let’s say you operate a summer camp business. You might receive payment from a camper in March, several months before camp actually starts in July—using the accrual method, you wouldn’t recognize the revenue until you’ve performed the service, so both the revenue and the expenses for the camp would be accounted for in the month of July.
With the cash method, you would have recognized the revenue back in March, but all of the expenses in July, which would have made it look like you were profitable in all of the months leading up to the camp, but unprofitable during the month that camp actually took place.
Cash accounting can get a little unwieldy when it comes time to evaluate how profitable an event or product was, and can make it harder to really understand the ins and outs of your business operations. For the best look at how your business works, accrual accounting is the way to go.
3. Balance sheet
Your balance sheet is a snapshot of your business’s financial position—at a particular moment in time, how are you doing? How much cash do you have in the bank, how much do your customers owe you, and how much do you owe your vendors?
What to include in your balance sheet
- Assets: Your accounts receivable, money in the bank, inventory, etc.
- Liabilities: Your accounts payable, credit card balances, loan repayments, etc.
- Equity: For most small businesses, this is just the owner’s equity, but it could include investors’ shares, retained earnings, stock proceeds, etc.
It’s called a balance sheet because it’s an equation that needs to balance out:
Assets = Liabilities + Equity
The total of your liabilities plus your total equity always equals the total of your assets.
At the end of the accounting year, your total profit or loss adds to or subtracts from your retained earnings (a component of your equity). That makes your retained earnings your business’s cumulative profit and loss since the business’s inception.
However, if you are a sole proprietor or other pass-through tax entity, “retained earnings” doesn’t really apply to you—your retained earnings will always equal zero, as all profits and losses are passed through to the owners and not rolled over or retained like they are in a corporation.
If you’d like more help creating your balance sheet, check out our free downloadable Balance Sheet Template .
4. Sales forecast
The sales forecast is exactly what it sounds like: your projections, or forecast, of what you think you will sell in a given period. Your sales forecast is an incredibly important part of your business plan, especially when lenders or investors are involved, and should be an ongoing part of your business planning process.
Your sales forecast should be an ongoing part of your business planning process.
You should create a forecast that is consistent with the sales number you use in your profit and loss statement. In fact, in our business planning software, LivePlan , the sales forecast auto-fills the profit and loss statement.
There isn’t a one-size-fits-all kind of sales forecast—every business will have different needs. How you segment and organize your forecast depends on what kind of business you have and how thoroughly you want to track your sales.
Generally, you’ll want to break down your sales forecast into segments that are helpful to you for planning and marketing purposes.
If you own a restaurant, for example, you’ll want to separate your forecasts for dinner and lunch sales. But a gym owner may find it helpful to differentiate between the membership types. If you want to get really specific, you might even break your forecast down by product, with a separate line for every product you sell.
Along with each segment of forecasted sales, you’ll want to include that segment’s “cost of goods sold” (COGS). The difference between your forecasted revenue and your forecasted COGS is your forecasted gross margin.
5. Personnel plan
Think of the personnel plan as a justification of each team member’s necessity to the business.
The overall importance of the personnel plan depends largely on the type of business you have. If you are a sole proprietor with no employees, this might not be that important and could be summarized in a sentence of two. But if you are a larger business with high labor costs, you should spend the time necessary to figure out how your personnel affects your business.
If you opt to create a full personnel plan, it should include a description of each member of your management team, and what they bring to the table in terms of training, expertise, and product or market knowledge. Think of this as a justification of each team member’s necessity to the business, and a justification of their salary (and/or equity share, if applicable). This would fall in the company overview section of your business plan.
You can also choose to use this section to list entire departments if that is a better fit for your business and the intentions you have for your business plan . There’s no rule that says you have to list only individual members of the management team.
This is also where you would list team members or departments that you’ve budgeted for but haven’t hired yet. Describe who your ideal candidate(s) is/re, and justify your budgeted salary range(s).
6. Business ratios and break-even analysis
Business ratios explained.
If you have your profit and loss statement, your cash flow statement, and your balance sheet, you have all the numbers you need to calculate the standard business ratios . These ratios aren’t necessary to include in a business plan—especially for an internal plan—but knowing some key ratios is always a good idea.
Common profitability ratios include:
- Gross margin
- Return on sales
- Return on assets
- Return on investment
Common liquidity ratios include:
- Debt-to-equity
- Current ratio
- Working capital
Of these, the most common ratios used by business owners and requested by bankers are probably gross margin, return on investment (ROI), and debt-to-equity.
Break-even analysis explained
Your break-even analysis is a calculation of how much you will need to sell in order to “break-even” i.e. cover all of your expenses.
In determining your break-even point, you’ll need to figure out the contribution margin of what you’re selling. In the case of a restaurant, the contribution margin will be the price of the meal less any associated costs. For example, the customer pays $50 for the meal. The food costs are $10 and the wages paid to prepare and serve the meal are $15. Your contribution margin is $25 ($50 – $10 – $15 = $25).
Using this model you can determine how high your sales revenue needs to be in order for you to break even. If your monthly fixed costs are $5,000 and you average a 50 percent contribution margin (like in our example with the restaurant), you’ll need to have sales of $10,000 in order to break even.
Make financial planning a recurring part of your business
Your financial plan might feel overwhelming when you get started, but the truth is that this section of your business plan is absolutely essential to understand.
Even if you end up outsourcing your bookkeeping and regular financial analysis to an accounting firm, you—the business owner—should be able to read and understand these documents and make decisions based on what you learn from them. Using a business dashboard tool like LivePlan can help simplify this process, so you’re not wading through spreadsheets to input and alter every single detail.
If you create and present financial statements that all work together to tell the story of your business, and if you can answer questions about where your numbers are coming from, your chances of securing funding from investors or lenders are much higher.
Additional small business financial resources
Ready to develop your own financial plan? Check out the following resources for more insights into creating an effective financial plan for your small business.
- Balance Sheet Template [Free Download]
- Profit and Loss Template [Free Download]
- How to Do a Sales Forecast
- How to Build a Profit and Loss Statement (Income Statement)
- How to Forecast Cash Flow
- Building Your Balance Sheet
- The Difference Between Cash and Profits
Trevor Betenson
Trevor is the CFO of Palo Alto Software, where he is responsible for leading the company’s accounting and finance efforts.
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9 key benefits of business financial planning
Published on February 3, 2023
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Building a business financial plan is never easy. It requires effort, good data, and a fair amount of imagination. And if you’ve never done this before, you’ll likely hit a few roadblocks along the way.
But this post will show you why it’s so valuable, nonetheless.
A good financial plan keeps you focused and on track as the company grows , when new challenges arise, and when unexpected crises hit. It helps you communicate clearly with staff and investors, and build a modern, transparent business.
And there are plenty of other advantages .
We’ll explore nine of our favorites shortly. But first, let’s define exactly what we’re talking about.
What is business financial planning?
Your company’s financial plan is essentially just the financial section of your overall business plan . It applies real financial data and projections to put the rest of your business plan in context.
And crucially, it is forward-looking. While you use existing accounting figures (if you have them already) and experience to create your plan, it’s not simply a copy/paste of your accounting data. Instead, you look at your business goals and define the level of investment you’re willing to make to achieve each of these.
But this doesn’t mean that financial plans are just “made up.” If anything, this section of your business plan is the most grounded in reality.
As Elizabeth Wasserman writes for Inc :
“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.
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.”
The importance of financial planning in business
This probably won’t come as a surprise to most readers, but financial planning is essential to building a successful business. Your business plan dictates how you plan to do business over the next month, quarter, year, or longer - depending on how far out you plan.
It includes an assessment of the business environment, your goals, resources needed to reach these goals, team and resource budgets, and highlights any risks you might face. While you can’t guarantee that everything will play out exactly as planned, this exercise prepares you for what’s to come.
We’ll look at the precise individual benefits next, but suffice it to say that, without a clear financial plan, you’re basically just hoping for the best .
9 benefits of financial planning for business
So what exactly can you hope to gain from business financial planning? The benefits of business planning are probably endless, but here are nine clear advantages.
1. Clear company goals
This is really the starting point for your whole financial plan. What is the company supposed to achieve in the next quarter, year, three years, and so on?
Early on, you’ll want to establish that there is a real need for your business , and that your business fills this need. This is also known as “product/market fit.” For many startups, the first several years may be devoted to building a product and establishing that product/market fit. So this would be your chief one-to-two year goal, with smaller checkpoints along the way.
Crucially, if this is your key goal, you won’t set lofty sales targets or huge marketing KPIs. What’s the point of investing in sales and marketing for new customers, if the product isn’t ready to sell?
We’ll refer back to your company goals throughout this post, so it’s worth getting a handle on them from the start.
2. Sensible cash flow management
Your financial plan should also set clear expectations for cash flow - the amount coming in and out of the company. In the beginning, you’ll of course spend more than you make. But what is an acceptable level of expense, and how will you stay on track?
As part of this plan, you also need to figure out how you’ll measure cash flow easily. You may not have seasoned finance experts in the team, so can you accurately and efficiently keep track of where your money’s going?
By making your plan now, you can anticipate challenges both in receiving money and spending it , and identify ways to do both more effectively.
3. Smart budget allocation
This is obviously closely related to cash flow management (above) and cost reductions (below). Once you have a clear understanding of the amount of funding you have to spend - whether through sales income or investments - you need to figure out how you’ll actually spend it.
The company has its overall budget - essentially its “burn rate” for each quarter or year. Break this down into specific team budgets (product development, marketing, customer support, etc), and ensure that the amounts dedicated to each reflect their importance.
Budgets give each team their own constraints from within which to build . They know what resources are available to them, and can plan out campaigns and personal or product development accordingly.
At the company level, tracking project or team budgets is always going to be easier than monitoring spending as a whole . Once you break each budget down, it’s relatively straightforward to keep an eye on who’s spending what.
Get our free marketing budget template to help.
4. Necessary cost reductions
Aside from setting out how much you can afford to spend (and on what), a financial plan also lets you spot savings ahead of time. If you’ve already been in business for some time, building your financial plan involves first looking back at what you’ve already spent and how fast you’re currently growing.
As you set out your budget(s) for next year, you’ll refer back to past spending and identify unnecessary or over-inflated costs along the way. And then for next year’s budget, you simply adjust accordingly.
This conscious effort is all part of spend control , the practice of keeping company spending in line with your expectations. Even better, a quarterly or annual review almost always unearths areas where you can save money and put your resources to better use.
Learn more about effective spend control .
5. Risk mitigation
A crucial aspect of the finance team’s role is to help companies avoid and navigate risk - from financial fraud to economic crisis . And while plenty of risks are hard to predict or even avoid, there are plenty that you can see coming.
Your financial plan should make room for certain business insurance expenses, losses through risky inefficiencies, and perhaps set aside resources for unexpected expenses . Particularly during turbulent times, you may in fact create several financial forecasts which show different outcomes for the business: one where revenue is easy to come by, and one or two others where times are tougher.
Again, the point is to have contingency plans in place, and to attempt to determine how your roadmap changes if you grow only 20% next quarter instead of 30% (or 50%) . There’s no reason to go overboard, but you can find risky areas within the business, and also consider your best responses if things go wrong.
6. Crisis management
The first thing that tends to happen in any company crisis is you review and re-build your plans. Which of course means that you must have a clear business plan in the first place . Otherwise, your crisis response is simply to improvise.
As the 2020 financial crisis unfolded, the key refrain we heard from finance leaders was the need to reforecast constantly. Nobody truly knew how long the crisis would last, or how it would impact their business. So companies created new financial plans on a monthly or quarterly basis, at least.
And those with robust and well thought-out financial plans found this process easier. They weren't starting from scratch over and over, and they’d already identified obvious risks and the key levers to pull in response.
7. Smooth fundraising
Let’s shift away from risk entirely now. Whether you’re a brand new startup, a sustainable company that needs a small cash injection, or looking for a significant series-level investment, at some point you’ll likely need funds.
And the first thing any prospective investor or bank will ask you for is your business plan . They want to see how you intend to grow the business, what risks and uncertainties are involved, and how you’ll put their money to good use.
A financial plan that speaks to investors is critical, and the better your history of planning is, the more likely they’ll trust your projections. So whether or not you’re looking for funds today , a business financial plan is an important tool in your chest.
8. A growth roadmap
Finally, your financial plan helps you analyze your current situation, and project where you want the business to be in the future . Again, your wider business plan will do this on a broad level: the markets you’d like to be present in; the number of employees you’ll have; the products or services you hope to sell.
The financial section adds data to these goals, and plugs in your level of investment along the way . For example, if you wish to hire 100 new employees this year, your financial plan will likely need to include recruiters, and a specific budget to find new talent.
Take the time to set out how large you expect the company to be, your expenses with a larger company, and the amount of revenue coming in to compensate. If you’ve raised venture capital to help grow financially , you can probably expect to burn cash faster than you make it - this is normal.
But if you burn through money and can’t reach your growth targets, then you’ll need to re-evaluate your position. So set those growth targets out now, and you’ll be able to assess as you go.
9. Transparency with staff and investors
We already mentioned how necessary your financial plan is for investors. So we won’t dive into them more here.
But the same is true for staff. It is now expected that company executives will be open and honest with staff . Some startups go so far as to publicize their salaries for the world to see.
At the very least, modern employees want to see that the company is in good hands and on the road to success. And when executives can share the financial plan in all-hands meetings, they bring real data to what would otherwise be a business plan lacking in details.
Employees love to see key figures like revenue coming in, costs, and where you are on the road to profitability .
What to include in a business financial plan
We won’t go into too much detail here, but it’s worth giving an idea of what belongs in the typical financial plan.
A three-year financial plan is most common. But whatever the period in question is, your plan should include:
Sales projections : Project your expected sales growth for the near future, as well as the cost of sales . You can break these down in different pricing groups, products, and other important factors.
Expenses & budgets : Most important here are costs - separated into fixed and variable expenses. (Lower fixed costs usually mean lower risk for the business).
Profit & loss statement : Alternatively, you can create a cash flow statement, which achieves a similar outcome. You essentially want to project money in and money out over the next three years.
Assets & liabilities : These will usually be separated from your P&L statement, and will certainly include startup costs and assets for new businesses.
Break-even analysis : Ideally, you’ll be able to identify your break-even point within the coming three years.
Hiring & team structure : This one is not essential, but it makes sense to add as part of your business plan. Who will you need - and when will you acquire them - in order to reach your goals?
For more information - especially on forecasting in uncertain times - read our expert’s guide to startup financial planning .
There’s no time like the present to create your business financial plan
We’ve seen nine excellent reasons to get to work on your company financial plan as soon as possible. As we explored, the financials form a critical part of your overall business plan , without which you’ll have a hard time assessing your performance as a company.
Of course, this exercise requires projection - you can’t just rely on the numbers you have today. But that’s not the same thing as guesswork . Follow best practices and consider all potential outcomes, and you’ll walk away with a clear roadmap to get you to business success in the foreseeable future.
From there, it’s a matter of putting in the work, measuring success, and regularly updating your financial plan.
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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.
Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business.
For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.
What is a business financial plan, and why is it important?
A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.
A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.
Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources.
Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.
The 6 components of a successful financial plan for business
1. sales forecasting.
You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies .
For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.
Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.
2. Expense outlay
A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll.
Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.
Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.
Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities.
As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.
3. Statement of financial position (assets and liabilities)
Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value.
Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report.
A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.
4. Cash flow projection
You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges.
It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .
A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.
5. Break-even analysis
A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output.
Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.
In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.
6. Operations plan
To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.
It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.
For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider.
Tips on writing a business financial plan
Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead.
A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.
Review the previous year’s plan.
It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.
Collaborate with other departments.
A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools.
Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.
Use available resources.
The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter.
If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.
Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .
Business financial plan templates
Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.
SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help.
SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.
Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.
Diana Wertz contributed to the writing and research in this article.
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How to Develop a Small Business Financial Plan
Smartsheet Contributor Andy Marker
April 29, 2022
Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.
Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .
What Is a Small Business Financial Plan?
A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.
Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”
Why Is It Important for a Small Business to Have a Financial Plan?
All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.
Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”
To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .
What Does a Small Business Financial Plan Include?
All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.
- Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
- Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
- Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
- Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
- Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .
How to Write a Small Business Financial Plan
Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.
“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”
1. Create a Plan
Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.
2. Gather Financial Information
Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.
3. Create an Income Statement
Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.
4. Create a Balance Sheet
Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.
5. Create a Cash Flow Statement
As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”
6. Create Other Documents as Needed
Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.
- Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”
7. Save the Plan for Reference and Share as Needed
The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.
Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at Highway Title Loans.
Small Business Financial Plan Example
Download Small Business Financial Plan Example Microsoft Excel | Google Sheets
Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.
Small Business Financial Plan Starter Kit
Download Small Business Financial Plan Starter Kit
We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.
Small Business Income Statement Template
Download Small Business Income Statement Template Microsoft Excel | Google Sheets
Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.
Small Business Balance Sheet Template
Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets
This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter.
Small Business Cash Flow Statement Template
Download Small Business Cash Flow Template Microsoft Excel | Google Sheets
Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.
Break-Even Analysis Template
Download Break-Even Analysis Template Microsoft Excel | Google Sheets
This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.
Personnel Plan Template
Download Personnel Plan Template Microsoft Excel | Google Sheets
Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.
Sales Forecast Template
Download Sales Forecast Template Microsoft Excel | Google Sheets
Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.
Small Business Financial Plan Dashboard Template
Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets
This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.
Tips for Completing a Financial Plan for a Small Business
You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:
- Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
- Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
- Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
- Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
- Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”
Do Small Business Owners Need a Financial Planner?
Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.
Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run.
Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”
For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .
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Creating a Financial Plan for Startups: The Ultimate Guide
The top reason startups fail is because they run out of money, according to a 2020 survey by Wilbur Labs . And one of the main reasons they run out of money is because their financial planning consists of rosy projections of the best-case scenario, based on bad data — or no financial planning at all.
Creating a financial plan is essential to a startup’s success. For one thing, most investors need to see a startup’s financial plan before they even consider funding it. More importantly, a financial plan allows you to quantify your business assumptions, define specific benchmarks, plan for worst- and best-case scenarios, and measure your company’s success (even before you start making a profit).
The bottom line is: if you have expenses, you should have a financial plan. But you don’t need an accounting degree (or even an accountant) to get started.
What is startup financial planning?
Your startup’s financial plan is the roadmap that lays out the path for your company’s future financial success. In it, you make predictions and plans based on historical performance and industry research. Start with your company’s current financial situation, add in future goals and predictions, and strategize how to get there. Financial plans include details about:
- Fixed/variable expenses
- Gross/operating margins
- Profit potential and durability
- Break-even point
- Cash balance
- Cash flow changes
Don’t have all that information close at hand? That’s okay. The first financial plan you create may not be very detailed. You’ll keep building and tweaking it as your company iterates.
A financial plan is NOT the same as a business plan
A business plan is written in paragraphs. A financial plan is (traditionally) a giant Excel spreadsheet. It’s synonymous with Pro Forma financial, which is the finance industry term for three detailed reports: cash flow statement, profit and loss (P&L) , and balance sheet . Financial planning is part of the due diligence process , which you’ll need to provide to investors prior to signing a Series A term sheet.
Financial planning is made up of several smaller activities:
These activities include:
- Creating a hiring plan
- Making projections about sales, expenses, cash flow, income statement, and balance sheet
- Analyzing projections
- Producing profit and loss statements
- Financial projections and modeling
- Analyzing internal controls
- Creating annual growth strategies
Before you start: collect data and tools
You can’t create a financial plan in a vacuum. First, you’ll need to assemble some critical things:
Before you can accurately create a financial plan, identify and assemble all your existing financial data. What financial accounts (bank accounts, credit cards) are you using for your business income and expenses? Where/how are you doing your bookkeeping (e.g., QuickBooks, Xero, NetSuite), and is that information up to date?
You’ll need to import the above information into your financial plan. Updates can be done manually with a spreadsheet or automatically using software (more on that below). Generally, it’s better if updates can be automated so you know you’re looking at the latest data and can be more nimble with decision-making.
Now you need to decide what tools you’ll use to create a financial plan. Options include a spreadsheet, dedicated software, or outsourcing to a CPA.
If you opt for a spreadsheet, you can download an Excel or Google Sheet template from an online resource, or you can create it yourself. If you create it yourself, a finance analyst, HR manager, or office manager can maintain it, and then later, a CFO can run point on the whole process.
The problem with a spreadsheet is that it’s often too fragile for everyone to use collaboratively — it’s not automatically version controlled, and it’s too manual. That’s why you might choose software like Pry, Finmark, Brixx, or Causal. Obviously, we think Pry is the best choice for financial planning. But whatever you choose, the main reason to use software is it will scale as you grow.
Finally, you can hire a CPA to build a financial plan for you. This option can afford you some peace of mind. However, it costs a lot more than a DIY spreadsheet or software approach. Additionally, you’ll understand your business better if you create your financial plan internally.
Steps to create a financial plan
Startup financial planning can seem daunting at first, especially if you’re an early-stage founder and this is your first time. We’ll break it down below.
1. Visualize the end result
At the beginning of the financial planning process, you should sketch out long-term strategies and goals. If you’re pursuing a financing round, ask your investors about what metrics matter the most to them. That way you can bring those details to the forefront instead of burying them in a series of complex tabs.
A good starting point is to determine your company’s KPIs. What are the things you want to track and forecast? Remember that different metrics are important to different business models . For example, SaaS companies should include metrics like MRR (monthly recurring revenue) , as well as bank balance and budget vs. actuals.
Thinking back to your best lever of growth, what will be your key milestones? This could include acquiring a certain number of customers, raising a round of fundraising, or making an acquisition.
This sounds like, “To reach X, we need to hit A, B, C, and D milestones. Here’s how we think we’ll get from A to B, then B to C, then C to D.” – Underscore VC
2. Pick the right template or software
It’s hard to create a generic template for all sorts of businesses, so find a template that matches your business model. Sometimes you can access these templates for free, like the one in this LinkedIn thread . Or you can download a template in exchange for your contact info, like this one for SaaS startups.
Of course, you can also choose software that creates this template for you instead of trying to retrofit some random online spreadsheet template. At Pry, we can customize reports and dashboards to your specific business model for $500 with our custom onboarding.
3. Import existing data
Now you’ll need to import your existing information from different financial accounts like QuickBooks or Xero (depending on which you use), bank account(s), and/or credit card(s). This is sometimes referred to as the “ Chart of Accounts .” Your bank data could be a statement, or it could just be today’s balance. Ideally, you should pull as much as possible, so you have the clearest, most detailed picture.
The information you should import can be broken down as follows:
- Assets (e.g., checking, savings, amounts owed to the company from customers, inventory, prepaid expenses)
- Liabilities (e.g., line of credit, credit card payable, the amount owed to vendors, payroll taxes payable)
- Equity (assets minus liabilities)
- Income (e.g., product sales, interest)
- Expenses (e.g., cost of goods sold, marketing, travel, rent, office supplies)
If your financial plan is a spreadsheet, you’ll need to manually export your existing data and then import it into your spreadsheet. This process looks slightly different for each different financial account. QuickBooks and Xero both outline how to do this on their websites.
If you’re using a financial planning tool like Pry, you can connect these accounts so they sync automatically via an API integration .
4. Project expenses
Once you have an accurate picture of current accounts, you should start projecting future expenses. These can be broken into two broad categories: direct expenses (aka, costs of sales) and indirect expenses (aka, selling, general, and administrative expenses). Direct expenses include any raw materials, production equipment depreciation, hosting fees, etc. Everything else (other than product costs and capital purchases) is considered an indirect expense.
Salaries and benefits (an indirect expense) are usually the biggest expense at this point, so we recommend starting with this one. You should add existing employees and forecast future hires to predict the additional cost of roles and salaries over time. Be sure to include benefits and payroll taxes. Also, don’t project people out by dollars spent on them — do it by name/role/salary, then convert salary into a monthly cost. For example, 4 Software Engineers, $100k each, Start Dates: July 2021, September 2021, November 2021, January 2022 .
Build a headcount plan by role for the pro forma period by month. This approach creates a hiring plan based on revenue timing to properly support the business. It also allows for quick adjustments when modeling revenue changes. – Tiffany Hovland, CPA, Journal of Accountancy
- Legal and professional services (e.g., the costs of incorporating a new business, like business license fees)
- IT (e.g., data storage, software, data security)
- Office rent
- Office supplies
As you make projections about future expenses, remember to focus on high-level estimates based on industry standards, location, and company size.A lot of things can change, and you shouldn’t waste time perfecting predictions — they may not come true, anyway.
5. Project revenue
Now you’ll describe how your company will produce income. If your company is pre-revenue, you can start with industry standards. Realistic revenue projections are important to investors, and they influence all other assumptions about profit and loss (P&L) . If revenue projections are drastically wrong, you may over- or understaff your company or make big purchases you can’t afford.
To make accurate projections, define the revenue levers, drivers, and assumptions. Revenue levers could be products and/or services, software maintenance agreements, or channel partner sales. You also need to identify which activities increase or decrease revenue, as well as pricing and activity assumptions.
One important revenue projection for SaaS businesses is MRR. Here’s an example of this type of revenue projection:
- Revenue lever: monthly subscription revenue
- Revenue driver: marketing spend and conversion rates
- Revenue assumptions: $200 subscription price, 100 initial customers, 25 new signups per month, two churned customers per month
To project MRR using software like Pry, use this formula: MRR = total customers * average subscription price.
6. Build a report
After you have collected all your current financial information and built out some projections, it’s time to present it in an easily digestible format to drive decision-making. A dashboard is a visual way to summarize and report on the data. It makes it easy for business owners, board members, and investors to look at and know the status of the company.
Now that the estimates are complete, it is time to transform the work into a collection of facts that potential investors and business owners can use to drive decisions. The initial information and discussions should focus on high-level assumptions and give confidence that the business can scale and grow as the example outlines. – Tiffany Hovland, CPA, Journal of Accountancy
If you’re using Excel for your financial plan, you can build these reports as pivot tables. Or, if you find pivot tables too cumbersome, you can create a dashboard easily using software. Here’s what Pry’s dashboard looks like:
7. Test assumptions
The final step of financial planning is often called a what-if analysis or sensitivity analysis. Now that you’ve built some assumptions about the future, try playing with some different ones — some aggressive and some conservative. Change some inputs and review the reports in different scenarios. This will help you see how the assumptions relate and ensure that the end model makes sense.
Another way to test your assumptions is to compare your company’s metrics to those of other companies. Larger companies might check the SEC’s website for public competitors or companies in a similar space with similar net revenue. If you can’t find a good comparison, though, you can check with investors to see which assumptions you should tweak. Then revise accordingly.
We picked a list of IPO comparables—enterprise-class SaaS companies that had gone public. We look at up to three years of their financial data, and based on our growth rate, revenue, and expenses as a percentage of revenue, we compare ourselves against their metrics. These comparables are a way to validate our progress against our three-year plan. – Jason Purcell, CEO of Salsify
Now it’s your turn (we can help)
The bottom line is that if your startup has expenses, you should also have a financial plan. And now that you know how to create one, it’s time to get started.If the prospect of making pivot tables in Excel intimidates you, try creating a financial plan with an out-of-box tool like Pry. It does everything the expensive firms do but without the hefty price tag.
View Pry’s pricing ->
Keep reading...
Revenue forecasting for founders: how to make projections early.
Revenue forecasting is looking at existing data and predicting how much money your company will bring in from sales in future months, quarters, or years. Even early-stage startups need to track these metrics because accurate and realistic revenue forecasts are the only way you can avoid a big cash flow shortage and complete company meltdown.
More From Forbes
16 tips for creating a personal or business financial plan for the first time.
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Whether you’re trying to get a firm grasp of your personal situation or that of your business, financial planning can seem like a tough feat, especially if you’ve never sat down to develop a structured financial plan before. An optimal financial plan lets you look at your current assets, savings and debts and then create goals that propel you forward, no matter your current financial standing.
Expert advice on how to put together an effective plan for the future can be an enormous help. For those who are new to the process, 16 members of Forbes Finance Council discuss their best budgeting and planning tips below. Follow their advice to create an ideal roadmap for reaching your financial goals.
Members of Forbes Finance Council share tips for creating a personal or business financial plan for the first time.
1. Build A Budget Based On Essentials
The first thing I recommend is to calculate your base income per month and immediately deduct 25% to establish a net income. Then, build a budget based on your essentials, with one of your essentials being yourself—try to budget 10% for yourself each time. Recognize that creating a financial plan is no different than creating any other type of plan—it requires discipline and consistency. - Will Tullos , Reliant Mortgage LLC
2. Outline Your Business Goals And Priorities
Clearly identify your business goals and priorities, and budget your expenses to align with those priorities and goals. This budget will serve as a “must-have” plan. Then, work off that to add on a second “nice-to-have” category. This will serve as a guideline on where to deploy your dollars and where you can cut or delay if necessary. - Abdul Naushad , Buckzy Payments Inc.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?
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3. Create An Estate Plan
Create an estate plan that protects your financial future. Everyone needs estate planning, regardless of age, marital status or net worth. If you pass away without a will, courts decide who inherits your assets and who cares for your minor children, and your estate could lose up to 8% of its value. - Renee Fry , Gentreo, Inc.
4. Add A Buffer In Case You Must Or Choose To Go Over Budget
Build a buffer into your budget. While it’s important to try to stay within your budget, adding a buffer will allow for an extra cushion if there’s a situation requiring you to go over budget. If you’re great at sticking to it and never go over, the cushion will build up, and eventually, you can treat yourself to something nice for being so fiscally responsible. - Sean Frank , Cloud Equity Group
5. Know What You Personally Value
Focus on what you can control. Don’t be misled into thinking that cutting out a cup of coffee is going to solve your financial planning challenges. A budget is a teachable moment and an opportunity for a safe financial conversation about your priorities. What you value should be clear from your financial statements. If you value education, that should be reflected in your budget. - Lawrence Glazer , Mayflower Advisors
6. Understand Your Business’ Past And Your Desired Future
When it comes to business budgeting and planning, the item that I know most do not focus on enough is where they have been and where they want to go. Defining those and the gap between them provides clarity. Then, work to understand your input and output metrics and where to invest in the business to foster success and ultimately reach your goals. - Robert Patin , Creative Agency Success
7. Categorize Your Business Budget
Start by being detailed, then condense the budget into categories. In its final form, a very detailed budget is much more difficult to manage than a categorized budget. Also, while you want a conservative budget so you can maximize efficiency, you don’t want to be so conservative that it is not realistic—otherwise, you and any stakeholders will be consistently disappointed in your unmet results. - Karin Oceguera , Family Education & Support Services
8. Gather Your Team’s Feedback
When devising a business budget, it’s so important to get input from constituents across the company. This helps you as CFO/controller better understand the various sides of the business. It also shows department leaders that you are willing to listen and understand versus dictating a number to them. Finally, it creates accountability with the leaders since they are involved in creating the budget. - Jamie Ellis , Katz, Sapper & Miller
9. Curate A Savings Plan For Unexpected Expenses
A financial plan is not restricted to saving for retirement or investing in the stock market. It also involves planning for future expenses that can sometimes be unexpected, such as caring for an aging parent or navigating unforeseen health issues. Work to create a savings plan for special situations that arise to offset any dramatic disruption to your long-term financial plan and goals for the future. - Charlene Wehring , Wehring Wealth Management
10. Remember That The Process Is What’s Most Important
When you first try to create a financial plan, you have to realize you will fail, and your plan or projections are going to be wrong. But don’t be discouraged—the process is what matters. A financial plan will yield all its benefits during the creation phase, not the execution phase. Have a process for creating your financial plan, because you will need to redo it constantly. - Vlad Rusz , Centaur Digital Corp
11. Base Your Plan On Your Business’ Cash Flow
Build your financial plan based on cash flow. Accrual-based recognition is important for reporting costs and earnings. However, cash flow planning is a powerful tool that clarifies the sources and uses of cash. Can your cash flow sustain operations? Pay your essential bills? Short-term capital or debt is expensive, and good planning can help you manage your cash and avoid costly alternatives. - David Kelley , Mailprotector
12. Take Note Of Other Businesses’ Budgets
When creating a budget for the first time, I’ve had success searching online for others who share their budgets publicly, even if it’s a completely different business. You’d be surprised how many businesses share their templates and their actuals. Examining other budgets, whether in my industry or not, has drawn my attention to many items I may not have otherwise considered. - Julie Fergerson , MRC / Merchant Risk Council
13. Review Your Spending Habits Regularly
It all starts with making smarter choices. Is that extra pair of shoes or espresso shot really worth it? Set a monthly target, evaluate where you stand and review your spending habits regularly. Make sure to set long-term goals, and stay patient through any short-term changes. By applying the power of compounding and exercising self-control, you can save consistently and be prepared for rainy days. - Greg Mitchell , First Tech Federal Credit Union
14. Make Sure Your Advisors Are Working Together
The best tip I can provide is to make sure you have strong advisors around you. Your plan should involve your CPA, an attorney and a strong financial advisor who can be the quarterback of this team. We see it too often: A client’s advisors don’t communicate with each other, and they guide the client down different paths that don’t complement what the client wants or needs. - John King , Dakota Wealth Management
15. Evaluate Your Actual Lifestyle Over The Past Year
It’s imperative to start with a real top-down evaluation of your actual lifestyle over the most recent year. Start with your tax return, so you have all the information on your income and taxes paid. Compile year-end bank account, credit, loan and investment statements to find net additions. This is your savings (or deficit spending). The remainder was consumed, and this is the base for your plan. - Justin Sanderson , Sanderson Wealth Management
16. Balance Your Business’ Current Priorities With Growth Objectives
Make sure your financial plan is balanced between current financial priorities—for example, meeting payroll—and investing for the future—for example, spending money on a new payroll system to support your growth objectives. - Sonia Webb , Avanade
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Key Takeaways · A financial plan helps you know where your business stands and lets you make better informed decisions about resource allocation.
To create a solid financial plan, you'll need to analyze the main components of your business. Make assumptions about cash flow – how much money you're taking
1. Review your strategic plan. Financial planning should start with your company's strategic plan. · 2. Develop financial projections · 3. Arrange financing · 4.
How to write a financial plan for your small business · 1. Profit and loss statement · 2. Cash flow statement · 3. Balance sheet · 4. Sales forecast · 5. Personnel
Your company's financial plan is essentially just the financial section of your overall business plan. It applies real financial data and
A business financial plan is an overview of a business's financial situation and a forward-looking projection for growth. A business financial
All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also
For founders concerned with the stability of their banking provider, we are working to fast track new Brex Business Account applications from
1. Build A Budget Based On Essentials · 2. Outline Your Business Goals And Priorities · 3. Create An Estate Plan · 4. Add A Buffer In Case You Must