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Start » startup, business plan financials: 3 statements to include.
The finance section of your business plan is essential to securing investors and determining whether your idea is even viable. Here's what to include.
If your business plan is the blueprint of how to run your company, the financials section is the key to making it happen. The finance section of your business plan is essential to determining whether your idea is even viable in the long term. It’s also necessary to convince investors of this viability and subsequently secure the type and amount of funding you need. Here’s what to include in your business plan financials.
[Read: How to Write a One-Page Business Plan ]
What are business plan financials?
Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you’ll need to plan for your business’s future, and to make your case to potential investors. You will need to include supporting financial documents and any funding requests in this part of your business plan.
Business plan financials are vital because they allow you to budget for existing or future expenses, as well as forecast your business’s future finances. A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.
Sections to include in your business plan financials
Here are the three statements to include in the finance section of your business plan:
Profit and loss statement
A profit and loss statement , also known as an income statement, identifies your business’s revenue (profit) and expenses (loss). This document describes your company’s overall financial health in a given time period. While profit and loss statements are typically prepared quarterly, you will need to do so at least annually before filing your business tax return with the IRS.
Common items to include on a profit and loss statement :
- Revenue: total sales and refunds, including any money gained from selling property or equipment.
- Expenditures: total expenses.
- Cost of goods sold (COGS): the cost of making products, including materials and time.
- Gross margin: revenue minus COGS.
- Operational expenditures (OPEX): the cost of running your business, including paying employees, rent, equipment and travel expenses.
- Depreciation: any loss of value over time, such as with equipment.
- Earnings before tax (EBT): revenue minus COGS, OPEX, interest, loan payments and depreciation.
- Profit: revenue minus all of your expenses.
Businesses that have not yet started should provide projected income statements in their financials section. Currently operational businesses should include past and present income statements, in addition to any future projections.
[Read: Top Small Business Planning Strategies ]
A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.
A balance sheet provides a snapshot of your company’s finances, allowing you to keep track of earnings and expenses. It includes what your business owns (assets) versus what it owes (liabilities), as well as how much your business is currently worth (equity).
On the assets side of your balance sheet, you will have three subsections: current assets, fixed assets and other assets. Current assets include cash or its equivalent value, while fixed assets refer to long-term investments like equipment or buildings. Any assets that do not fall within these categories, such as patents and copyrights, can be classified as other assets.
On the liabilities side of your balance sheet, include a total of what your business owes. These can be broken down into two parts: current liabilities (amounts to be paid within a year) and long-term liabilities (amounts due for longer than a year, including mortgages and employee benefits).
Once you’ve calculated your assets and liabilities, you can determine your business’s net worth, also known as equity. This can be calculated by subtracting what you owe from what you own, or assets minus liabilities.
Cash flow statement
A cash flow statement shows the exact amount of money coming into your business (inflow) and going out of it (outflow). Each cost incurred or amount earned should be documented on its own line, and categorized into one of the following three categories: operating activities, investment activities and financing activities. These three categories can all have inflow and outflow activities.
Operating activities involve any ongoing expenses necessary for day-to-day operations; these are likely to make up the majority of your cash flow statement. Investment activities, on the other hand, cover any long-term payments that are needed to start and run your business. Finally, financing activities include the money you’ve used to fund your business venture, including transactions with creditors or funders.
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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)
Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.
Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.
What is the financial section of business plan?
Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.
The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.
Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses.
Why it matters
The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers.
Through the financial section, you can:
- Forecast your business’s future finances
- Budget for expenses (e.g., startup costs)
- Get financing from lenders or investors
- Grow your business
- Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
- Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.
So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section.
Writing your financial section
To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup.
Your financial section should detail:
- Business expenses
Financial statements, break-even point, funding requests, exit strategy, business expenses.
Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses.
Take a look at some common business expenses you may need to include in the financial section of business plan:
- Licenses and permits
- Cost of goods sold
- Rent or mortgage payments
- Payroll costs (e.g., salaries and taxes)
Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs).
Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes).
How much do you anticipate earning from sales each month?
If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.
Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance.
A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.
Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period.
Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.
The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions.
If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.
If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements.
You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.
Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses.
Estimate when your company will reach its break-even point and detail it in the financial section of business plan.
If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover.
Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment).
Back up your funding request by emphasizing your financial projections.
Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc.
Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it.
When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!
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How to Write the Financial Section of a Business Plan
Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.
Taking Stock of Expenses
The income statement, the cash flow projection, the balance sheet.
The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.
Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:
- Business registration fees
- Business licensing and permits
- Starting inventory
- Rent deposits
- Down payments on a property
- Down payments on equipment
- Utility setup fees
Your own list will expand as soon as you start to itemize them.
Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:
- Salaries (including your own)
- Rent or mortgage payments
- Telecommunication expenses
- Raw materials
- Loan payments
- Office supplies
Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.
Now you can begin to put together your financial statements for your business plan starting with the income statement.
The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.
While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.
Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.
If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.
The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how much capital investment your business idea needs.
For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.
Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.
There are three parts to the cash flow projection:
- Cash revenues: Enter your estimated sales figures for each month. Only enter the sales that are collectible in cash during each month you are detailing.
- Cash disbursements: Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay for each month.
- Reconciliation of cash revenues to cash disbursements: This section shows an opening balance, which is the carryover from the previous month's operations. The current month's revenues are added to this balance, the current month's disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month.
The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:
- Assets : Tangible objects of financial value that are owned by the company.
- Liabilities: Debt owed to a creditor of the company.
- Equity: The net difference when the total liabilities are subtracted from the total assets.
The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .
For your business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.
Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.
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Writing the Financial Part of Your Business Plan
When you're looking to start a business, the importance of putting together a business plan cannot be overstated. It helps you sort out the nitty gritty details about how your business will operate, what your goals are, and how you will achieve them.
Putting together a business plan can be an intimidating endeavor, and for many aspiring business owners, the financial section is the most difficult part. However, it’s among the most important parts to get right. Finances are what will ultimately attract investors and lenders, and the more professionally this part of the plan is presented, the better your chances of growing your business to the next level.
Jana Benton, Nevada State Bank’s Senior Vice President and Statewide Business Banking Lending Manager, explained, “A business plan is like creating a roadmap to success. It gives the business owner direction. How do I get from Point A to Point B? The business plan helps shape how a business gets there, as well as providing milestones and timelines to ensure the business is on target for success.”
The financial section is a critical part of any business plan, but what if this isn't your area of expertise? How should you approach it?
Utilize a business plan template
A standardized business plan template can help you by providing a tried-and-true format. The Small Business Administration (SBA) and SCORE , a non-profit partner of SBA, are great places to start, with templates for both start-up and established businesses. Benton also recommended the Small Business Development Center at the University of Nevada as a local resource right here in Nevada. There's no reason to build your plan from scratch when a readymade framework can get you started on the right track and make the whole process much less cumbersome.
Use the web
Don't underestimate the value of online tutorials and commentary. Search the web for articles about business plans and financial projections. Set aside some time to watch a few YouTube videos about business plans. Set up a playlist, view it from the comfort of your sofa, and take notes.
Make sure to include all key components
The financial section of your business plan should contain financial statements and projections on revenue and expenses, assets and liabilities, and cash flow. In addition to financial statements, prospective lenders or investors will also want to see a sales forecast and, if your business will have employees, a personnel plan. 1
Benton explained that projections are important for businesses, especially new ones or a business launching a new product line or store. “Remember to keep projections reasonable and achievable,” she cautioned.
Spreadsheets will prove extremely helpful when putting together the financial section, so become familiar with them if you're not already. Find some online tutorials if you're starting from scratch, so you can quickly learn the basics. If you have questions about certain functionality, there are plenty of articles and videos that demonstrate every aspect. Once you get comfortable with using spreadsheets, the financial part of your business plan will be much easier to design.
Consult with an accountant
It's strongly advised that you consult with an accountant or other financial professional when setting up the financial portion of your business plan. This is especially the case if finance is not your strong suit. You can gain peace of mind from knowing that you have the input from someone who truly understands the ins and outs of finance, and your business plan will be all the stronger for it. When it's time to present your plan to investors or anyone else, this will help you ensure that this critical portion is in the best shape possible.
After you’ve created a business plan that summarizes what you expect to accomplish in the next few years, consult it often to make sure you’re on track to achieving your goals. Make adjustments as needed–to align your plan with what’s currently happening, and to align your company’s procedures to get you closer to your goals.
“The businesses that I have seen weather the first three years, when so many other businesses fail, are those that have put together a great business plan and have used it effectively to grow their business and stay on track,” concluded Benton.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC
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How to Prepare a Financial Plan for Startup Business (w/ example)
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13 Min Read
If someone were to ask you about your business financials, could you give them a detailed answer?
Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.
Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.
A business plan’s financial plan section is no easy task—we get that.
But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.
Ready to get started? Let’s begin by discussing startup financial planning.
What is Startup Financial Planning?
Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.
Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis, and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.
- Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
- Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
- Preparing a financial plan is easier and faster when you use a financial planning tool.
- Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.
Why is Financial Planning Important to Your Startup?
Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.
A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.
It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .
Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.
Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.
Key Components of a Startup Financial Plan
Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.
An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.
Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.
Your income or P&L statement must list the following:
- Cost of goods or cost of sale
- Gross margin
- Operating expenses
- Revenue streams
- EBITDA (Earnings before interest, tax, depreciation , & amortization )
Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.
Cash flow Statement
A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.
This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.
Your cash flow projection consists of the following three components:
✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.
✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.
✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.
Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.
Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.
Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.
This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.
Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:
Here is what’s the core purpose of having a balance-sheet:
- Indicates the capital need of the business
- It helps to identify the allocation of resources
- It calculates the requirement of seed money you put up, and
- How much finance is required?
Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.
Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.
For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.
Remember, anything you sell beyond the break-even point will result in profit.
You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.
- Fixed costs: fixed expenses that stay the same no matter what.
- Variable costs: expenses that fluctuate over time depending on production or sales.
A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.
Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.
How to Create a Financial Section of a Startup Business Plan?
1. determine your financial needs.
You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.
Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.
Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.
Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.
Having learned to determine financial needs, let’s head straight to setting financial goals.
2. Define Your Financial Goals
Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.
Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.
However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.
Feeling overwhelmed? Just define your financial goals—you’ll be fine.
You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.
3. Choose the Right Financial Planning Tool
Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.
Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.
Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.
Create a Financial Plan with Upmetrics in no time
Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.
4. Make Assumptions Before Projecting Financials
Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.
You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.
You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.
After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.
5. Prepare Realistic Financial Projections
It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.
Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.
Following are the two key aspects of your financial projections:
In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.
It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.
The following are the key components of an accurate revenue projection report:
- Market analysis
- Sales forecast
- Pricing strategy
- Growth assumptions
- Seasonal variations
This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.
Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.
Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.
These are the most common costs to consider while projecting expenses:
- Fixed costs
- Variable costs
- Employee costs or payroll expenses
- Operational expenses
- Marketing and advertising expenses
- Emergency fund
Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.
6. Consider “What if” Scenarios
After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.
Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.
Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.
7. Build a Visual Report
If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.
Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.
Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.
Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.
Here’s what Upmetrics’ dashboard looks like:
8. Monitor and Adjust Your Financial Plan
Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.
There are multiple ways to monitor your financial plan.
For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.
Consider making necessary adjustments if your assumptions are not resonating with actual numbers.
Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.
And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.
Startup Financial Plan Example
Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.
- The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
- The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
- The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
- Sales are cash basis – nonaccrual accounting
- Moderate ramp- up in staff over the 5 years forecast
- Barista salary in the forecast is $36,000 in 2023.
- In general, most cafes have an 85% gross profit margin
- In general, most cafes have a 3% net profit margin
Projected Balance Sheet
Projected Cash-Flow Statement
Projected Profit & Loss Statement
Break Even Analysis
Start Preparing Your Financial Plan
We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.
Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.
So what are you waiting for? Try Upmetrics and create your financial plan in a snap.
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Frequently Asked Questions
How often should i update my financial projections.
Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.
How do I estimate startup costs accurately?
You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.
What financial ratios should startups pay attention to?
Here’s a list of financial ratios every startup owner should keep an eye on:
- Net profit margin
- Current ratio
- Quick ratio
- Working capital
- Return on equity
- Debt-to-equity ratio
- Return on assets
- Debt-to-asset ratio
What are the 3 different scenarios in scenario analysis?
As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:
- base-case (expected) scenario
- Worst-case scenario
- best case scenario.
About the Author
Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more
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Simple Business Plan Template for Startups, Small Businesses & Entrepreneurs
Financial plan, what is a financial plan.
A financial plan is the part of your business plan that details how your business will achieve its financial goals. It includes information on the company’s income, expenses, and cash flow. The plan should also include a description of the business’s current financial situation, as well as its long-term goals.
The financial plan is an important part of the business plan, as it provides a framework for making financial decisions. It can be used to track progress and make adjustments as needed.
Why Your Financial Plan is Important
The financial section of your business plan details the financial implications of running your company. It is important for the following two reasons:
Making Informed Decisions
A financial plan provides a framework for making decisions about how to use your money. It can help you determine whether or not you can afford to make a major purchase, such as a new piece of equipment.
It can also help you decide how much money to reinvest in your business, and how much to save for paying taxes.
A financial plan is like a roadmap for your business. It can help you track your progress and make adjustments as needed. The plan can also help you identify potential problems before they arise.
For example, if your sales are below your projections, you may need to adjust your budget accordingly.
Your financial plan helps you understand how much outside funding is required, when your levels of cash might fall low, and what sales and other goals you need to hit to become financially viable.
This section of your plan is absolutely critical if you are trying to secure funding. Your financial plan should include information on your revenue, expenses, and cash flow.
This information will help potential investors or lenders understand your business’s financial situation and decide whether or not to provide funding.
Include a detailed description of how you plan to use the funds you are requesting. For example, what are the key uses of the funds (e.g., purchasing equipment, paying staff, etc.) and what are the future timings of these financial outlays.
The financial information in your business plan should be realistic and accurate. Do not overstate your projected revenues or underestimate your expenses. This can lead to problems down the road.
Potential investors and lenders will be very interested in your future projections since it indicates whether you will be able to repay your loans and/or provide a nice return on investment (ROI) upon exit.
Financial Plan Template: 4 Components to Include in Your Financial Plan
The financial section of a business plan should have the following four sub-sections:
Here you will detail how your company generates revenues. Oftentimes this is very straightforward, for instance, if you sell products. Other times, your answer might be more complex, such as if you’re selling subscriptions (particularly at different price/service levels) or if you are selling multiple products and services.
Financial Overview & Highlights
In developing your financial plan, you need to create full financial forecasts including the following financial statements.
5-Year Income Statement / Profit and Loss Statement
An income statement, also known as a profit and loss statement (P&L), shows how much revenue your business has generated over a specific period of time, and how much of that revenue has turned into profits. The statement includes your company’s revenues and expenses for a given time period, such as a month, quarter, or year. It can also show your company’s net income, which is the amount of money your company has made after all expenses have been paid.
5-Year Balance Sheet
A balance sheet shows a company’s financial position at a specific point in time. The balance sheet lists a company’s assets (what it owns), its liabilities (what it owes), and its equity (the difference between its assets and its liabilities).
The balance sheet is important because it shows a company’s financial health at a specific point in time. A strong balance sheet indicates that a company has the resources it needs to grow and expand. A weak balance sheet, on the other hand, may indicate that a company is struggling to pay its bills and may be at risk of bankruptcy.
5-Year Cash Flow Statement
A cash flow statement shows how much cash a company has on hand, as well as how much cash it is generating (or losing) over a specific period of time. The statement includes both operating and non-operating activities, such as revenue from sales, expenses, investing activities, and financing activities.
While your full financial projections will go in your Appendix, highlights of your financial projections will go in the Financial Plan section.
These highlights include your Total Revenue, Direct Expenses, Gross Profit, Other Expenses, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and Net Income projections. Also include key assumptions used in creating these future projections such as revenue and cost growth rates.
Funding Requirements/Use of Funds
In this section, you will detail how much outside funding you require, if any, and the core uses of these funds.
For example, detail how much of the funding you need for:
- Product Development
- Product Manufacturing
- Rent or Office/Building Build-Out
If you are seeking equity capital, you need to explain your “exit strategy” here or how investors will “cash out” from their investment.
To add credibility to your exit strategy, conduct market research. Specifically, find other companies in your market who have exited in the past few years. Mention how they exited and the amounts of the exit (e.g., XYZ Corp. bought ABC Corp. for $Y).
Business Plan Financial Plan FAQs
What is a financial plan template.
A financial plan template is a pre-formatted spreadsheet that you can use to create your own financial plan. The financial plan template includes formulas that will automatically calculate your revenue, expenses, and cash flow projections.
How Can I Download a Financial Plan Template?
Download Growthink’s Ultimate Business Plan Template which includes a complete financial plan template and more to help you write a solid business plan in hours.
How Do You Make Realistic Assumptions in Your Business Plan?
When forecasting your company’s future, you need to make realistic assumptions. Conduct market research and speak with industry experts to get a better idea of the key trends affecting your business and realistic growth rates.
You should also use historical data to help inform your projections. For example, if you are launching a new product, use past sales data to estimate how many units you might sell in Year 1, Year 2, etc.
Learn more about how to make the appropriate financial assumptions for your business plan.
How Do You Make the Proper Financial Projections for Your Business Plan?
Your business plan’s financial projections should be based on your business model and your market research. The goal is to make as realistic and achievable projections as possible.
To create a good financial projection, you need to understand your revenue model and your target market. Once you have this information, you can develop assumptions around revenue growth, cost of goods sold, margins, expenses, and other key metrics.
Once you have your assumptions set, you can plug them into a financial model to generate your projections.
Learn more about how to make the proper financial projections for your business plan.
What Financials Should Be Included in a Business Plan?
There are a few key financials that should be included in a traditional business plan format. These include the Income Statement, Balance Sheet, and Cash Flow Statement.
Income Statements, also called Profit and Loss Statements, will show your company’s expected income and expense projections over a specific period of time (usually 1 year, 3 years, or 5 years). Balance Sheets will show your company’s assets, liabilities, and equity at a specific point in time. Cash Flow Statements will show how much cash your company has generated and used over a specific period of time.
Growthink's Ultimate Business Plan Template includes a complete financial plan template to easily create these financial statements and more so you can write a great business plan in hours.
BUSINESS PLAN TEMPLATE OUTLINE
- Business Plan Template Home
- 1. Executive Summary
- 2. Company Overview
- 3. Industry Analysis
- 4. Customer Analysis
- 5. Competitive Analysis
- 6. Marketing Plan
- 7. Operations Plan
- 8. Management Team
- 9. Financial Plan
- 10. Appendix
- Business Plan Summary
Other Helpful Business Planning Articles & Templates
6 Elements of a Successful Financial Plan for a Small Business
Table of contents.
Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business.
For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.
What is a business financial plan, and why is it important?
A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.
A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.
Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources.
Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.
The 6 components of a successful financial plan for business
1. sales forecasting.
You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies .
For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.
Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.
2. Expense outlay
A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll.
Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.
Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.
Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities.
As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.
3. Statement of financial position (assets and liabilities)
Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value.
Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report.
A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.
4. Cash flow projection
You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges.
It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .
A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.
5. Break-even analysis
A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output.
Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.
In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.
6. Operations plan
To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.
It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.
For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider.
Tips on writing a business financial plan
Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead.
A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.
Review the previous year’s plan.
It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.
Collaborate with other departments.
A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools.
Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.
Use available resources.
The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter.
If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.
Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .
Business financial plan templates
Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.
SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help.
SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.
Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.
Diana Wertz contributed to the writing and research in this article.
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Business Plan Section 7: Financial Information
In this section of your business plan, learn how to put your business finances into context to influence potential lenders or investors.
This section of your business plan is crucial if you’re presenting your plan to potential lenders or investors, but it’s also important if you’re using it in-house as a roadmap to get started and continue to grow. You may have the best idea in the world for a business-or it may need tweaking. You won’t actually know until you sit down and work up the numbers for your financial information section.
As a startup, spelling out your sales projections for the future will help you closely examine your business model and costs, how you’ll allocate your resources, and figure out whether you actually do have a viable idea. For existing businesses, think of this as a financial checkup: a way to examine your previous sales figures and ensure your health going forward.
If you’re applying for a loan or making a presentation to investors, this section is the companion piece to your Funding Request. It’s where you support the numbers you put together in your sales and marketing plan, and demonstrate why you’re a good investment. In this section, you’ll take all of the marketing, sales, and product information you’ve amassed, and show how they translate into dollars. Sharpen your pencil and get your spreadsheet on!
Writing the Financial Section
There are two parts to the financial component of a business plan: historical data and prospective data. If you’re a startup, you obviously won’t have any previous financial information for the company, so many lenders will want to see your personal financial information in lieu of, or in addition to, your business financials.
Spell out how much money you’re investing in the business, along with specifics about the assets you plan to use. If you’re looking for financing, you’ll probably have to show personal income tax returns for the last few years. Be prepared with documentation for the last three to five years, depending on how long you’ve been in business. You’ll need income statements, balance sheets, cash flow statements, and tax returns.
Income statements document how much money you’ve taken in for the business, where the money came from, what your expenses were, and your net income, or how much you wound up with after paying all the expenses. The statements are usually prepared quarterly, and will show at a glance whether the company is making money or operating at a loss.
Balance sheets list the type and value of all of your business’s assets and liabilities, along with ownership interest (who owns what in the company, and how much). Assets will include your cash on hand, accounts receivable, inventory, equipment, and property you own. Liabilities are things such as your accounts payable and long-term debt. The balance sheet is a snapshot of your company’s financial position at the time it’s prepared, comparing what you own with what you owe.
Cash Flow Statements
Cash flow statements show all the cash you have coming in and out of the company, whether as a direct result of your business activities or from any outside investments you’ve made.
How your business is structured will determine which tax forms you have to file with the Internal Revenue Service each year, so these may be your personal tax returns with a Schedule C attachment, or separate corporate tax returns.
If you’re looking for a loan, you’ll most likely also need to show the value of any collateral you’re offering to ensure payments, like real estate, vehicles, inventory, stocks and bonds, and equipment.
Now, everyone knows you don’t have a crystal ball and can’t actually predict what will happen over the next five years, but there’s a point to putting the projections together. Lenders and investors really want to see that you have thought things through and considered the possible outcomes as your business progresses. They want to understand the thought process behind your numbers and why you’ve made those assumptions.
This means you need to do a significant amount of planning before sitting down to work on your projections, critically thinking through different scenarios. Again, the work and research you’ve already done for previous sections of your business plan will be invaluable here in making the assumptions needed to put your projections together.
Include projected income statements, balance sheets, and cash flow statements, which we described above, along with a capital expenditure budget.
Capital Expenditure Budget
A capital expense is a tangible, physical asset like property, buildings or equipment. This budget is your plan for how much you’ll spend to buy or upgrade these assets, whether that might be purchasing new machinery or repairing your HVAC system.
Funders may also want to see an analysis of how your results would change if some of the variables changed, so consider including a section on that, as well. As an added benefit, this isn’t just a theoretical exercise on your part, but will actually help you run the business and make adjustments as they become necessary. Business Insider offers a look at how to make realistic projections that will be meaningful to your business as well as to lenders and investors.
If you’re just at the beginning stages of business, make sure to also include any startup costs you’ll have. Some may be specific to your industry, such as particular types of equipment, tools or store fixtures. Others are fairly common across the board, like professional fees for lawyers or accountants, licensing and incorporation fees, security deposits and rent, and computers.
As a rule, the financial part of your plan should follow generally accepted accounting principles (GAAP) as set by the Federal Accounting Standards Advisory Board, especially if you’re putting it together primarily to get a loan or a line of credit. For this section, it helps to be fluent with spreadsheets, as that’s the best and most accepted way to present this information. This is one part of the business plan that you may want to get some outside assistance with, perhaps from your accountant or financial advisor, to help put the numbers together and present them properly. If you use an accountant, and your financial statements have been audited, make a note of that in the plan. If you want to give it a go on your own, SCORE, the Service Corps of Retired Executives, has a financial projections template available on its website.
Attention to detail is very important throughout the whole process of writing a business plan, but we can’t stress it strongly enough with regards to your finances. Be VERY careful to make sure that your projections match the numbers you put together for the funding request portion of the plan. At best, any inconsistencies here could delay consideration of your application, and at worst, could be a signal that you’re not as on top of things as you should be, disqualifying you altogether.
Visuals help. Yes, there may be professional number crunchers going over your data, but consider showing your projections graphically along with the requisite spreadsheets, especially if the graphs demonstrate a positive trend.
Include a brief analysis of the financial information you’re presenting to explain the numbers, putting them into context for someone that has less of an understanding about your business and industry than you do.
Whether you have a startup or existing business, there’s an excellent likelihood you’ll also be asked for personal financial information, so consider including that as part of your business plan. Your credit history or a copy of a recent credit report can go in the appendix, together with copies of your tax returns or any additional information a lender may request.
Next Article: Business Plan Section 8 – Funding Request
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