A business plan will quickly become a pile of scraps of paper if you don’t implement a solid financial plan. Financial planning is tough, but it will make or break your business in the long run.
With that in mind, your small business financial plan needs to account for all the financial aspects of your business model, including sales, expenses, cash flow, and assets and liabilities. Without a financial plan, you’ll have difficulty deciding where to focus your time and energy.
A well-thought-out financial plan will help you achieve your short-term, mid-term, and long-term business goals by making the appropriate financial decisions. So how do you start drafting a financial plan that meets your needs?
What to Consider When Writing a Small Business Financial Plan
Factor #1: Profit and Loss Statements
Depending on your financial goals, you may need more than one profit and loss statement. In general, the purpose of a profit and loss statement is to forecast your expenses and income, based on the business model you’ve chosen.
The most basic form of profit and loss statement is a cash-based income statement. It’s a general business report that will show your business’s income and expenses over a period of time, such as a 30- or 90-day period.
In contrast, a net income statement requires you to use accrual-based accounting. Accrual-based accounting is used to keep track of income and expenses as they occur. Accrual-based accounting is also good for businesses with a lot of expenses that span over several periods since it’s based on the date of the transaction.
Factor #2: Cash Flow Statement
A cash flow statement also shows income and expenses. However, the cash flow statement is more detailed. It shows where your business gets its money and where it spends it.
A cash-based flow statement tracks where your money comes from and where it goes. It focuses on how your business uses the money it makes. This can be a good way to show whether or not your business is making enough money to sustain itself.
Factor #3: Balance Sheets
A balance sheet is a snapshot of your business’s assets, liabilities, and equity at a specific point in time. A balance sheet can be a very helpful tool for showing where you stand financially and guiding your decisions about what needs to be done to keep a healthy business.
Factor #4: Sales Forecast
If you’re planning on launching a startup, a sales forecast is essential. In general, a sales forecast compares the type and amount of revenue that you expect to receive with how much you expect to spend.
A sales forecast helps you to anticipate problems with cash flow, ensure that the cost of production or services is covered by the price of your product or service, and ensure that you’re charging enough to make a profit.
Factor #5: Personnel Plan
Your financial plan must account for your staff if you have one. In all but the smallest of businesses, there is a relationship between your business expenses and the number of employees you have. Therefore, your sales forecast will have to take into consideration the amount of money you need to spend on your employees and the expenses associated with your employee payroll.
The Bottom Line: How a Financial Plan Lays the Foundation For Your Growth
With a financial plan, you can focus your time, energy, and capital on areas of your business that need your attention. You’ll also be able to steer clear of unwelcome surprises, such as running out of cash or having to take on debt to cover unexpected expenses. That’s why a solid financial plan is key to your business’s success.
How Can We Help You?
When it comes to running a business — big or small — ensuring that your finances are in check is extremely crucial for your company’s success. With that being said, it’s best to connect with BarrettStacey Accounting.
We are a friendly, approachable, and experienced team of accountants and bookkeepers, offering fixed-fee services from company formation, bookkeeping, payroll, taxes, cash flow forecasting, and more.
If you’re looking for bookkeeping services for small businesses, chat with us today!