Building the financial plan for the business is the most important part of any business. Business owners that have a full financial plan will help them to get good investors, and they can receive funding and can achieve a long – term success. An investment plan is an outline of your current amount spent on your business and projection of growth. It helps business owners to set realistic expectations regarding business success. It helps you manage your business in a better way and a good financial plan looks attractive to investors. It reduces the risk and shows that having a firm plan and track record can help you in the growth of the business. Components of Successful Financial plan includes:
Profit and Loss Statement: The gain and loss statement are different for every business and it also depends on the formation of your business. A typical statement includes your revenue, your cost of sale and the cost of goods sold, and your gross margin. In this, you also have to mention the operating expenses. These are the expenses that are not associated with the making of the sale.
Cash Flow Statement: It is almost the same as the profit and loss statement. Business runs on cash and this statement is an explanation of how much cash a business bought in. Without the proper understanding of how much cash you have and from where it is coming and where it is getting spent and on what schedule, means that you are not running a health business without this knowledge. It is very important to have a cash flow statement as it will have all the information about the lenders and investors and without this, no business will be able to raise the funds.
Balance Sheet: It is a illustration of your business’s financial position. It will tell you how your business is going, how much amount you have in the bank, how much customers have to pay you, and how much you have to give to vendors. A balance sheet consists of three types of account and it includes
- Assets represent inventory
- Liabilities represent credit card balances, loan repayments
- Equity includes investor’s share, retained earnings, stock proceeds
Sales Forecast: Sales forecast is the most important part of every business, especially when there is the involvement of lenders and investors, and they should be an ongoing part of your planning process. A business owner should be consistent with the number of sales that are used in the profit and loss statement. Every business has different needs so the sales forecast of every business is different.
Business Ratios and Break-Even Analysis: This thing can be calculated only if you have a profit loss statement, your cash flow statement, your balance sheet, and by combining all the numbers you can easily calculate the business ratio and create a break-even analysis report. For this, you can need some profitability ratios like
- Gross Margin
- Return on Sales
- Return on Assets
- Return on Investment
Liquidity Ratios like
- Current Ratio
- Working Capital
Break-Even Analysis is a calculation of that how much you will need to sell to “break-even” and you will also need to find out the contribution margin of your selling article.
The financial plan might feel good when you start your business but the truth is that this part of the business is difficult to understand and finding gaps after every sale and purchase is not easy. But we are sure that the above components will surely help you in creating a financial plan for your business.