Small Business Financial Planning – Financial planning is vital to any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and compiled the best tips from the experts.
On this page you will find what should be included in a financial plan, steps to develop it, and a downloadable starter kit.
Small Business Financial Planning
Is an overview of your company’s financial status, including income statements, balance sheets, and cash flow information. A financial plan can help lead a small business to sustainable growth.
Important Financial Planning Tips For Small Businesses
Financial plans can help establish business goals, track metrics, and provide evidence 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 tells you where your business stands and helps you make better decisions about resource allocation. It will also help you plan for growth, solve liquidity constraints and reach investors.”
All small businesses should have a financial plan. This allows you to assess the financial needs of your business, identify opportunities, and predict your growth over time. A strong financial plan is also a bonus for potential investors.
Mark Daoust, President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “Sometimes it can be difficult for business owners to measure their own progress, especially when starting a new business. A financial plan can be helpful in presenting increased revenue, cash flow growth, and overall profit in quantifiable data. For small business owners who often work long hours and face so many stressful decisions, it is very encouraging to know they are on the right track.”
To learn about other important considerations for a small business, check out our list of free business plan, budget and expense templates.
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All small businesses should include an income statement, balance sheet, and cash flow statement in their financial plan. Depending on your business and industry, you may also include other documents such as workforce plans, break-even points, and sales forecasts.
Writing a financial plan begins with gathering financial information from your small business. Use this information to create income statements, balance sheets, cash flow statements, and any other documents you need. Then share these documents with relevant stakeholders.
“The preparation of a financial plan is essential for any business and essential for success: it provides protection and an opportunity for growth,” says Yüzbaşıoğlu. “You can use [the financial plan] to make more informed decisions about things like resource allocation on future projects and help shape the success of your business.”
Create a strategic business plan that includes your business strategy and goals and define their financial implications. Your financial plan will make decisions for every aspect of your business, so it’s important to know what’s important and what’s at stake.
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Gather all available financial information about your company. Organize bank statements, loan information, sales figures, inventory costs, salary and income information and all other expenses incurred by your business. If you haven’t started yet, collect all this information regularly and keep it in an easily accessible place.
Your income statement should show income, expenses and profit for a specific period. Your income less your expenses equals your profit or loss. Most businesses generate new bank statements every year or every quarter, but small businesses with less cash can benefit from generating statements for shorter periods.
Your balance sheet is a snapshot of your company’s financial status at a specific point in time. You should update it on the same schedule as your income statement. To find your equity, calculate all your assets minus your liabilities.
As mentioned above, the cash flow statement shows all the past and forecasted cash flows 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 non-current assets. Financing activities are transactions with creditors and investments.”
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Depending on the age, size and industry of your company, it may make sense to include these other documents in your financial plan.
The most important part of any financial plan is to share it with stakeholders. You can use much of the same information in your financial plan to create a budget for your small business.
Also, make sure you do regular checks as things are bound to change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you’ve created your plan, it’s important to review it frequently and compare how well the strategy aligns with your actual monthly spending. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, credit and finance specialist at Highway Title Loans.
Here is an example of what a finished small business financial plan dashboard might look like. After you’ve completed your income statement, balance sheet, and cash flow statement, use a template to create visual charts to display the information so it’s easier to read and share. In this example, this small business presents its income and cash flow statements on a quarterly basis, but you may find it useful to update yours more often.
Small Business Owners Can Create An Effective Financial Plan
We’ve created this small business financial plan starter kit to help you organize 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 show the results. We’ve also included templates for break-even analysis, workforce planning, and revenue forecasting to meet your ongoing financial planning needs.
Use this small business income statement template to enter your income information and track your growth over time. This template is filled to be tracked by year, but you can also track by month or three months. The template is fully customizable to suit your business needs.
This customizable balance sheet template was created with small businesses in mind. Use it to create a quarter-by-quarter picture of your company’s assets, liabilities and equity.
Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and enter all your financial data in the appropriate cell. With this information, the model automatically generates your total cash payments, net cash flow, and ending cash position.
The Strategy Basis Of The Financial Plan
This powerful model can help you determine the point at which you will break even on your product investment. Enter the selling price of the product, as well as the various costs associated with it, and this model will show the number of units needed to offset your initial costs.
Use this simple workforce plan template to organize and define the financial costs of different roles or departments in your company. This model generates a job cost total that you can use to compare roles and determine if you need to make cuts or identify areas of growth.
Use this customizable template to forecast your sales month by month and determine percentage changes. You can also use this template to set goals and track sales progress.
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.
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You can streamline the development of your small business financial plan in many ways, from outlining your goals to considering where you might need help. Below are some tips from our experts:
Not all small business owners need a certified financial planner, but you should understand the documents and information that make up a financial plan. Unless you hire an advisor, you need to be aware of your own finances.
Small business owners tend to wear many hats, but Powell says it “depends on the owner’s organization and their experience in the financial side of running businesses.” Hiring a financial advisor can take some of the work off your hands 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 a deeper understanding of market trends and changing tax information that can save you money in the long run.
Yüzbaşıoğlu adds: “Small business owners can benefit greatly from working with a financial advisor. Running a successful small business often requires more than just the skills of an entrepreneur; A financial advisor can help the company manage risk effectively and maximize opportunity.”
Small Business Financial Planning
For more examples of the tasks a financial planner can help with, see our list of free financial planning templates.
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