Financial projections in your business plan can mean the difference between securing financing and being denied. In this article, we’re going to show you how to create your plan by following an easy, five-step process to success.
What is a Financial Plan for a Business?
A financial plan is a measure of your business’s:
- Growth projections
In most plans, especially when used as part of your overall business plan, there will be five main budgets presented. The budgets allow you and potential investors to understand the potential validity of your operations.
1. Take a look at your strategy plan
First, before you can begin filling in your financial business plan template, it’s important for you to review your entire strategic plan.
What does this mean?
You must have a general idea of what your business will need to reach its goals. For example, you can begin understanding your plan by asking yourself a few questions:
- Do you plan to expand your operation?
- Do you need more equipment?
- How is staffing? Do you plan to hire new people?
- Do you have the capital to reach these goals, or will you need financing?
If you do need financing, how much will you need? Your strategy and plan for the coming year will need to be finished before you can proceed to the remaining steps.
2. Create financial forecasts
Once your plan is in place, you’ll need to create forecasts to understand your financing needs. A cash flow app can help you generate these forecasts. However, you can also do this on your own if you determine the following:
- Income from all sales
- Expected total expenses
You’ll want to be meticulous when determining income and expenses. Fixed and variable expenses must be considered, and you’ll need to account for things, such as payroll, utilities, rent, inventory and other expenses.
If you subtract the expenses from the income that you forecast, this will help you learn if you need financing or not. A negative figure means that you do not have the funds to meet your current goals without outside funding.
3. Finance arrangements
Banks and lenders of any kind want to invest in businesses with little risk of failure. The higher the risk, the more you’ll pay for loans. Many lenders will not consider funding your operations if you do not have:
- Financial reports and statements
- A solid business plan
Waiting to secure funding is a mistake. You want to seek funding as early as possible because delays and denials can occur. Financial reports that are well-planned and provide insights into the health of your business in the future will be a deciding factor in your financing being approved.
4. Make plans for emergencies
Financial projections are just that – projections. You can account for every variable in your plan, and in the end, it can fail. The main issue is that there are always forces outside of your control that can lead to plummeting sales.
You must plan for emergencies.
You’ll want to either build a cash reserve or even secure a line of credit. While you hope to never have to tap into these financial tools, having them for emergency situations can help provide peace of mind. Cash reserves and lines of credit can keep your business running over the short term, even if sales fall drastically.
5. Get assistance
Even with an example of a financial plan for startup businesses, creating your own financial plan can be difficult. If you’re not an accountant, you’re spending more time than necessary creating your own plan.
Plus, your plan is less likely to be as accurate as a plan you make using an app or that is made by a professional.
Getting assistance to create your plan is recommended, especially if you’re trying to get a loan or convince investors to invest in you. A professional will ensure your plan is as thorough and well thought out as possible.
Creating a financial plan for your business is a smart way to prepare for the future. If you don’t have a plan in place, you may not have the capital and cash to reach your business’s goals. Over time, you’ll need to revisit and update your plan to match your current goals.