how to write a financial plan for a startup business

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Writing a Business Plan

While it may be tempting to put off, creating a business plan is an essential part of starting your own business. Plans and proposals should be put in a clear format making it easy for potential investors to understand. Because every company has a different goal and product or service to offer, there are business plan templates readily available to help you get on the right track. Many of these templates can be adapted for any company. In general, a business plan writing guide will recommend that the following sections be incorporated into your plan.

Executive Summary

The executive summary is the first section that business plans open with, but is often the last section to actually be written as it’s the most difficult to write. The executive summary is a summary of the overall plan that highlights the key points and gives the reader an idea of what lies ahead in the document. It should include areas such as the business opportunity, target market, marketing and sales strategy, competition, the summary of the financial plan, staff members and a summary of how the plan will be implemented. This section needs to be extremely clear, concise and engaging as you don’t want the reader to push your hard work aside.

Company Description

The company description follows the executive summary and should cover all the details about the company itself. For example, if you are writing a business plan for an internet café, you would want to include the name of the company, where the café would be located, who the main team members involved are and why, how large the company is, who the target market for the internet cafe is, what type of business structure the café is, such as LLC, sole proprietorship, partnership, or corporation, what the internet café business mission and vision statements are, and what the business’s short-term objectives are.

Services and Products

This is the exciting part of the plan where you get to explain what new and improved services or products you are offering. On top of describing the product or service itself, include in the plan what is currently in the market in this area, what problems there are in this area and how your product is the solution. For example, in a business plan for a food truck, perhaps there are numerous other food trucks in the area, but they are all fast –food style and unhealthy so, you want to introduce fast food that serves only organic and fresh ingredients every day. This is where you can also list your price points and future products or services you anticipate.

Market Analysis

The market analysis section will take time to write and research as a lot of effort and research need to go into it. Here is where you have the opportunity to describe what trends are showing up, what the growth rate in this sector looks like, what the current size of this industry is and who your target audience is. A cleaning business plan, for example, may include how this sector has been growing by 10% every year due to an increase in large businesses being built in the city.

Organization and Management

Marketing and sales are the part of the business plan where you explain how you will attract and retain clients. How are you reaching your target customers and what incentives do you offer that will keep them coming back? For a dry cleaner business plan, perhaps if they refer customers, they will get 10% off their next visit. In addition, you may want to explain what needs to be done in order for the business to be profitable. This is a great way of showing that you are conscious about what clear steps need to be taken to make a business successful.

Financial Projections & Appendix

The financial business plan section can be a tricky one to write as it is based on projections. Usually what is included is the short-term projection, which is a year broken down by month and should include start-up permits, equipment, and licenses that are required. This is followed by a three-year projection broken down by year and many often write a five-year projection, but this does not need to be included in the business plan.

The appendix is the last section and contains all the supporting documents and/or required material. This often includes resumes of those involved in the company, letters of reference, product pictures and credit histories. Keep in mind that your business plan is always in development and should be adjusted regularly as your business grows and changes.

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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

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.

Key Takeaways

• 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.

Income Statement

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.

Balance Sheet

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

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.

Start Forecasting

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:

Revenue 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.

Expense Projections

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.

Important Assumptions

• 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.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

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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Creating a Financial Plan for Startups: The Ultimate Guide

The top reason startups fail is because they run out of money, according to a 2020 survey by Wilbur Labs . And one of the main reasons they run out of money is because their financial planning consists of rosy projections of the best-case scenario, based on bad data — or no financial planning at all.

Creating a financial plan is essential to a startup’s success. For one thing, most investors need to see a startup’s financial plan before they even consider funding it. More importantly, a financial plan allows you to quantify your business assumptions, define specific benchmarks, plan for worst- and best-case scenarios, and measure your company’s success (even before you start making a profit).

The bottom line is: if you have expenses, you should have a financial plan. But you don’t need an accounting degree (or even an accountant) to get started.

What is startup financial planning?

Your startup’s financial plan is the roadmap that lays out the path for your company’s future financial success. In it, you make predictions and plans based on historical performance and industry research. Start with your company’s current financial situation, add in future goals and predictions, and strategize how to get there. Financial plans include details about:

• Fixed/variable expenses
• Gross/operating margins
• Profit potential and durability
• Break-even point
• Cash balance
• Cash flow changes

Don’t have all that information close at hand? That’s okay. The first financial plan you create may not be very detailed. You’ll keep building and tweaking it as your company iterates.

A financial plan is NOT the same as a business plan

A business plan is written in paragraphs. A financial plan is (traditionally) a giant Excel spreadsheet. It’s synonymous with Pro Forma financial, which is the finance industry term for three detailed reports: cash flow statement, profit and loss (P&L) , and balance sheet . Financial planning is part of the due diligence process , which you’ll need to provide to investors prior to signing a Series A term sheet.

Financial planning is made up of several smaller activities:

These activities include:

• Creating a hiring plan
• Making projections about sales, expenses, cash flow, income statement, and balance sheet
• Analyzing projections
• Producing profit and loss statements
• Financial projections and modeling
• Analyzing internal controls
• Creating annual growth strategies

Before you start: collect data and tools

You can’t create a financial plan in a vacuum. First, you’ll need to assemble some critical things:

Before you can accurately create a financial plan, identify and assemble all your existing financial data. What financial accounts (bank accounts, credit cards) are you using for your business income and expenses? Where/how are you doing your bookkeeping (e.g., QuickBooks, Xero, NetSuite), and is that information up to date?

You’ll need to import the above information into your financial plan. Updates can be done manually with a spreadsheet or automatically using software (more on that below). Generally, it’s better if updates can be automated so you know you’re looking at the latest data and can be more nimble with decision-making.

Now you need to decide what tools you’ll use to create a financial plan. Options include a spreadsheet, dedicated software, or outsourcing to a CPA.

If you opt for a spreadsheet, you can download an Excel or Google Sheet template from an online resource, or you can create it yourself. If you create it yourself, a finance analyst, HR manager, or office manager can maintain it, and then later, a CFO can run point on the whole process.

The problem with a spreadsheet is that it’s often too fragile for everyone to use collaboratively — it’s not automatically version controlled, and it’s too manual. That’s why you might choose software like Pry, Finmark, Brixx, or Causal. Obviously, we think Pry is the best choice for financial planning. But whatever you choose, the main reason to use software is it will scale as you grow.

Finally, you can hire a CPA to build a financial plan for you. This option can afford you some peace of mind. However, it costs a lot more than a DIY spreadsheet or software approach. Additionally, you’ll understand your business better if you create your financial plan internally.

Steps to create a financial plan

Startup financial planning can seem daunting at first, especially if you’re an early-stage founder and this is your first time. We’ll break it down below.

1. Visualize the end result

At the beginning of the financial planning process, you should sketch out long-term strategies and goals. If you’re pursuing a financing round, ask your investors about what metrics matter the most to them. That way you can bring those details to the forefront instead of burying them in a series of complex tabs.

A good starting point is to determine your company’s KPIs. What are the things you want to track and forecast? Remember that different metrics are important to different business models . For example, SaaS companies should include metrics like MRR (monthly recurring revenue) , as well as bank balance and budget vs. actuals.

Thinking back to your best lever of growth, what will be your key milestones? This could include acquiring a certain number of customers, raising a round of fundraising, or making an acquisition.

This sounds like, “To reach X, we need to hit A, B, C, and D milestones. Here’s how we think we’ll get from A to B, then B to C, then C to D.” – Underscore VC

2. Pick the right template or software

It’s hard to create a generic template for all sorts of businesses, so find a template that matches your business model. Sometimes you can access these templates for free, like the one in this LinkedIn thread . Or you can download a template in exchange for your contact info, like this one for SaaS startups.

Of course, you can also choose software that creates this template for you instead of trying to retrofit some random online spreadsheet template. At Pry, we can customize reports and dashboards to your specific business model for $500 with our custom onboarding.

3. Import existing data

Now you’ll need to import your existing information from different financial accounts like QuickBooks or Xero (depending on which you use), bank account(s), and/or credit card(s). This is sometimes referred to as the “ Chart of Accounts .” Your bank data could be a statement, or it could just be today’s balance. Ideally, you should pull as much as possible, so you have the clearest, most detailed picture.

The information you should import can be broken down as follows:

• Assets (e.g., checking, savings, amounts owed to the company from customers, inventory, prepaid expenses)
• Liabilities (e.g., line of credit, credit card payable, the amount owed to vendors, payroll taxes payable)
• Equity (assets minus liabilities)
• Income (e.g., product sales, interest)
• Expenses (e.g., cost of goods sold, marketing, travel, rent, office supplies)

If your financial plan is a spreadsheet, you’ll need to manually export your existing data and then import it into your spreadsheet. This process looks slightly different for each different financial account. QuickBooks and Xero both outline how to do this on their websites.

If you’re using a financial planning tool like Pry, you can connect these accounts so they sync automatically via an API integration .

4. Project expenses

Once you have an accurate picture of current accounts, you should start projecting future expenses. These can be broken into two broad categories: direct expenses (aka, costs of sales) and indirect expenses (aka, selling, general, and administrative expenses). Direct expenses include any raw materials, production equipment depreciation, hosting fees, etc. Everything else (other than product costs and capital purchases) is considered an indirect expense.

Salaries and benefits (an indirect expense) are usually the biggest expense at this point, so we recommend starting with this one. You should add existing employees and forecast future hires to predict the additional cost of roles and salaries over time. Be sure to include benefits and payroll taxes. Also, don’t project people out by dollars spent on them — do it by name/role/salary, then convert salary into a monthly cost. For example, 4 Software Engineers, $100k each, Start Dates: July 2021, September 2021, November 2021, January 2022 .

Build a headcount plan by role for the pro forma period by month. This approach creates a hiring plan based on revenue timing to properly support the business. It also allows for quick adjustments when modeling revenue changes. – Tiffany Hovland, CPA, Journal of Accountancy

• Legal and professional services (e.g., the costs of incorporating a new business, like business license fees)
• IT (e.g., data storage, software, data security)
• Office rent
• Office supplies

As you make projections about future expenses, remember to focus on high-level estimates based on industry standards, location, and company size.A lot of things can change, and you shouldn’t waste time perfecting predictions — they may not come true, anyway.

5. Project revenue

Now you’ll describe how your company will produce income. If your company is pre-revenue, you can start with industry standards. Realistic revenue projections are important to investors, and they influence all other assumptions about profit and loss (P&L) . If revenue projections are drastically wrong, you may over- or understaff your company or make big purchases you can’t afford.

To make accurate projections, define the revenue levers, drivers, and assumptions. Revenue levers could be products and/or services, software maintenance agreements, or channel partner sales. You also need to identify which activities increase or decrease revenue, as well as pricing and activity assumptions.

One important revenue projection for SaaS businesses is MRR. Here’s an example of this type of revenue projection:

• Revenue lever: monthly subscription revenue
• Revenue driver: marketing spend and conversion rates
• Revenue assumptions: $200 subscription price, 100 initial customers, 25 new signups per month, two churned customers per month

To project MRR using software like Pry, use this formula: MRR = total customers * average subscription price.

6. Build a report

After you have collected all your current financial information and built out some projections, it’s time to present it in an easily digestible format to drive decision-making. A dashboard is a visual way to summarize and report on the data. It makes it easy for business owners, board members, and investors to look at and know the status of the company.

Now that the estimates are complete, it is time to transform the work into a collection of facts that potential investors and business owners can use to drive decisions. The initial information and discussions should focus on high-level assumptions and give confidence that the business can scale and grow as the example outlines. – Tiffany Hovland, CPA, Journal of Accountancy

If you’re using Excel for your financial plan, you can build these reports as pivot tables. Or, if you find pivot tables too cumbersome, you can create a dashboard easily using software. Here’s what Pry’s dashboard looks like:

7. Test assumptions

The final step of financial planning is often called a what-if analysis or sensitivity analysis. Now that you’ve built some assumptions about the future, try playing with some different ones — some aggressive and some conservative. Change some inputs and review the reports in different scenarios. This will help you see how the assumptions relate and ensure that the end model makes sense.

Another way to test your assumptions is to compare your company’s metrics to those of other companies. Larger companies might check the SEC’s website for public competitors or companies in a similar space with similar net revenue. If you can’t find a good comparison, though, you can check with investors to see which assumptions you should tweak. Then revise accordingly.

We picked a list of IPO comparables—enterprise-class SaaS companies that had gone public. We look at up to three years of their financial data, and based on our growth rate, revenue, and expenses as a percentage of revenue, we compare ourselves against their metrics. These comparables are a way to validate our progress against our three-year plan. – Jason Purcell, CEO of Salsify

Now it’s your turn (we can help)

The bottom line is that if your startup has expenses, you should also have a financial plan. And now that you know how to create one, it’s time to get started.If the prospect of making pivot tables in Excel intimidates you, try creating a financial plan with an out-of-box tool like Pry. It does everything the expensive firms do but without the hefty price tag.

View Pry’s pricing ->

Keep reading...

Revenue forecasting for founders: how to make projections early.

Revenue forecasting is looking at existing data and predicting how much money your company will bring in from sales in future months, quarters, or years. Even early-stage startups need to track these metrics because accurate and realistic revenue forecasts are the only way you can avoid a big cash flow shortage and complete company meltdown.

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How to make a financial plan for a start-up

Do you want to ensure a sustainable financial future for your new start-up business? If so, it’s important to get to grips with the basics of financial planning and analysis. Find out everything you need to know, including how to make a financial plan for a start-up, right here.

What is financial planning?

It’s important to remember that financial planning isn’t just about modelling the way that your business’s bottom line is likely to change over time, but creating solutions to improve financial performance. Whereas your company’s accounting team will analyse the historical performance of your business, financial planning takes an active role in shaping the future.

Why is financial planning important?

Before getting into the nitty-gritty of start-up financial plans, it’s important to consider why they’re necessary in the first place. Although virtually all companies will do some form of financial modelling, it’s especially important for start-ups, not least because it plays a key role in the financing process . Many financiers and investors will require a financial plan before they’ll consider funding your start-up, so on a purely practical level, a financial plan for a start-up business is important.

You should also consider the fact that it’s a necessary part of building a viable business model. Without a financial plan, you won’t be able to quantify your assumptions about the business. Plus, by building out different scenarios for the business (especially negative scenarios where things don’t go the way you expect), you’ll be much better able to deal with potential issues as they arise. Finally, financial plans can provide your company with benchmarks and targets to achieve, which is an effective way to measure the success of your company, particularly in the early years when you may not be making a profit.

How do I produce a start-up financial plan?

One of the key elements of financial planning is learning how to write a financial plan for a start-up business. When you create the plan, you’ll need to think about a broad range of issues, including your business’s gross/operating margins, profit potential, fixed/variable costs, break-even point, potential changes to cash flow, and profit durability. Some of the activities that you’ll need to undertake when producing a financial plan for a start-up business include:

Sales projections

Expense projections

Balance sheet projections

Income statement projections

Of course, making a financial model requires a significant amount of effort. For a little more insight into generating financial projections for start-up businesses, take a look at our guide to financial projections .

How does financial planning work?

Generally speaking, businesses use financial planning software for start-ups to create a financial plan. For example, accounting software like Xero or QuickBooks can help you produce start-up financial plans, while there are many different financial plans for start-up business templates available online. Simply browse around until you find a template that’s well suited to your business’s needs.

Tips for producing a good financial plan for a start-up business

Now that you a little more about how to make a financial plan for a start-up, let’s take a look at some of the tips and tricks you can utilise to optimise financial planning:

Understand that financial planning is continuous – You can’t simply switch your financial planning activities on and off. Ensure that the financial planning and analysis process is ongoing to give your business the best chance of success.

Never underestimate the importance of cash – When it comes to start-ups, and businesses in general, cash is king. To keep your business in the black, make sure that your cash flow remains healthy with well-founded cash flow projections.

Creativity is key – Although it’s a numbers game, creating a viable financial plan for a start-up business is a creative endeavour. Think creatively about your business and consider alternative sources of financing, as well as different ways to launch the business.

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Creating an Effective Financial Plan for Your Startup a Step by Step Guide

1. defining your financial goals, 2. determining your start up costs, 3. creating a sales forecast, 4. developing a pricing strategy, 5. estimating your expenses, 6. managing your cash flow, 7. raising money for your start up, 8. creating financial projections, 9. reviewing and revising your plan.

When it comes to financial planning, one size does not fit all. Whether you're just starting out or you're well established, you need to tailor your approach to fit your specific circumstances. That's why it's so important to define your financial goals.

What do you want to achieve? Do you want to grow your business? Do you want to achieve financial independence ? Do you want to leave a legacy?

Once you know what you want to achieve, you can start to develop a plan to get there. Here are some steps to help you create an effective financial plan for your startup :

1. Define your financial goals.

As we mentioned, it's important to know what you want to achieve before you can start developing a plan. Take some time to think about your long-term goals and what you want to accomplish.

2. Understand your financial situation.

The next step is to take a close look at your current financial situation. What are your revenues and expenses? What are your assets and liabilities? This will give you a good starting point for developing your plan.

3. Develop realistic assumptions.

In order to create an effective financial plan , you need to make some assumptions about the future. What do you expect your revenues and expenses will be? What do you expect the market will be like? What are the risks and opportunities?

4. Create different scenarios.

Once you have developed your assumptions, it's time to start creating different scenarios. What if your revenues are less than expected? What if there's a recession? What if there's an opportunity to expand your business? By creating different scenarios, you can be prepared for anything that comes your way.

5. Implement your plan.

Once you have developed your plan, it's time to start implementing it. This may include setting up a budget, investing in assets, and making changes to your business operations. The key is to start taking action now so you can achieve your financial goals .

Defining your financial goals - Creating an Effective Financial Plan for Your Startup a Step by Step Guide

If you're like most entrepreneurs, you're probably not too excited about the prospect of creating a financial plan for your startup . After all, there are so many other things to worry about when starting a business. However, a well-thought-out financial plan is essential to the success of any business, and it doesn't have to be as complicated or time-consuming as you might think.

The first step in creating a financial plan for your startup is to determine your start-up costs. This includes everything from the cost of renting office space to the cost of buying office furniture and equipment. If you're not sure what your start-up costs will be, a good place to start is by creating a budget.

Once you have an idea of your start-up costs, you need to start thinking about how you're going to finance your business. If you're lucky enough to have some savings, you may want to use that to finance your business. However, if you don't have any savings, you'll need to look into other options, such as small business loans or venture capital .

Once you've determined how you're going to finance your business, you need to start thinking about your revenue streams. What are some ways that you can generate revenue for your business ? Will you be selling products or services? If so, what are your pricing strategy and marketing plans?

Finally, you need to create a financial forecast for your business . This is essentially a road map that will help you track your progress and make necessary adjustments along the way. Your financial forecast should include both short-term and long-term goals.

While creating a financial plan startup may seem like a daunting task, it's actually not as difficult as it sounds. By taking the time to determine your start-up costs, financing options, and revenue streams, you'll be well on your way to ensuring the success of your business.

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Sales forecasting is vital to any startup business . By creating a sales forecast, startups can predict how much revenue they will generate in the future and plan their expenses accordingly.

There are a few different methods that startups can use to create a sales forecast, but the most important part is to be realistic. Many startups make the mistake of being too optimistic in their forecasts, which can lead to problems down the road.

The first step in creating a sales forecast is to gather data. This data can come from a variety of sources, including market research, customer surveys, and historical sales data. Once this data is gathered, it can be used to create a model of future sales.

There are a few different ways to create a sales forecast model, but the most important part is to make sure that the model is realistic. Many startups make the mistake of being too optimistic in their forecasts, which can lead to problems down the road.

Once a sales forecast model is created, it's important to review it regularly and make adjustments as needed. The goal is to have a model that is accurate and up-to-date so that it can be used to make sound business decisions.

A successful entrepreneur is one who recognizes her blind spots. You may be the world's best engineer, but you probably have never run a 10-person sales force. You may be a brilliant marketer, but how do you structure a cap table? Jay Samit

As a startup, one of your first big decisions is developing a pricing strategy . You need to find a balance between making a profit and attracting customers. Here are some factors to consider when setting prices for your products or services:

1. Production costs: You need to cover the costs of producing your product or service. This includes the cost of materials, labor, and overhead expenses.

2. Competitor prices: Take a look at what your competitors are charging for similar products or services. You don't want to be too high or too low.

3. Customer demand: If there is high demand for your product or service, you may be able to charge more. However, if demand is low, you may need to lower your prices to attract customers .

4. Value: Your prices should reflect the value that your customers will receive. If you offer a high-quality product or service, you can charge more than if you offer a lower-quality product or service.

5. Promotions: You can use promotions to attract customers and boost sales. For example, you may offer discounts, coupons, or free shipping.

6. Payment terms: You may need to offer different payment terms to different customers. For example, you may offer a discount for customers who pay upfront.

7. Shipping costs: If you sell physical products, you need to factor in the cost of shipping when setting your prices.

8. Taxes: Don't forget to factor in any taxes that will apply to your product or service.

9. Profit margins: You need to make a profit to stay in business. Be sure to factor in your desired profit margin when setting prices.

10. Discounts: You may need to offer discounts for large orders or for customers who purchase multiple products or services.

Developing a pricing strategy can be tricky. But if you take the time to consider all of the factors listed above, you'll be in a good position to find a pricing sweet spot that meets the needs of both your business and your customers.

Developing a pricing strategy - Creating an Effective Financial Plan for Your Startup a Step by Step Guide

When you are thinking about starting a business , one of the first things you need to do is to create a financial plan. This will give you a clear idea of how much money you need to start your business and how much you need to sustain it.

One of the most important parts of creating a financial plan is estimating your expenses. This can be a tricky task, especially if you are not sure what all your expenses will be. However, there are some ways to make this task easier.

One way to estimate your expenses is to think about all of the different types of costs that you will have. For example, you will need to think about the cost of rent, utilities, inventory, employees, and marketing. Once you have a good idea of all the different types of costs, you can start to put together an estimate.

Another way to estimate your expenses is to talk to other businesses in your industry. They can give you a good idea of what their costs are and how they manage them. You can also look at industry averages to get an idea of what you can expect to spend.

Once you have a good idea of your expenses, you need to start thinking about how you are going to finance your business. There are a few different options for financing a business. You can use personal savings, get a loan from a bank, or look for investors.

Personal savings is often the best option for financing a business. However, if you do not have enough saved up, you may need to look into getting a loan. There are many different types of loans available, so you will need to research your options carefully.

Getting investors is another option for financing your business. This can be a great option if you have a great business plan and a solid track record. However, it can be difficult to find investors, so this may not be the best option for everyone.

Once you have a good idea of your expenses and how you are going to finance your business, you need to start working on a budget. A budget will help you keep track of your income and expenses so that you can make sure that you are not spending more than you are bringing in.

Creating a budget can be a challenge, but it is an important part of creating a financial plan. There are many different resources that you can use to help you create a budget. You can find budgeting software online or in stores. You can also find many books and articles that can help you learn more about creating a budget.

Once you have created a budget, you need to start tracking your progress. This will help you see where you are spending too much money and where you can save money. You can use software to track your progress or you can simply keep track of your expenses in a notebook.

As you can see, creating a financial plan for your startup is not as difficult as it may seem. By following these steps, you can make sure that you have the funds that you need to get your business off the ground and keep it running smoothly.

When you're starting a business, its essential to have a solid financial plan in place. This will help you make sound decisions about how to allocate your resources and manage your cash flow .

The first step is to establish your business goals. What are you hoping to achieve in the short-term and long-term? Once you have a clear understanding of your goals, you can start to develop a financial plan that will help you achieve them.

Next, you need to gather all of the financial information related to your business. This includes your revenue, expenses, and debts. Once you have this information, you can start to develop a cash flow statement .

A cash flow statement is a tool that can help you track your inflows and outflows of cash. This will help you identify any potential problems with your cash flow so that you can take corrective action.

Once you have your cash flow statement, you need to develop a budget. This will help you track your spending and make sure that you are staying within your means.

Finally, you need to review your financial plan on a regular basis. This will help you make sure that it is still relevant and that it is helping you achieve your business goals .

Creating a financial plan may seem like a lot of work, but it is an essential part of running a successful business . By taking the time to develop a financial plan, you can ensure that your startup is on the right track for success.

When it comes to starting a business, one of the most important things you can do is create a financial plan. This will not only help you raise money for your startup , but also keep your business on track financially.

There are a few key things to keep in mind when creating a financial plan for your startup. First, you need to track all of your expenses. This includes both your personal and business expenses . Next, you need to create a budget. This will help you keep track of where your money is going and make sure you are not overspending. Finally, you need to create a fundraising plan. This will help you raise money for your startup and keep your business on track financially.

Creating a financial plan startup is an important step in ensuring your businesss success. By tracking your expenses, creating a budget, and raising money for your startup, you can ensure that your business stays on track financially.

When it comes to creating financial projections for your startup , there are a few key things to keep in mind. First, you need to have a clear understanding of your business model and how it will generate revenue. Second, you need to be realistic in your assumptions and projections. Third, you need to have a clear understanding of your expenses.

With that said, let's take a look at how to create financial projections for your startup step by step:

1. Know Your Business Model

The first step in creating financial projections is to have a clear understanding of your business model. What are you selling? How will you generate revenue? What are your margins? These are all important questions that need to be answered before you can begin to create projections.

2. Make Realistic Assumptions

Once you have a clear understanding of your business model, it's time to start making assumptions. When it comes to making assumptions, it's important to be realistic. Don't assume that you're going to sell 10,000 units in your first month just because your friend's startup did. Be realistic in your projections and assumptions.

3. Know Your Expenses

The third step in creating financial projections is to have a clear understanding of your expenses. What are your fixed expenses? What are your variable expenses? What are your one-time expenses? Knowing your expenses is critical in creating accurate projections.

4. Create Your Projections

Now that you have a clear understanding of your business model, assumptions, and expenses, it's time to start creating your projections. There are a number of different ways to do this, but one of the simplest is to create a spreadsheet with three columns: revenue, expenses, and profit.

5. Review and Revise

Once you have your projections created, it's important to review and revise them on a regular basis. As your business grows and changes, so too will your projections. Reviewing and revising on a regular basis will help ensure that your projections are accurate and up-to-date.

Creating financial projections - Creating an Effective Financial Plan for Your Startup a Step by Step Guide

It's been said that the only thing certain in life is change. This is especially true when it comes to your financial plan. As your startup grows and evolves, your financial plan should be reviewed and revised on a regular basis to ensure that it's still on track.

1. Review your financial plan at least once a year.

At a minimum, you should be reviewing your financial plan once a year to make sure it's still relevant and accurate. This is especially important if there have been any major changes in your business, such as new products or services, new markets, or new funding.

2. Make sure your assumptions are still accurate.

When you first created your financial plan, you made a number of assumptions about things like sales, costs, and growth. As time goes on, it's important to revisit these assumptions and make sure they're still accurate. If they're not, you'll need to make adjustments to your financial plan accordingly.

3. Update your financial projections.

Your financial projections should be updated on a regular basis to reflect any changes in your assumptions or business. This will help you see how these changes will impact your bottom line and make sure that your financial plan is still on track.

4. Evaluate your progress.

As you work through your financial plan, it's important to periodically stop and evaluate your progress. This will help you identify any areas where you're ahead of or behind schedule and make necessary adjustments to your plan.

5. Be flexible.

Remember that your financial plan is a guide, not a rigid roadmap. As such, it's important to be flexible and willing to make changes as needed. The goal is to keep your business on track, not to adhere strictly to a plan that may no longer be relevant.

By following these tips, you can ensure that your financial plan is always up-to-date and accurate. This will help you make better decisions for your business and keep your startup on the path to success .

Reviewing and revising your plan - Creating an Effective Financial Plan for Your Startup a Step by Step Guide

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How to Create a Financial Plan For Small Businesses and Startups

In this Article

So, you have a great business idea and are ready to start. Congrats! But before you start making decisions or spending money, creating a financial plan is crucial.

Financial planning may seem daunting, but it doesn't have to be. And it's definitely worth the effort. A good financial plan will help you make intelligent decisions about allocating resources and managing your money.

Not quite sure where to start? Don't fret. We're giving you the 411 on creating a financial plan for your small business or startup.

Let's get started.

What is a financial plan?

Before we learn how to create a financial plan, let's first define what a financial plan is. A financial plan is a roadmap that outlines your business's financial goals and how you intend to achieve them. For example, your financial goals might include earning revenue, achieving profitability, or growing your business at a specific rate.

Your financial plan will also detail how you plan to use your financial resources, such as your revenue, investments, and credit. And it will include information on your expected expenses, such as operating costs, marketing expenses, and payroll.

Why is financial planning important?

It improves strategic thinking on how to use your resources and what results you should expect effectively.

When you create a financial plan, you're forced to think strategically about using your resources best to achieve your desired results. This strategic thinking process will help you make better decisions about where to allocate your resources and what results you can expect.

Let's say you're launching an app that provides instant messaging for business owners and their teams. First, you'll need to consider how much it will cost and how to develop the app , how you'll generate revenue, what your marketing budget should be, and what your overhead costs will be. Without this, it would be easy to overspend or underestimate expenses and revenues.

It aids in better management of your company

To effectively manage your team, you must clearly understand your financial situation. This way, you can allocate the necessary resources to each department and make informed decisions about where to cut costs. 

For example, if you know your marketing budget is limited, you'll be more strategic about allocating resources and better understand your project spend management . You may work with your marketing manager to create a social media posting schedule and an effective social media campaign that doesn't require a lot of money. Or you may decide to invest in SEO , so your website appears higher in search engine results .

The forecast determines your short- and long-term goals

A financial plan can help you set realistic goals for your business. Without a plan, it can be easy to go from brainstorming business ideas to getting caught up in running your new business while losing sight of your long-term goals.

Creating a financial plan will force you to think about where your business will be in the future and what steps you need to take to get there. In addition, this process will help you set realistic goals that you can work towards over time.

For example, let's say your goal is to increase the profits of your business text messaging app business by 30% in the next year. To achieve this goal, you'll need to create a plan outlining how to generate additional revenue and reduce expenses. This may include strategies like increasing prices, launching a new product, or reducing overhead costs.

It serves as a springboard for constructing a plan

Once you've created a financial plan, you can use it as a springboard to develop a plan of action for your business. This action plan will outline the steps you need to take to achieve your financial goals.

Let's say your goal is to attain a certain amount of customer growth in the next year. To achieve this goal, you'll need to create a plan outlining how to acquire new customers and retain existing ones. This may include strategies like improving your marketing efforts , offering discounts or loyalty programs, or providing excellent customer service .

It establishes reasonable expectations for your business

As a business owner, it's easy to become over-optimistic about the potential for your business. However, setting realistic expectations for your company can be difficult without a financial plan.

Creating a financial plan will help you develop more realistic expectations for your business by forcing you to consider the costs and revenues associated with your desired results.

What makes successful financial planning?

Now that you know what a financial plan is, you might be wondering what makes for a successful one. To do this, you must understand the various components of a financial plan.

Profit and loss statement

A profit and loss statement, also called an income statement, shows your business's revenue, expenses, and profits over a period of time. This information is critical for understanding whether your business is profitable and how much cash you have on hand.

Personnel plan

A personnel plan outlines the number of employees you need, their roles, and how much you'll pay them. This information is essential for understanding your business's labor costs and ensuring that you have the right people to meet your business goals.

Balance sheet

A balance sheet shows your business's assets, liabilities, and equity. This information is essential for understanding your business's financial health and net worth.

Cash flow statement

A cash flow statement shows how much cash your business is bringing in and spending over a period of time. This information is critical for understanding your business's short-term financial health and determining whether you have enough cash on hand to meet your business's needs.

Sales forecast

A sales forecast is an estimate of how much revenue your business will generate over a period of time. This information is vital for understanding your business's growth potential and making informed decisions about allocating your resources.

Business ratios and break-even analysis

Business ratios and break-even analysis are tools used to assess your business's financial health and performance. This information is vital for understanding your business's strengths and weaknesses and making informed decisions about improving your business's bottom line.

Exit strategy

An exit strategy is a plan for how you will sell or otherwise dispose of your business in the future. This information is essential for ensuring that you maximize your business's value and make informed decisions about its future. Some common exit strategies include selling the company to a third party, passing it down to family members, or taking it public through an initial public offering (IPO).

How to start creating a financial plan for your small business

Make a strategy plan

The first step is to make a strategy plan. This will help you focus on your goals and create a roadmap for how to achieve them. This should include all the financial goals you want to accomplish in the short-term and long-term.

Make financial forecasts

The second step is to create financial forecasts. This will help you anticipate how much money you'll need to achieve your goals and make informed decisions about where to allocate your resources. Financial forecasting can be done using Excel or another software program.

Prepare contingency plans

The third step is to prepare contingency plans. This will help you plan for unexpected events that could impact your small business. Contingency planning should include:

• Identifying risks.
• Estimating the costs of those risks.
• Developing strategies to mitigate them.

Goals should be monitored and compared

The fourth step is to monitor your goals and compare them to actual results. This will help you track your progress and make changes to your plan as needed. Monitoring should be done regularly, such as monthly or quarterly.

Financial Planning Tips for Startups

Starting a business is an exciting time, but it can also be a stressful one. There are so many things to think about and plan for, here are our top tips for financial planning.

Take easy steps

Remember, you don't have to complete your financial plan simultaneously. Instead, you can break it down into smaller, more manageable steps that you can complete over time. For example, you can start by creating a budget and then set up a system for tracking your expenses .

Prepare for a variety of scenarios

It's essential to create a financial plan to help weather any storm. This means preparing for various potential scenarios, both good and bad. For example, you should have a plan for what you'll do if your business experiences unexpected growth or sudden setbacks.

The best way to do this is to create a business model canvas. This is a tool that startup founders can use to map their business plans and track progress over time.

Some key things to include in your business model canvas are:

• Your value proposition
• Your target market
• Your key partners and suppliers
• Your revenue streams
• Your milestones
• Your KPIs ( key performance indicators )

Ask the most important "What ifs"

This will help you create a plan that is both comprehensive and flexible. 

This means that you should ask yourself a variety of "what if" questions, such as:

• What if my revenue decreases?
• What if my expenses increase?
• What if my customers don't buy what I'm selling?
• What if I can't get the funding I need?
• What if my business fails?

Your Expenses Aren't Going to Stay the Same, Prepare

As your small business or startup grows, your expenses will likely change. This could be due to increased inventory costs, more expensive office space, or hiring additional staff. Your financial plan must accommodate these changes. Expense software like QuickBooks can help you track your spending and make necessary adjustments to your budget.

Make a plan for where your money will come from

You can't create a financial plan without knowing where your money will come from. This means looking closely at your expected revenues and identifying potential funding sources, such as loans, investments, or grants.

Take into account all employee costs

Your team is one of your most important assets, and their costs should be included in your financial planning. Some employee costs you'll need to consider are:

• Salaries: This is the most obvious cost, but don't forget to account for things like bonuses and raises.
• Benefits: This can include health insurance, dental insurance, vision insurance, pet insurance and other benefits.
• Training: You'll need to invest in training your employees to do their job well.
• Retirement plans: Ensure you're offering a retirement plan to attract and retain top talent.
• Office space: Are your employees working from home, or do you have an office? How much space do you need, and how much will it cost?
• Equipment: Do your employees need laptops, desks, chairs, or other equipment?

You should also put aside money for yourself. After all, you're running a business and deserve compensation for your time and efforts.

Review your financial plan regularly

Your financial needs will change over time, so it's essential to review your financial plan regularly. This will help you ensure that your plan is still relevant and continues to meet your changing needs.

Share your financial plans with others

Don't keep your financial plans to yourself. Instead, make sure to share them with your team, so everyone is on the same page. This will help ensure that everyone is working towards the same goals and that they understand the financial constraints of the business.

Following these tips, you can create a successful financial plan for your small business or startup.

Key Takeaway: Make financial planning a recurring part of your business

So there you have it. Financial planning is critical to running a successful small business or startup. By taking the time to create a financial plan, you can make informed decisions about where to allocate your resources and how to achieve your goals. And by reviewing your financial plan regularly, you can ensure that it continues to meet your changing needs.

Good luck and happy planning!

Grace Lau is the Director of Growth Content at Dialpad, an AI-powered cloud communication platform for better call center service level agreement and easier team collaboration. She has over 10 years of experience in content writing and strategy. Currently, she is responsible for leading branded and editorial content strategies, partnering with SEO and Ops teams to build and nurture content. Here is her LinkedIn .

Financial Plan for Small Business and Startups: a How-to Guide

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4 Steps to Creating a Financial Plan for Your Small Business

When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan. It helps you pitch investors, anticipate growth and weather cash flow shortages. To get started, you need to learn some of the key elements to financial planning.

What is a Financial Plan?

A financial plan helps determine if an idea is sustainable, and then keeps you on track to financial health as your business matures. It’s an integral part to an overall business plan and is made up of three financial statements—cash flow statement, income statement and balance sheet. In your plan, each of these will include a brief explanation or analysis.

Key Takeaways

• A financial plan helps you know where your business stands and lets you make better informed decisions about resource allocation.
• A financial plan has three major components: a cash flow projection , income statement and balance sheet.
• Your financial plan answers essential questions to set and track progress toward goals.
• Using financial management software gives you the tools to make strategic decisions efficiently.

Why is a Financial Plan Important to Your Small Business?

A well-put-together financial plan can help you achieve greater confidence in your business while generating a better understanding of how to allocate resources. It shows your business is committed to spending wisely and its ability to meet financial obligations. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.

It’s also an important tool when asking investors to consider your business. Your financial plan shows how your organization manages expenses and generates revenue. It shows where your business stands and how much it needs from sales and investors to meet important financial benchmarks.

Components of a Small Business Financial Plan

Whether you’re modifying your plan or starting from scratch, a financial plan should include:

Income statement: This shows how your business experienced profit or loss over a specific period—usually over three months. Also known as a profit-and-loss statement (P&L) or pro forma income statement, it lists the following:

• Cost of sale or cost of goods (how much does it costs to produce your goods or services?)
• Operating expenses like rent and utilities
• Revenue streams, usually in the form of sales
• Amount of total net profit or loss, also known as a gross margin

Balance sheet: Rather than looking backward or peering into the future, the balance sheet helps you see where you stand right now. What do you own and what do you owe? To figure it out, you’ll need to consider the following:

• Assets: How much cash, goods and resources do you have available?
• Liabilities: What do you owe to suppliers, personnel, landlords, creditors, etc.?

Shareholder equity (the amount of money generated by your business): Use this formula to calculate it:

Shareholder Equity = Assets – Liability

Now that you have these three items, you’re ready to create your balance sheet. And just as the name implies, when complete, you’ll want this to balance out to zero. On one side, list your assets, such as cash on hand. And on the other side list your liabilities and equity (or how much money is generated by the business). The balance sheet is used along the other financial statements in order to calculate business financial ratios, discussed further below.

Balance Sheet

Why have a balance sheet? It can provide insight into your business and show important measures like how much cash you have, what your obligations are and what kind of profit you’re making all at a glance.

Personnel plan: You need the right people to meet goals and retain a healthy cash flow. A personnel plan looks at existing positions and helps you see when it’s time to bring on more team members, and whether they should be full-time, part-time, or work on a contractual basis. It looks at compensations levels, including benefits, and forecasts those costs. By looking at growth and costs you can see if the potential benefits that come with a new employee justify the expense.

Business ratios: Sometimes you need to look at more than just the big picture. You need to drill down to specific aspects of your business and keep an eye on how individual areas are doing. Business ratios are a way to see things like your net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets. Numbers used to calculate these ratios come from your P&L statement, balance sheet and cash flow statement and are often used to help request funding from a bank or investors.

Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.

Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.

Income projections: How much money will your company make in a given period, usually a year. Take that and then subtract the anticipated expenses and you’ll have the income projections . In some cases, these are rolled into profit and loss statements.

Assets and liabilities: Both of these elements are part of your balance sheet. Assets are what your company owns, including current and long-term assets. Current assets can be converted into cash within a year. Think of things such as stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use like furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are divided into current and long-term categories. Examples of current liabilities in a financial plan are accrued payroll, taxes payable, short-term loans and other obligations due within a year. Long-term liabilities include shareholder loans or bank debt that matures more than a year later.

Break-even analysis: Your break-even point—how much you need to sell to cover all your expenses—will guide your sales revenue and volume goals. Start by calculating your contribution margin by subtracting the costs of a good or service from the amount you pay. In the case of a bicycle store, the sale price of a new bike minus what you paid for it and the salary of your bike salesperson, your rent, etc. By understanding your fixed costs, you can then begin to understand how much you’ll need to markup goods and services and what sales and revenue goals to set in order to stay afloat or turn a profit.

Video: How to Build a Financial Plan

Create a strategic plan: Starting with a strategic plan helps you think about what you want your company to accomplish. Before looking at the numbers, think about what you’ll need to achieve these goals. Will you need to buy more equipment or hire more staff? Is there a chance of new goals affecting your cash flow? What other resources will you need?

Determine the impact on your company’s finances and create a list of existing expenses and assets to help with your next steps.

Create financial projections: This should be based on anticipated expenses and sales forecasts . Look at your goals and plug in the costs needed to achieve them. Include different scenarios. Create a range that is optimistic, pessimistic and most likely to happen, so you can anticipate the impact each one will have. If you’re working with an accountant, go over the plan together to understand how to explain it when seeking funding from investors and lenders.

Plan for contingencies: Look at your cash flow statement and assets, and create a plan for when there’s no money coming in or your business has taken an unexpected turn. Consider having cash reserves or a substantial line of credit if you need cash fast. You may also need to plot ways to sell off assets to help break even.

Monitor and compare goals: Look at the actual results in your cash flow statement, income projections and even business ratios as necessary throughout the year to see if you need to modify your plan or if you’re right on target. Regularly checking in helps you spot potential problems before they get worse.

Three Questions Your Financial Plan Should Answer

Once you’ve created your plan, you should have answers to the following questions:

• How will your business make money?
• What does your business need to get off of the ground?
• What is the operating budget ?

Financial plans that can’t answer these questions need more tweaking. Otherwise, you risk starting a new venture without a clear path and leave behind valuable insight.

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Improve Your Financial Planning With Financial Management Software

Using spreadsheets can get the job done when you’re just getting started. However, it’s easy to get overwhelmed, especially if you’re collaborating with others in your organization.

Financial management software is worth the expense because it offers automated capabilities such as analysis, reporting and forecasting. Plus, using cloud-based financial planning tools like NetSuite can help you automatically consolidate data and improve efficiency. Everyone across your organization can access and analyze up-to-date information, which leads to better informed decisions.

Whether you’re looking to secure outside funding or just monitor your business growth, understanding and creating a financial plan is crucial. Once you have an overview of your business’ finances, you can make strategic decisions to ensure its longevity.

Financial Management

Small Business Financial Management: Tips, Importance and Challenges

It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.

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Financial plan

It's good to know in advance whether your business is going to be profitable. A financial plan can help you make things clearer for yourself. Also when you applying for a loan, your bank or financier will want to see you financial plan.

The financial plan

A financial plan is a useful tool for determining whether your business idea is viable. It will demonstrate the costs and what is needed to finance them. And it is useful for convincing financiers to lend you money, and therefore forms the basis for your financial pitch.

Creating a financial plan does not have to be complicated. Base it on your business plan and keep it simple. Targeted market research and a sound marketing plan should be part of your business plan. These will help you create a solid basis for your figures.

It is important that you work out as much of your financial plan as possible yourself. Discussing it with an expert, such as your accountant, can also help you prepare for the next step – approaching financiers or investors for money.

What should a financial plan include?

A financial plan consists of five budgets that detail the minimum requirements for starting your business, the investments you will need to make and how you plan to finance them. This allows you to determine whether your business idea is viable. What turnover do you expect to generate? And will your business be profitable, or not? It also forces you to examine cash flow and whether you will have enough money each month. Answering all these questions in your business plan is the key to your success.

Investment budget

Your investment budget should include a list of the investments you will need to start your business and those that can wait until a later stage. This is an indicator of the minimum amount of money you will need to get started.

Financial budget

Your financial budget should detail how you intend to finance your investment budget. Options include personal capital (equity capital) or loans, e.g. from a bank (borrowed capital), or even a combination of the two.

Operating budget

Your operating budget should show that your business is profitable. This will allow you to estimate your turnover. You can then analyse the costs to keep your business running. Combining these, you can determine whether you will make a profit or a loss.

Cash flow budget

Income and expenditure can fluctuate greatly over a year. Your cash flow forecast should include all income and expenditure over a given period, e.g. per month or per quarter. This will highlight when you will have surplus cash and when you will need extra funds.

Personal expense budget

One option is to determine how much personal capital you have and then base your financial plan on your personal situation. This involves calculating how much money you will need for you and your family, how much you will have to pay in tax and what your operational costs will be. This allows you to work out your minimum turnover to make ends meet.

SME financing institution Qredits has free tools , including templates for a business plan and financial plan.

What do financiers look for?

Financiers look at both 'hard' and 'soft' factors when they analyse a credit application. Hard factors relate directly to your business and the basis upon which you plan to build it. Soft factors relate to you and your qualities as a business owner.

Prepare a good presentation that demonstrates you've familiarised yourself with the financier's use of language and information requirements. Financiers will examine your application based on the following points:

• Business owner assessment. Who is the credit applicant?
• Business owner's qualities and experience
• Quality of the business plan and its financial basis
• Company history, e.g. turnover, gross profit, cash flow, etc.
• Industry or sector. What trends and developments exist within this sector or industry?
• Type of loan. Loan size and duration
• Purpose. What will the lended money be used for?
• Strict budget and financial obligations. Do you have a clear picture of the revenues required to meet both your financial obligations – business and personal alike?
• Cost structure. Do you have a clear picture of your business's costs?
• Repayment capacity. Will you be able to meet your repayment obligations without jeopardising your business?
• Return potential. Do you have a clear picture for your business's future growth?
• Financial structure
• Personal expenditure
• Market analysis by an independent body
• Market research and industry information
• Security. What security can you offer to ensure that you'll be able to repay your financier?

How to write a financial plan

When using the financial plan to convince investors to finance your company, this is where you make your first impression. Prepare a good presentation that demonstrates you have familiarised yourself with the financier's use of language and information requirements. Start with an intro, use tables and visuals and also think of the graphic design.

• Use your own equity to finance the business as well, if you can, as this will help convince financiers and other parties.
• Negotiate the terms and conditions of your financing package. Repayment terms can be just as important as the financing package itself.
• Improve your chances of success by supporting your application with a pitch.
• Determine what financing options exist.

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How to write a financial plan for your business

Steer your business on the road to success with a solid financial plan.

A financial plan gives you a snapshot of the overall health of your business. There are 3 key financial statements that make up a business financial plan. Taking the time to prepare these at the start of your business journey can pay off in the long run.

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1. Cash flow statement

Sometimes called cash flow projection, this is one of the most important steps in completing your financial plan. It details your incoming and outgoing cash and helps make sure you have enough money to keep your business running. 

Try this simple cash flow formula:

• Determine the period you want to focus on (e.g. the next 3 or 6 months)
• Start with your opening cash balance
• Estimate your incoming cash and expenses for the period
• Subtract the estimated expenses from your income and add it to the opening balance

How to use your cash flow statement

You can look at your cash flow statement from previous years to determine if you’ll have enough to cover your costs, like wages and rent, over the specified period. It’s important to allow for glitches like late payments when projecting your cash flow.

2. Income statement

Also known as profit and loss statement (P&L), this shows you a clear view of your income and expenses, and how these change over a period of time.

What to include in your income statement

What goes into an income statement depends on the type of business. You should at least cover these key areas:

• Cost of goods or services
• Total profit or loss (revenue minus cost of goods/services)
• Operating costs (e.g. rent)
• General expenses (e.g. marketing, advertising, depreciation)
• Operating income (total profit minus expenses)

How to use your income statement

Estimate your sales and expenses on a monthly, quarterly or yearly basis to see whether you can expect to make a profit or loss for each of these periods. This will help you develop sales targets and find ways to grow your business. 

3. Balance sheet

Unlike your cash flow statement which looks at the future, and your income statements which looks at the past, your balance sheet is a financial snapshot of your business in the present.

Try this simple balance sheet formula:

• In one column list all your assets (e.g. cash, inventory, buildings)
• On the other side list your liabilities (e.g. accounts payable and loans)
• Subtract your total liabilities from your total assets to determine your equity

How to use your balance sheet

Your balance sheet can help you evaluate the financial health of your business, show your profit at a glance and work out if you’ll have enough resources to run your day-to-day operations.

Take your business financial plan to the next level

To enhance your business financial plan, consider preparing a break-even analysis. This shows you the number of sales needed to cover costs – anything above this number can be counted as a profit. 

The break-even point can be useful for analysing the sales, costs and pricing numbers used in your earlier forecasts and judge whether your business idea is feasible. For example, if your break-even point is years away, you may want to revisit your numbers to see if there are any opportunities to make your business more profitable.

Next steps 

Once it’s ready, treat your business plan as a guide to running your business. Remember that it’s a working document, so if your goals and circumstances change, update the plan. If you need help, an accountant could help assess your prospective financial position and ensure you’ve thought through all potential income and expenses.

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