A financial plan is important for any business. It indicates its viability, predicts profits and ultimately helps you decide on a direction for your business. It also alerts you to a need for Business Finance. Here’s a look at how to draw up a business financial plan.
A business financial plan is useful in many ways. It is essential when seeking funds, whether it is through an investor or a loan. It is also necessary when you attempt to grow your business, either at the beginning, or throughout its life. Apart from this, a financial plan identifies gaps in how you run your business and brings to light sectors that require financing. This could be a need to upgrade equipment or increase your inventory.
A financial plan for business includes elements such as a sales forecast, expense budget, and cash flow projections. If you’re drawing one up for your business, here are elements you must include:
1. Sales Forecast:
- First things first, your plan must outline estimated revenue from sales.
- This must be done monthly, quarterly and annually.
- You can also map this out in terms of a short-term, mid-term and long-term forecast.
- This will give you a good idea of the demand and supply ratio. It will also give you an idea of your production method’s efficiency and the extent to which sales targets are being met.
2. Expense Budget:
- Recording expenses controls your overall expenditure.
- Planning your expense budget ensures that your business doesn’t over-spend.
- It allows you to allocate funds to expenses based on their priority.
- Forecasting expenses also improves your cash flow and helps plan expenditure over the financial year.
- It also helps you gauge the extent to which you need to acquire business finance to cover your expenses.
3. Overview Of Assets and Liabilities:
- Assets and liabilities determine the net worth of your business.
- Listing them is important to know where your business stands.
- Naturally, it is important to strive for a scenario where assets outweigh liabilities.
- Listing assets includes items such as buildings, machinery, inventory and payments due to you. Liabilities include outstanding bills and borrowed funds.
- Doing this gives you a clear indication on how much finance you need to raise via a business loan.
4. Cash Flow Projections:
- Different from cash flow statements, these documents help predict your cash inflow and outflow on a monthly basis. Considering that cash flow keeps your business running on a day-to-day basis, this element is crucial.
- Ideally, you must prepare cash flow statements a year in advance.
- This projection is also a good measure of the liquidity of your firm.
- It highlights periods of high expenditure allowing you arrange for business financing in good time.
5. Break Even Analysis:
- This is a simple, but important graph. It helps arrive at the point where your revenue will exceed expenses.
- It also helps you identify how long it will take for you to break even or if your business idea is viable to begin with.
- It might sound complicated, but this analysis is a basic graph that gives you a comprehensive snapshot, and can be the primary element that attracts business financing.
Recommended for you:
Why Building a Brand is so Important
These are the basics of any business financial plan. As your business grows, you can add elements to it to make it more thorough. Apart from showing you where you stand, this plan also throws light on the need for business finance. If you find that your firm will benefit from a dose of business financing, you can opt for a business loan. This loan provides benefits like easy online application, online loan management, flexible tenor and line of credit.