6 Steps to Create a Financial Plan for Your Business
It may be positioned at the end of any business plan, but the financial plan segment is the probably the most important part of any business plan because it determines if the business idea is realistic and feasible.
It’s also the section that investors, or anyone considering granting your business credit, will look at first. It is key to being able to secure the needed capital.
Aside from helping to secure capital, a solid financial plan is essential to everyday operations. A comprehensive financial plan, which can easily be created using accounting software, includes an income statement, cash flow projection, balance sheet, invoicing, payment processes, and collections. This is how to create a financial plan for your business.
#1 Income Statement
The income statement simply shows your revenues minus your expenses to arrive at net profit. It is a detailed statement of each and every business expense category and a snapshot of your organization that shows whether or not you’re profitable at a given point in time.
#2 Cash Flow Projection
The cash flow projection shows cash inflows, such as payments received, and outflows, like bills that are outstanding or paid.
It’s a vital tool for managing cash flow and alerting you to when your expenses might be too high or when short-term financing may be necessary. Consider if you’ll need business loans to assist with the cash flow in case of any shortages.
#3 Balance Sheet
The balance sheet provides a snapshot of your company’s net worth at any given point. It breaks down all of your company’s financial data into three categories: assets, liabilities, and equity.
#4 Invoicing
Invoicing is another important part of your financial plan and includes accounts receivable. The question is, what do you do if you don’t have the money to pay an invoice?
Short term financing from a reputable company may be a good option. Most companies integrate invoicing with their checking accounts, accounts receivable, and accounts payable. The more integrated the system, the better.
#5 Payments
Along with invoicing comes payments, and your company must have a good way to track them with an accurate and easy to use payment system. It might include things such as a point-of-sale machine, online cart programs, and PayPal, along with receiving, recording, and depositing checks.
#6 Collections
Unfortunately, not all customers pay on time, and that is where a good collections program is necessary. You’ll need a way to track late payments, make collection calls, and track and collect late fees.
Many companies choose to outsource their collection to experts that know and follow the various complex laws as they relate to collections. It’s not a fun part of the business, but it is essential to get paid what you are rightfully owed.
Working with your chosen business bank professional can help all of these important aspects of your financial plan come together. A good financial representative will not only make helpful suggestions but also alert you to potential problems.
Good financial representatives are as important to your success as a good attorney. Their assistance, along with integrating your business banking accounts with the above will make decision making much easier.
Take it one step at a time, and include the right people when putting it all together, and before long it will get easier to manage your company’s finances.
