The thought of creating a financial plan might feel overwhelming, especially if accounting isn’t your strong suit. But don’t worry—we’re here to make the process straightforward and easy to understand. No matter your experience level, you’ll be able to develop a financial plan that sets your business on the path to success.
Let’s dive into the basics and get your financial plan started.
Overview
- What is a financial plan?
- Why do you need one?
- Steps to create your financial plan
- Checklist: Is your financial plan complete?
- Taking the next steps for your business
What is a Financial Plan?
A financial plan is a crucial document that outlines your business’s financial goals and the steps needed to achieve them. It includes three main components:
- Cash Flow Statement: Tracks the inflow and outflow of money in your business—essentially, what comes in from sales and what goes out to cover expenses.
- Income Statement: Also known as a profit and loss statement, this shows your revenue from sales and the expenses incurred over a specific period.
- Balance Sheet: This statement provides a snapshot of your business’s financial health by listing what your business owns (assets) and what it owes (liabilities).
Creating a financial plan will help you determine whether your business idea is viable and ensure that your business remains financially healthy as it grows.
Why Do You Need a Financial Plan?
You might be wondering if a financial plan is really necessary. The answer is a resounding YES. Here’s why:
- Track Progress: A financial plan helps you measure how your business is performing and ensures you’re on track to meet your goals.
- Make Informed Decisions: It guides you in making smarter decisions about where to allocate your resources.
- Attract Investors: A well-prepared financial plan is a powerful tool when seeking investment or financing.
Ready to get started? Here’s how you can create your financial plan in a few simple steps.
Step 1: Estimate Your Start-Up Costs
Begin by listing all the expenses you’ll need to get your business off the ground. Research similar businesses to get a clear picture of these costs. This will also help you determine if you need to seek funding and how much you might need.
Some common start-up costs include:
- Business registration fees
- Inventory purchase
- Equipment and software
- Staffing costs
- Rent for business premises
- Insurance
- Website development
- Marketing and advertising expenses
- Legal and consulting fees
Need help estimating your start-up costs? Check out resources that offer guidance on how much it might cost to start a business in your industry.
Step 2: Project Your Sales and Expenses
Next, estimate your sales and expenses on a monthly, quarterly, or annual basis. This will help you forecast whether your business will generate a profit or incur a loss.
Use industry benchmarks to compare your projections against similar businesses, which can provide valuable insights into realistic expectations for your business.
Step 3: Develop Cash Flow Projections
Cash flow projections are essential for ensuring that your business has enough cash to operate. Consider factors such as payment terms with customers and suppliers, as these can impact when cash actually flows in and out of your business.
Make sure to project your cash flow for at least 12 months to account for seasonal variations in sales and expenses.
Step 4: Create Your Balance Sheet
Your balance sheet will summarize your business’s assets and liabilities, helping you understand its overall financial position. Remember to include all assets owned by the business, such as cash, equipment, and inventory, as well as all liabilities, including loans and unpaid bills.
Step 5: Determine Your Break-Even Point
The break-even point is the number of sales you need to cover your expenses. Use your financial data to calculate this figure, which will inform your pricing and sales strategies.
For example, if your monthly expenses are $5,000 and you sell a product for $100, your business needs to sell 50 units each month to break even. Understanding your break-even point allows you to experiment with different pricing and sales scenarios.
Checklist: Is Your Financial Plan Complete?
To ensure your financial plan is thorough, answer these key questions:
- How much money do you need to start your business?
- How will your business generate revenue?
- What are your projected revenues and expenses over time?
If you can confidently answer these questions, congratulations! Your financial plan is complete. If not, revisit your plan and fill in any gaps.
Taking the Next Steps for Your Business
Your financial plan is a living document that will evolve as your business grows. Regularly updating your plan with new information will help you make informed decisions and keep your business on a steady course.
If you’re ready to take the next step in building your business, consider developing a comprehensive business plan. We can guide you through that process too.
Need expert help with creating a financial plan for your business? BOA & Co. is here to assist you every step of the way. Contact us today at 1300 952 286, email us at service@boanco.com.au, or visit our website at www.boanco.com.au to get started.