When people begin to think about starting a business, they often realize they need to create a business plan. However, those same people forget that developing a financial plan is just as crucial. Combining these two plans is a major blueprint to success. If you haven’t written a financial plan for your business, or even know what one is, you are going to want to figure it out quickly.
What is a Financial Plan?
A financial plan is an overview of the current financials in your business. The plan also lists out projections for growth within your business, as well as earning potential. When you take the time to develop a financial plan, you will see the current status of your business. You will also glean a look into the future to see what your short term and long-term financial goals are. The best part is you will be prepared for faster growth or for when a crisis occurs.
Steps to Take to Develop a Financial Plan for Your Business
1. Open a Business Bank Account
You may think you are all set to start small and use your personal account for business expenses. However, this is the worst thing you can do! Mixing these two accounts together can result in errors and a major headache at tax time. Opening a business bank account will allow you to see exactly how much money your business has.
2. Understand Your Funding Sources
There are numerous ways to fund your new business. You can finance it with your own money or you can ask friends and family to invest. You may also want to consider a small business loan or venture capital. These are the most popular options, but there are others. Whichever option you choose, make sure it gets written onto your financial plan. This way you know where your startup income is coming from and how much you have available.
3. Understand All of Your Startup Expenses
Starting a business can be more expensive than you think. It is best to start a list of what you know will be included in your business startup expenses. But then make sure you add in all of those little things you may not have considered at first.
A few expenses to begin with include:
- Office Supplies
- Office Equipment
- Web and Logo Designs
4. Your Price Points and Profit Margins
An important part of developing your financial plan will be knowing your price points and profit margins. The best way to do this is to determine how much you want to make in profits. Then create a price point for your services or products that will allow you to reach your profit margin goal.
Part of this step can also include a break-even analysis, so you know exactly how many products or services you need to sell to people in a month or year.
5. Create Your Budget
You may think you are all set once you know your startup expenses and your price points. But you also need to determine what your business budget will be each month. To calculate your budget, you must add up all of your expenses each month. I recommend adding in a little extra for savings and emergencies, so you are prepared for the unexpected in the future.
Once you have your budget in place, you can begin to create profit and loss statements. These statements will allow you to see whether or not you are on target to reach your financial goals.
6. Consider Advertising and Promotions
One of the last parts of your financial plan should include what your goals are for advertising and promotions. Including a proper budget for these two things can really grow your business.
These are the six steps you can take to develop a financial plan for your business. It is important to update your financial plan regularly and make modifications as needed. This way you will always be moving your business forward instead of being stuck because you have no idea what is happening financially. If you need assistance with your books, contact the office today to schedule a consultation.