What’s Included in a Business Financial Plan?
When it comes to achieving long-term success in any business, preparation is always crucial. The more time you spend researching, strategizing, and planning, the more likely you are to side-step issues, and take advantage of emerging opportunities. One of the plans you’ll need to create to pave the way for success, is a business financial plan. This is a document which helps to determine whether your idea for your company is sustainable and viable. It can also be a helpful compass when it comes to keeping your organization on track as it matures. Let’s take a closer look at what a financial plan includes, and why you need it.
Why Do You Need a Financial Plan?
A solid financial plan is a crucial part of determining whether your company is reasonably viable, profitable, and productive. It’s crucial when you’re seeking out Accion Opportunity Fund business loans to help with growing or expanding your business, as well as when you’re looking for support from investors. Your financial plan can even help you to determine how much you need to borrow in your loans. Used correctly, your financial plan ensures you can navigate the business environment correctly, and keep generating a consistent profit.
The Components of a Financial Plan
The elements of a financial plan and overall efforts to be professionally organized as a business can sometimes vary depending on the nature of your business. If you’re running a solo venture, you won’t need to plan out how much you’re going to pay for staff and personnel. In most cases, however, you’ll need to include the following:
- Income statement: This shows how your business experienced loss and profit over a specific period (usually around three months). It’s also known as a profit and loss statement.
- Balance sheet: A balance sheet highlights what you own and what you owe in terms of assets, giving a clear view of your financial standing in the moment.
- Personnel plan: This outlines all of the employees included in your team, and how much you’re going to pay them on a monthly or annual basis, including benefits.
- Business ratios: Your business ratios offer an insight into how each part of your business is performing individually. It can give you an insight into sales in different areas.
- Sales forecast: A sales forecast helps you to estimate how much you’re likely to make from a product or service in a specific time, based on historical data.
- Cash flow projection: With a cash flow projection, you highlight how much cash you have now, where it’s going, and where it’s going to come from at which times.
- Income projections: Income projections look at how much money your company can make within a given period – usually 12 months, after accounting for your expenses.
- Assets and liabilities: Your assets are all the things that bring value to the business, while your liabilities refer to what you might owe.
- Break even analysis: This is an insight into how much you need to sell each month to recoup the losses associated with running your business, such as paying for rent and materials.