Financial planning is vital to developing a successful business. Not only does a business plan outline exactly how you will do business in the short- and long-term, but a strong financial plan keeps you focused and on track as your company grows and evolves.
The financial section of a business plan is important when you talk with investors or apply for bank loans. While some business owners do not require any financing, developing a financial forecast can be extremely helpful for any entrepreneur looking to successfully drive a business.
Additionally, a business plan not only prepares you for what’s down the road, but it also can provide you with specific insights on your business.
According to Linda Pinson, author of Automate Your Business Plan for Windows and Anatomy of a Business Plan, “This is an ongoing, living document. It should be a guide to running your business,” explains Pinson. “The plan will tell you whether the business will be viable or whether you are wasting your time and your money. In many instances, it will tell you that you should not be going into a particular business.”
In fact, the financial section of a business plan is one of the most important sections of the plan, explains Elizabeth Wasserman in a recent Inc article.
“You will need this plan if you have any hope of winning over investors or obtaining a bank loan. Even if you don’t need financing, you should compile a financial forecast in order to simply be successful in steering your business,” she writes.
“A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don’t mean a thing if you can’t justify your business with good figures on the bottom line.”
What should be included in a strong business financial plan?
Most business owners develop a financial plan covering three to five years. Below is a list of what should be included in a typical business financial plan, compiled by the spend management platform, Spendesk:
Sales projections: Project your expected sales growth for the future, as well as the cost of sales. You can separate these into different pricing groups or products.
Expenses and budgets: Include costs and separate into fixed and variable expenses. It is important to note that lower fixed costs typically translate into lower risk for a business.
Profit and loss statement: You can also develop a cash flow statement, which will provide you with a similar outcome. The key is to project money in and money out over the next three to five years.
Assets and liabilities: These should be separate from your profit and loss statement, and should include startup costs and assets for the new business.
Break-even analysis: The goal with this analysis is to identify your break-even point within the first few years.
Hiring and team structure: While this information is not vital, it is very helpful to add to your business planning. Be sure to note which staff members you will need and when you plan to search for them in order to achieve your goals.
The Benefits of Business Financial Planning
Focusing your efforts on effective financial planning is important to every business. After all, there are several advantages to having a strong financial plan in place. These include the following:
Develop specific company objectives: It is crucial to have a detailed roadmap that highlights exactly what your business wants to achieve in the future.
Create cash flow expectations: Staying on financial track can be the difference between success and failure. It is essential to meticulously measure cash flow, so you understand how much money needs to flow in and flow out.
Navigate risk: Every business needs contingency plans in place in the event of unforeseen problems. As a result, your company’s financial plan should include business insurance expenses, as well as various resources, which are set aside for unexpected expenses.
Ensure complete transparency: Transparency in today’s business world is critical. In addition to generating trust and demonstrating integrity, this transparency protects a company’s reputation among investors, partners, employees, customers, and other stakeholders.
In addition, ensuring transparency boosts employee morale, enhances employee engagement and retention, encourages various investments, drives results, and shows employees that their organization is honest, as well as strong and profitable.
Crisis Management: According to a recent PwC global survey, almost 70 percent of today’s leaders have experienced at least one corporate crisis in the past few years—with the average number of crises experienced being three.
With the COVID-19 pandemic still fresh in our minds, it is clear that every single organization—big and small—is vulnerable to crises. Consequently, it is necessary to be prepared for any unforeseen issue so that your business can successfully navigate any storm. Developing a thorough crisis management plan will help you and your business steer through the crisis.
While building a business financial plan requires a great deal of effort, as well as strong and relevant data, this component of the business plan is essential—and could be the difference between business success and failure.
A good business plan not only helps business owners achieve their goals, but also provides necessary information to investors and banks who can help you with funding and credit lines. At NCH, our dedicated team of business plan writers work with you to help you to meet your objectives and position your for long-term success. Call us today at 1-800-508-1729 to learn how we can help you with your business plan!