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

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

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.

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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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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
• Distribution
• Loan payments
• Office supplies
• Maintenance

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.

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 that sets forth a business’s short- and long-term financial goals and how it intends to reach them. Used by company decision-makers and potential partners, investors and lenders, alike, a financial plan typically includes the company’s sales forecast, cash flow projection, expected expenses, key financial metrics and more. Here is what small businesses should understand to create a comprehensive financial plan of their own.

What Is a Financial Plan?

A financial plan is a document that businesses use to detail and manage their finances, ensure efficient allocation of resources and inform a plethora of decisions — everything from setting prices, to expanding the business, to optimizing operations, to name just a few. The financial plan provides a clear understanding of the company’s current financial standing; outlines its strategies, goals and projections; makes clear whether an idea is sustainable and worthy of investment; and monitors the business’s financial health as it grows and matures. Financial plans can be adjusted over time as forecasts become replaced with real-world results and market forces change.

A financial plan is an integral part of an overall business plan, ensuring financial objectives align with overall business goals. It typically contains a description of the business, financial statements, personnel plan, risk analysis and relevant key performance indicators (KPIs) and ratios. By providing a comprehensive view of the company’s finances and future goals, financial plans also assist in attracting investors and other sources of funding.

Key Takeaways

• A financial plan details a business’s current standing and helps business leaders make informed decisions about future endeavors and strategies.
• A financial plan includes three major financial statements: the income statement, balance sheet and cash flow statement.
• A financial plan answers essential questions and helps track progress toward goals.
• Financial management software gives decision-makers the tools they need to make strategic decisions.

Why Is a Financial Plan Important to Your Small Business?

A financial plan can provide small businesses with greater confidence in their short- and long-term endeavors by helping them determine ways to best allocate and invest their resources. The process of creating the plan forces businesses to think through how different decisions could impact revenue and which occasions call for dipping into reserve funds. It’s also a helpful tool for monitoring performance, managing cash flow and tracking financial metrics.

Simply put, a financial plan shows where the business stands; over time, its analysis will reveal whether its investments were worthwhile and worth repeating. In addition, when a business is courting potential partners, investors and lenders, the financial plan spotlights the business’s commitment to spending wisely and meeting its financial obligations.

Benefits of a Financial Plan

A financial plan is only as effective as the data foundation it’s built on and the business’s flexibility to revisit it amid changing market forces and demand shifts. Done correctly, a financial plan helps small businesses stay on track so they can reach their short-term and long-term goals. Among the benefits that effective financial planning delivers:

• A clear view of goals and objectives: As with any type of business plan, it’s imperative that everyone in a company is on the same financial page. With clear responsibilities and expected results mapped out, every team member from the top down sees what needs to be done, when to do it and why.
• More accurate budgets and projections: A comprehensive financial plan leads to realistic budgets that allocate resources appropriately and plan for future revenue and expenses. Financial projections also help small businesses lay out steps to maintain business continuity during periods of cash flow volatility or market uncertainty.
• External funding opportunities: With a detailed financial plan in hand, potential partners, lenders and investors can see exactly where their money will go and how it will be used. The inclusion of stellar financial records, including past and current liabilities, can also assure external funding sources that they will be repaid.
• Performance monitoring and course correction: Small businesses can continue to benefit from their financial plans long after the plan has been created. By continuously monitoring results and comparing them with initial projections, businesses have the opportunity to adjust their plans as needed.

Components of a Small Business Financial Plan

A sound financial plan is instrumental to the success and stability of a small business. Whether the business is starting from scratch or modifying its plan, the best financial plans include the following elements:

Income statement: The income statement reports the business’s net profit or loss over a specific period of time, such a month, quarter or year. Also known as a profit-and-loss statement (P&L) or pro forma income statement, the income statement includes the following elements:

• Cost of goods sold (COGS): The direct costs involved in producing goods or services.
• Operating expenses: Rent, utilities and other costs involved in running the business.
• Revenue streams: Usually in the form of sales and subscription services, among other sources.
• Total net profit or loss: Derived from the total amount of sales less expenses and taxes.

Balance sheet: The balance sheet reports the business’s current financial standing, focusing on what it owns, what it owes and shareholder equity:

• Assets: Available cash, goods and other owned resources.
• Liabilities: Amounts owed to suppliers, personnel, landlords, creditors, etc.

Shareholder equity: Measures the company’s net worth, calculated with this formula:

Shareholder Equity = Assets – Liability

The balance sheet lists assets, liabilities and equity in chart format, with assets in the left column and liabilities and equity on the right. When complete — and as the name implies —the two sides should balance out to zero, as shown on the sample balance sheet below. The balance sheet is used with other financial statements to calculate business financial ratios (discussed soon).

Balance Sheet

Cash flow projection: Cash flow projection is a part of the cash flow statement , which is perhaps one of the most critical aspects of a financial plan. After all, businesses run on cash. The cash flow statement documents how much cash came in and went out of the business during a specific time period. This reveals its liquidity, meaning how much cash it has on hand. The cash flow projection should display how much cash a business currently has, where it’s going, where future cash will come from and a schedule for each activity.

Personnel plan: A business needs the right people to meet its goals and maintain a healthy cash flow. A personnel plan looks at existing positions, helps determine when it’s time to bring on more team members and determines whether new hires should be full-time, part-time or work on a contractual basis. It also examines compensation levels, including benefits, and forecasts those costs against potential business growth to gauge whether the potential benefits of new hires justify the expense.

Business ratios: In addition to a big-picture view of the business, decision-makers will need to drill down to specific aspects of the business to understand how individual areas are performing. Business ratios , such as net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets, help evaluate the business’s financial health. Data used to calculate these ratios come from the P&L statement, balance sheet and cash flow statement. Business ratios contextualize financial data — for example, net profit margin shows the profitability of a company’s operations in relation to its revenue. They are often used to help request funding from a bank or investor, as well.

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: Businesses can use their sales forecasts to estimate how much money they are on track to make in a given period, usually a year. This income projection is calculated by subtracting anticipated expenses from revenue. In some cases, the income projection is rolled into the P&L statement.

Assets and liabilities: Assets and liabilities appear on the business’s balance sheet. Assets are what a company owns and are typically divided into current and long-term assets. Current assets can be converted into cash within a year and include stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use, such as furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are also classified as current and long-term. Current liabilities are due to be paid within a year and include accrued payroll, taxes payable and short-term loans. Long-term liabilities include shareholder loans or bank debt that mature more than a year later.

Break-even analysis: The break-even point is how much a business must sell to exactly cover all of its fixed and variable expenses, including COGS, salaries and rent. When revenue exceeds expenses, the business makes a profit. The break-even point is used to guide sales revenue and volume goals; determination requires first calculating contribution margin , which is the amount of sales revenue a company has, less its variable costs, to put toward paying its fixed costs. Businesses can use break-even analyses to better evaluate their expenses and calculate how much to mark up its goods and services to be able to turn a profit.

Four Steps to Create a Financial Plan for Your Small Business

Financial plans require deliberate planning and careful implementation. The following four steps can help small businesses get started and ensure their plans can help them achieve their goals.

Create a strategic plan

Before looking at any numbers, a strategic plan focuses on what the company wants to accomplish and what it needs to achieve its goals. Will it need to buy more equipment or hire additional staff? How will its goals affect cash flow? What other resources are needed to meet its goals? A strategic financial plan answers these questions and determines how the plan will impact the company’s finances. Creating a list of existing  expenses  and assets is also helpful and will inform the remaining financial planning steps.

Create financial projections

Financial projections should be based on  anticipated expenses and sales forecasts . These projections look at the business’s goals and estimate the costs needed to reach them in the face of a variety of potential scenarios, such as best-case, worst-case and most likely to happen. Accountants may be brought in to review the plan with stakeholders and suggest how to explain the plan to external audiences, such as investors and lenders.

Plan for contingencies

Financial plans should use data from the cash flow statement and balance sheet to inform worst-case scenario plans, such as when incoming cash dries up or the business takes an unexpected turn. Some common contingencies include keeping cash reserves or a substantial line of credit for quick access to funds during slow periods. Another option is to produce a plan to sell off assets to help break even.

Monitor and compare goals

Actual results in the cash flow statement, income projections and relevant business ratios should be analyzed throughout the year to see how closely real-life results adhered to projections. Regular check-ins also help businesses spot potential problems before they can get worse and inform course corrections.

Three Questions Your Financial Plan Should Answer

A small business financial plan should be tailored to the needs and expectations of its intended audience, whether it is potential investors, lenders, partners or internal stakeholders. Once the plan is created, all parties should, at minimum, understand:

How will the business make money?

What does the business need to achieve its goals?

What is the business’s  operating budget ?

Financial plans that don’t answer these questions will need more work. Otherwise, a business risks starting a new venture without a clear path forward, and decision-makers will lack the necessary insights that a detailed financial plan would have provided.

Improve Your Financial Planning With Financial Management Software

Using spreadsheets for financial planning may get the job done when a business is first getting started, but this approach can quickly become overwhelming, especially when collaborating with others and as the business grows.

NetSuite’s cloud-based financial management platform simplifies the labor-intensive process through automation. NetSuite Planning and Budgeting automatically consolidates real-time data for analysis, reporting and forecasting, thereby improving efficiency. With intuitive dashboards and sophisticated forecasting tools, businesses can create accurate financial plans, track progress and modify strategies in order to achieve and maintain long-term success. The solution also allows for scenario planning and workforce planning, plus prebuilt data synchronization with NetSuite ERP means the entire business is working with the same up-to-date information.

Whether a business is first getting started, looking to expand, trying to secure outside funding or monitoring its growth, it will need to create a financial plan. This plan lays out the business’s short- and long-term objectives, details its current and projected finances, specifies how it will invest its resources and helps track its progress. Not only does a financial plan guide the business along its way, but it is typically required by outside sources of funding that don’t invest or lend their money to just any company. Creating a financial plan may take some time, but successful small businesses know it is well worth the effort.

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Small Business Financial Plan FAQs

How do I write a small business financial plan?

Writing a small business financial plan is a four-step process. It begins with creating a strategic plan, which covers the company’s goals and what it needs to achieve them. The next step is to create financial projections, which are dependent on anticipating sales and expenses. Step three plans for contingencies: For example, what if the business were to lose a significant client? Finally, the business must monitor its goals, comparing actual results to projections and adjusting as needed.

What is the best financial statement for a small business?

The income statement, also known as the profit and loss (P&L) statement, is often considered the most important financial statement for small businesses, as it summarizes profits and losses and the business’s bottom line over a specific financial period. For financial plans, the cash flow statement and the balance sheet are also critical financial statements.

How often should businesses update their financial plans?

Financial plans can be updated whenever a business deems appropriate. Many businesses create three- and five-year plans and adjust them annually. If a market experiences a large shift, such as a spike in demand or an economic downturn, a financial plan may need to be updated to reflect the new market.

What are some common mistakes to avoid when creating a small business financial plan?

Some common mistakes to avoid when creating a small business financial plan include underestimating expenses, overestimating revenue, failing to plan for contingencies and adhering to plans too strictly when circumstances change. Plans should be regularly updated to reflect real-world results and current market trends.

How do I account for uncertainty and potential risks in my small business financial plan?

Small businesses can plan for uncertainty by maintaining cash reserves and opening lines of credit to cover periods of lower income or high expenses. Plans and projections should also take into account a variety of potential scenarios, from best case to worst case.

What is a typical business financial plan?

A typical business financial plan is a document that details a business’s goals, strategies and projections over a specific period of time. It is used as a roadmap for the organization’s financial activities and provides a framework for decision-making, resource allocation and performance evaluation.

What are the seven components of a financial plan?

Financial plans can vary to suit the business’s needs, but seven components to include are the income statement, operating income, net income, cash flow statement, balance sheet, financial projections and business ratios. Various financial key performance indicators and a break-even analysis are typically included as well.

What is an example of a financial plan?

A financial plan serves as a snapshot of the business’s current standing and how it plans to grow. For example, a restaurant looking to secure approval for a loan will be asked to provide a financial plan. This plan will include an executive summary of the business, a description and history of the company, market research into customer base and competition, sales and marketing strategies, key performance indicators and organizational structure. It will also include elements focusing on the future, such as financial projections, potential risks and funding requirements and strategies.

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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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How to Write a Business Plan: Step-by-Step Guide + Examples

Noah Parsons

24 min. read

Updated April 17, 2024

Writing a business plan doesn’t have to be complicated. 

In this step-by-step guide, you’ll learn how to write a business plan that’s detailed enough to impress bankers and potential investors, while giving you the tools to start, run, and grow a successful business.

• The basics of business planning

If you’re reading this guide, then you already know why you need a business plan . 

You understand that planning helps you: 

• Raise money
• Grow strategically
• Keep your business on the right track 

As you start to write your plan, it’s useful to zoom out and remember what a business plan is .

At its core, a business plan is an overview of the products and services you sell, and the customers that you sell to. It explains your business strategy: how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. 

A good business plan is much more than just a document that you write once and forget about. It’s also a guide that helps you outline and achieve your goals. 

After completing your plan, you can use it as a management tool to track your progress toward your goals. Updating and adjusting your forecasts and budgets as you go is one of the most important steps you can take to run a healthier, smarter business. 

We’ll dive into how to use your plan later in this article.

There are many different types of plans , but we’ll go over the most common type here, which includes everything you need for an investor-ready plan. However, if you’re just starting out and are looking for something simpler—I recommend starting with a one-page business plan . It’s faster and easier to create. 

It’s also the perfect place to start if you’re just figuring out your idea, or need a simple strategic plan to use inside your business.

Dig deeper : How to write a one-page business plan

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• What to include in your business plan

Executive summary

The executive summary is an overview of your business and your plans. It comes first in your plan and is ideally just one to two pages. Most people write it last because it’s a summary of the complete business plan.

Ideally, the executive summary can act as a stand-alone document that covers the highlights of your detailed plan. 

In fact, it’s common for investors to ask only for the executive summary when evaluating your business. If they like what they see in the executive summary, they’ll often follow up with a request for a complete plan, a pitch presentation , or more in-depth financial forecasts .

Your executive summary should include:

• A summary of the problem you are solving
• A description of your product or service
• An overview of your target market
• A brief description of your team
• A summary of your financials
• Your funding requirements (if you are raising money)

Dig Deeper: How to write an effective executive summary

Products and services description

This is where you describe exactly what you’re selling, and how it solves a problem for your target market. The best way to organize this part of your plan is to start by describing the problem that exists for your customers. After that, you can describe how you plan to solve that problem with your product or service. 

This is usually called a problem and solution statement .

To truly showcase the value of your products and services, you need to craft a compelling narrative around your offerings. How will your product or service transform your customers’ lives or jobs? A strong narrative will draw in your readers.

This is also the part of the business plan to discuss any competitive advantages you may have, like specific intellectual property or patents that protect your product. If you have any initial sales, contracts, or other evidence that your product or service is likely to sell, include that information as well. It will show that your idea has traction , which can help convince readers that your plan has a high chance of success.

Market analysis

Your target market is a description of the type of people that you plan to sell to. You might even have multiple target markets, depending on your business. 

A market analysis is the part of your plan where you bring together all of the information you know about your target market. Basically, it’s a thorough description of who your customers are and why they need what you’re selling. You’ll also include information about the growth of your market and your industry .

Try to be as specific as possible when you describe your market. 

Include information such as age, income level, and location—these are what’s called “demographics.” If you can, also describe your market’s interests and habits as they relate to your business—these are “psychographics.” 

Related: Target market examples

Essentially, you want to include any knowledge you have about your customers that is relevant to how your product or service is right for them. With a solid target market, it will be easier to create a sales and marketing plan that will reach your customers. That’s because you know who they are, what they like to do, and the best ways to reach them.

Next, provide any additional information you have about your market. 

What is the size of your market ? Is the market growing or shrinking? Ideally, you’ll want to demonstrate that your market is growing over time, and also explain how your business is positioned to take advantage of any expected changes in your industry.

Dig Deeper: Learn how to write a market analysis

Competitive analysis

Part of defining your business opportunity is determining what your competitive advantage is. To do this effectively, you need to know as much about your competitors as your target customers. 

Every business has some form of competition. If you don’t think you have competitors, then explore what alternatives there are in the market for your product or service. 

For example: In the early years of cars, their main competition was horses. For social media, the early competition was reading books, watching TV, and talking on the phone.

A good competitive analysis fully lays out the competitive landscape and then explains how your business is different. Maybe your products are better made, or cheaper, or your customer service is superior. Maybe your competitive advantage is your location – a wide variety of factors can ultimately give you an advantage.

Dig Deeper: How to write a competitive analysis for your business plan

Marketing and sales plan

The marketing and sales plan covers how you will position your product or service in the market, the marketing channels and messaging you will use, and your sales tactics. 

The best place to start with a marketing plan is with a positioning statement . 

This explains how your business fits into the overall market, and how you will explain the advantages of your product or service to customers. You’ll use the information from your competitive analysis to help you with your positioning. 

For example: You might position your company as the premium, most expensive but the highest quality option in the market. Or your positioning might focus on being locally owned and that shoppers support the local economy by buying your products.

Once you understand your positioning, you’ll bring this together with the information about your target market to create your marketing strategy . 

This is how you plan to communicate your message to potential customers. Depending on who your customers are and how they purchase products like yours, you might use many different strategies, from social media advertising to creating a podcast. Your marketing plan is all about how your customers discover who you are and why they should consider your products and services. 

While your marketing plan is about reaching your customers—your sales plan will describe the actual sales process once a customer has decided that they’re interested in what you have to offer. 

If your business requires salespeople and a long sales process, describe that in this section. If your customers can “self-serve” and just make purchases quickly on your website, describe that process. 

A good sales plan picks up where your marketing plan leaves off. The marketing plan brings customers in the door and the sales plan is how you close the deal.

Together, these specific plans paint a picture of how you will connect with your target audience, and how you will turn them into paying customers.

Dig deeper: What to include in your sales and marketing plan

Business operations

The operations section describes the necessary requirements for your business to run smoothly. It’s where you talk about how your business works and what day-to-day operations look like. 

Depending on how your business is structured, your operations plan may include elements of the business like:

• Supply chain management
• Manufacturing processes
• Equipment and technology
• Distribution

Some businesses distribute their products and reach their customers through large retailers like Amazon.com, Walmart, Target, and grocery store chains. 

These businesses should review how this part of their business works. The plan should discuss the logistics and costs of getting products onto store shelves and any potential hurdles the business may have to overcome.

If your business is much simpler than this, that’s OK. This section of your business plan can be either extremely short or more detailed, depending on the type of business you are building.

For businesses selling services, such as physical therapy or online software, you can use this section to describe the technology you’ll leverage, what goes into your service, and who you will partner with to deliver your services.

Dig Deeper: Learn how to write the operations chapter of your plan

Key milestones and metrics

Although it’s not required to complete your business plan, mapping out key business milestones and the metrics can be incredibly useful for measuring your success.

Good milestones clearly lay out the parameters of the task and set expectations for their execution. You’ll want to include:

• A description of each task
• The proposed due date
• Who is responsible for each task

If you have a budget, you can include projected costs to hit each milestone. You don’t need extensive project planning in this section—just list key milestones you want to hit and when you plan to hit them. This is your overall business roadmap. 

Possible milestones might be:

• Website launch date
• Store or office opening date
• First significant sales
• Break even date
• Business licenses and approvals

You should also discuss the key numbers you will track to determine your success. Some common metrics worth tracking include:

• Conversion rates
• Customer acquisition costs
• Profit per customer
• Repeat purchases

It’s perfectly fine to start with just a few metrics and grow the number you are tracking over time. You also may find that some metrics simply aren’t relevant to your business and can narrow down what you’re tracking.

Dig Deeper: How to use milestones in your business plan

Organization and management team

Investors don’t just look for great ideas—they want to find great teams. Use this chapter to describe your current team and who you need to hire . You should also provide a quick overview of your location and history if you’re already up and running.

Briefly highlight the relevant experiences of each key team member in the company. It’s important to make the case for why yours is the right team to turn an idea into a reality. 

Do they have the right industry experience and background? Have members of the team had entrepreneurial successes before? 

If you still need to hire key team members, that’s OK. Just note those gaps in this section.

Your company overview should also include a summary of your company’s current business structure . The most common business structures include:

• Sole proprietor
• Partnership

Be sure to provide an overview of how the business is owned as well. Does each business partner own an equal portion of the business? How is ownership divided? 

Potential lenders and investors will want to know the structure of the business before they will consider a loan or investment.

Dig Deeper: How to write about your company structure and team

Financial plan

Last, but certainly not least, is your financial plan chapter. 

Entrepreneurs often find this section the most daunting. But, business financials for most startups are less complicated than you think, and a business degree is certainly not required to build a solid financial forecast. 

A typical financial forecast in a business plan includes the following:

• Sales forecast : An estimate of the sales expected over a given period. You’ll break down your forecast into the key revenue streams that you expect to have.
• Expense budget : Your planned spending such as personnel costs , marketing expenses, and taxes.
• Profit & Loss : Brings together your sales and expenses and helps you calculate planned profits.
• Cash Flow : Shows how cash moves into and out of your business. It can predict how much cash you’ll have on hand at any given point in the future.
• Balance Sheet : A list of the assets, liabilities, and equity in your company. In short, it provides an overview of the financial health of your business. 

A strong business plan will include a description of assumptions about the future, and potential risks that could impact the financial plan. Including those will be especially important if you’re writing a business plan to pursue a loan or other investment.

Dig Deeper: How to create financial forecasts and budgets

This is the place for additional data, charts, or other information that supports your plan.

Including an appendix can significantly enhance the credibility of your plan by showing readers that you’ve thoroughly considered the details of your business idea, and are backing your ideas up with solid data.

Just remember that the information in the appendix is meant to be supplementary. Your business plan should stand on its own, even if the reader skips this section.

Dig Deeper : What to include in your business plan appendix

Optional: Business plan cover page

Adding a business plan cover page can make your plan, and by extension your business, seem more professional in the eyes of potential investors, lenders, and partners. It serves as the introduction to your document and provides necessary contact information for stakeholders to reference.

Your cover page should be simple and include:

• Company logo
• Business name
• Value proposition (optional)
• Business plan title
• Completion and/or update date
• Address and contact information
• Confidentiality statement

Just remember, the cover page is optional. If you decide to include it, keep it very simple and only spend a short amount of time putting it together.

Dig Deeper: How to create a business plan cover page

How to use AI to help write your business plan

Generative AI tools such as ChatGPT can speed up the business plan writing process and help you think through concepts like market segmentation and competition. These tools are especially useful for taking ideas that you provide and converting them into polished text for your business plan.

The best way to use AI for your business plan is to leverage it as a collaborator , not a replacement for human creative thinking and ingenuity. 

AI can come up with lots of ideas and act as a brainstorming partner. It’s up to you to filter through those ideas and figure out which ones are realistic enough to resonate with your customers. 

There are pros and cons of using AI to help with your business plan . So, spend some time understanding how it can be most helpful before just outsourcing the job to AI.

Learn more: 10 AI prompts you need to write a business plan

• Writing tips and strategies

To help streamline the business plan writing process, here are a few tips and key questions to answer to make sure you get the most out of your plan and avoid common mistakes .  

Determine why you are writing a business plan

Knowing why you are writing a business plan will determine your approach to your planning project. 

For example: If you are writing a business plan for yourself, or just to use inside your own business , you can probably skip the section about your team and organizational structure. 

If you’re raising money, you’ll want to spend more time explaining why you’re looking to raise the funds and exactly how you will use them.

Regardless of how you intend to use your business plan , think about why you are writing and what you’re trying to get out of the process before you begin.

Keep things concise

Probably the most important tip is to keep your business plan short and simple. There are no prizes for long business plans . The longer your plan is, the less likely people are to read it. 

So focus on trimming things down to the essentials your readers need to know. Skip the extended, wordy descriptions and instead focus on creating a plan that is easy to read —using bullets and short sentences whenever possible.

Have someone review your business plan

Writing a business plan in a vacuum is never a good idea. Sometimes it’s helpful to zoom out and check if your plan makes sense to someone else. You also want to make sure that it’s easy to read and understand.

Don’t wait until your plan is “done” to get a second look. Start sharing your plan early, and find out from readers what questions your plan leaves unanswered. This early review cycle will help you spot shortcomings in your plan and address them quickly, rather than finding out about them right before you present your plan to a lender or investor.

If you need a more detailed review, you may want to explore hiring a professional plan writer to thoroughly examine it.

Use a free business plan template and business plan examples to get started

Knowing what information to include in a business plan is sometimes not quite enough. If you’re struggling to get started or need additional guidance, it may be worth using a business plan template. 

There are plenty of great options available (we’ve rounded up our 8 favorites to streamline your search).

But, if you’re looking for a free downloadable business plan template , you can get one right now; download the template used by more than 1 million businesses. 

Or, if you just want to see what a completed business plan looks like, check out our library of over 550 free business plan examples . 

We even have a growing list of industry business planning guides with tips for what to focus on depending on your business type.

Common pitfalls and how to avoid them

It’s easy to make mistakes when you’re writing your business plan. Some entrepreneurs get sucked into the writing and research process, and don’t focus enough on actually getting their business started. 

Here are a few common mistakes and how to avoid them:

Not talking to your customers : This is one of the most common mistakes. It’s easy to assume that your product or service is something that people want. Before you invest too much in your business and too much in the planning process, make sure you talk to your prospective customers and have a good understanding of their needs.

• Overly optimistic sales and profit forecasts: By nature, entrepreneurs are optimistic about the future. But it’s good to temper that optimism a little when you’re planning, and make sure your forecasts are grounded in reality. 
• Spending too much time planning: Yes, planning is crucial. But you also need to get out and talk to customers, build prototypes of your product and figure out if there’s a market for your idea. Make sure to balance planning with building.
• Not revising the plan: Planning is useful, but nothing ever goes exactly as planned. As you learn more about what’s working and what’s not—revise your plan, your budgets, and your revenue forecast. Doing so will provide a more realistic picture of where your business is going, and what your financial needs will be moving forward.
• Not using the plan to manage your business: A good business plan is a management tool. Don’t just write it and put it on the shelf to collect dust – use it to track your progress and help you reach your goals.
• Presenting your business plan

The planning process forces you to think through every aspect of your business and answer questions that you may not have thought of. That’s the real benefit of writing a business plan – the knowledge you gain about your business that you may not have been able to discover otherwise.

With all of this knowledge, you’re well prepared to convert your business plan into a pitch presentation to present your ideas. 

A pitch presentation is a summary of your plan, just hitting the highlights and key points. It’s the best way to present your business plan to investors and team members.

Dig Deeper: Learn what key slides should be included in your pitch deck

Use your business plan to manage your business

One of the biggest benefits of planning is that it gives you a tool to manage your business better. With a revenue forecast, expense budget, and projected cash flow, you know your targets and where you are headed.

And yet, nothing ever goes exactly as planned – it’s the nature of business.

That’s where using your plan as a management tool comes in. The key to leveraging it for your business is to review it periodically and compare your forecasts and projections to your actual results.

Start by setting up a regular time to review the plan – a monthly review is a good starting point. During this review, answer questions like:

• Did you meet your sales goals?
• Is spending following your budget?
• Has anything gone differently than what you expected?

Now that you see whether you’re meeting your goals or are off track, you can make adjustments and set new targets. 

Maybe you’re exceeding your sales goals and should set new, more aggressive goals. In that case, maybe you should also explore more spending or hiring more employees. 

Or maybe expenses are rising faster than you projected. If that’s the case, you would need to look at where you can cut costs.

A plan, and a method for comparing your plan to your actual results , is the tool you need to steer your business toward success.

Learn More: How to run a regular plan review

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How to write a business plan FAQ

What is a business plan?

A document that describes your business , the products and services you sell, and the customers that you sell to. It explains your business strategy, how you’re going to build and grow your business, what your marketing strategy is, and who your competitors are.

What are the benefits of a business plan?

A business plan helps you understand where you want to go with your business and what it will take to get there. It reduces your overall risk, helps you uncover your business’s potential, attracts investors, and identifies areas for growth.

Having a business plan ultimately makes you more confident as a business owner and more likely to succeed for a longer period of time.

What are the 7 steps of a business plan?

The seven steps to writing a business plan include:

• Write a brief executive summary
• Describe your products and services.
• Conduct market research and compile data into a cohesive market analysis.
• Describe your marketing and sales strategy.
• Outline your organizational structure and management team.
• Develop financial projections for sales, revenue, and cash flow.
• Add any additional documents to your appendix.

What are the 5 most common business plan mistakes?

There are plenty of mistakes that can be made when writing a business plan. However, these are the 5 most common that you should do your best to avoid:

• 1. Not taking the planning process seriously.
• Having unrealistic financial projections or incomplete financial information.
• Inconsistent information or simple mistakes.
• Failing to establish a sound business model.
• Not having a defined purpose for your business plan.

What questions should be answered in a business plan?

Writing a business plan is all about asking yourself questions about your business and being able to answer them through the planning process. You’ll likely be asking dozens and dozens of questions for each section of your plan.

However, these are the key questions you should ask and answer with your business plan:

• How will your business make money?
• Is there a need for your product or service?
• Who are your customers?
• How are you different from the competition?
• How will you reach your customers?
• How will you measure success?

How long should a business plan be?

The length of your business plan fully depends on what you intend to do with it. From the SBA and traditional lender point of view, a business plan needs to be whatever length necessary to fully explain your business. This means that you prove the viability of your business, show that you understand the market, and have a detailed strategy in place.

If you intend to use your business plan for internal management purposes, you don’t necessarily need a full 25-50 page business plan. Instead, you can start with a one-page plan to get all of the necessary information in place.

What are the different types of business plans?

While all business plans cover similar categories, the style and function fully depend on how you intend to use your plan. Here are a few common business plan types worth considering.

Traditional business plan: The tried-and-true traditional business plan is a formal document meant to be used when applying for funding or pitching to investors. This type of business plan follows the outline above and can be anywhere from 10-50 pages depending on the amount of detail included, the complexity of your business, and what you include in your appendix.

Business model canvas: The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy business plan, in favor of a single-page outline that can help you and outside parties better explore your business idea.

One-page business plan: This format is a simplified version of the traditional plan that focuses on the core aspects of your business. You’ll typically stick with bullet points and single sentences. It’s most useful for those exploring ideas, needing to validate their business model, or who need an internal plan to help them run and manage their business.

Lean Plan: The Lean Plan is less of a specific document type and more of a methodology. It takes the simplicity and styling of the one-page business plan and turns it into a process for you to continuously plan, test, review, refine, and take action based on performance. It’s faster, keeps your plan concise, and ensures that your plan is always up-to-date.

What’s the difference between a business plan and a strategic plan?

A business plan covers the “who” and “what” of your business. It explains what your business is doing right now and how it functions. The strategic plan explores long-term goals and explains “how” the business will get there. It encourages you to look more intently toward the future and how you will achieve your vision.

However, when approached correctly, your business plan can actually function as a strategic plan as well. If kept lean, you can define your business, outline strategic steps, and track ongoing operations all with a single plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• Use AI to help write your plan
• Common planning mistakes
• Manage with your business plan
• Templates and examples

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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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Simple Business Plan Template for Startups, Small Businesses & Entrepreneurs

Financial plan, what is a financial plan.

A business’ financial plan is the part of your business plan that details how your company will achieve its financial goals. It includes information on your company’s projected income, expenses, and cash flow in the form of a 5-Year Income Statement, Balance Sheet and Cash Flow Statement. The plan should also detail how much funding your company needs and the key uses of these funds.

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.

Securing Funding

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:

Revenue Model

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

Exit Strategy

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

How to Develop a Small Business Financial Plan

By Andy Marker | April 29, 2022

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Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.

Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .

What Is a Small Business Financial Plan?

A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”

Why Is It Important for a Small Business to Have a Financial Plan?

All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.

Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”

To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .

What Does a Small Business Financial Plan Include?

All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.

• Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
• Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
• Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
• Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
• Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .

How to Write a Small Business Financial Plan

Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.

“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”

1. Create a Plan

Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.

2. Gather Financial Information

Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.

3. Create an Income Statement

Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.

4. Create a Balance Sheet

Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.

5. Create a Cash Flow Statement

As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”

6. Create Other Documents as Needed

Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.

• Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”

7. Save the Plan for Reference and Share as Needed

The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.

Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at  Highway Title Loans.

Small Business Financial Plan Example

Download Small Business Financial Plan Example Microsoft Excel | Google Sheets

Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.

Small Business Financial Plan Starter Kit

Download Small Business Financial Plan Starter Kit

We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.

Small Business Income Statement Template 

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.

Small Business Balance Sheet Template 

Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets

This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter. 

Small Business Cash Flow Statement Template 

Download Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.

Break-Even Analysis Template 

Download Break-Even Analysis Template Microsoft Excel | Google Sheets

This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.

Personnel Plan Template  

Download Personnel Plan Template Microsoft Excel | Google Sheets

Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.

Sales Forecast Template

Download Sales Forecast Template Microsoft Excel | Google Sheets

Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets

This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.

Tips for Completing a Financial Plan for a Small Business

You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:

• Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
• Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
• Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
• Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
• Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”

Do Small Business Owners Need a Financial Planner?

Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.

Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run. 

Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”

For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .

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• Creating a Small Business Financial Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

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Table of contents, financial plan overview.

A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.

For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ensure sustainable growth.

The strength of a financial plan lies in its ability to offer a clear roadmap for businesses.

Especially for small businesses that may not have a vast reserve of resources, prioritizing financial goals and understanding where every dollar goes can be the difference between growth and stagnation.

It lends clarity, ensures informed decision-making, and sets the stage for profitability and success.

Understanding the Basics of Financial Planning for Small Businesses

Role of financial planning in business success.

Financial planning is the backbone of any successful business endeavor. It serves as a compass, guiding businesses toward profitability, stability, and growth.

With proper financial planning, businesses can anticipate potential cash shortfalls, make informed investment decisions, and ensure they have the capital needed to seize new opportunities.

For small businesses, in particular, tight financial planning can mean the difference between thriving and shuttering. Given the limited resources, it's vital to maximize every dollar and anticipate financial challenges.

Through diligent planning, small businesses can position themselves competitively, adapt to market changes, and drive consistent growth.

Core Components of a Financial Plan for Small Businesses

Every financial plan comprises several core components that, together, provide a holistic view of a business's financial health and direction. These include setting clear objectives, estimating costs , preparing financial statements , and considering sources of financing.

Each component plays a pivotal role in ensuring a thorough and actionable financial strategy .

For small businesses, these components often need a more granular approach. Given the scale of operations, even minor financial missteps can have significant repercussions.

As such, it's essential to tailor each component, ensuring they address specific challenges and opportunities that small businesses face, from initial startup costs to revenue forecasting and budgetary constraints.

Setting Clear Small Business Financial Objectives

Identifying business's short-term and long-term financial goals.

Every business venture starts with a vision. Translating this vision into actionable financial goals is the essence of effective planning.

Short-term goals could range from securing initial funding and achieving a set monthly revenue to covering startup costs. These targets, usually spanning a year or less, set the immediate direction for the business.

On the other hand, long-term financial goals delve into the broader horizon. They might encompass aspirations like expanding to new locations, diversifying product lines, or achieving a specific market share within a decade.

By segmenting goals into short-term and long-term, businesses can craft a step-by-step strategy, making the larger vision more attainable and manageable.

Understanding the Difference Between Profitability and Cash Flow

Profitability and cash flow, while closely linked, are distinct concepts in the financial realm. Profitability pertains to the ability of a business to generate a surplus after deducting all expenses.

It's a metric of success and indicates the viability of a business model . Simply put, it answers whether a business is making more than it spends.

In contrast, cash flow represents the inflow and outflow of cash within a business. A company might be profitable on paper yet struggle with cash flow if, for instance, clients delay payments or unexpected expenses arise.

For small businesses, maintaining positive cash flow is paramount. It ensures that they can cover operational costs, pay employees, and reinvest in growth, even if they're awaiting payments or navigating financial hiccups.

Estimating Small Business Startup Costs (for New Businesses)

Fixed vs variable costs.

When embarking on a new business venture, understanding costs is paramount. Fixed costs remain consistent regardless of production levels. They include expenses like rent, salaries, and insurance . These are predictable outlays that don't fluctuate with business performance.

Variable costs , conversely, change in direct proportion to production or business activity. Think of costs associated with materials for manufacturing or commission for sales .

For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.

One-Time Expenditures vs Ongoing Expenses

Startups often grapple with numerous upfront costs. From purchasing equipment and setting up a workspace to initial marketing campaigns, these one-time expenditures lay the foundation for business operations.

They differ from ongoing expenses like utility bills, raw materials, or employee wages that recur monthly or annually.

For a small business owner, distinguishing between these costs is critical. One-time expenditures often demand a larger chunk of initial capital, while ongoing expenses shape the monthly and annual budget.

By categorizing them separately, businesses can strategize funding needs more effectively, ensuring they're equipped to meet both immediate and recurrent financial obligations.

Funding Sources for Small Businesses

Personal savings.

This is often the most straightforward way to fund a startup. Entrepreneurs tap into their personal savings accounts to jumpstart their business.

While this method has the benefit of not incurring debt or diluting company ownership, it intertwines the individual's personal financial security with the business's fate.

The entrepreneur must be prepared for potential losses, and there's the evident psychological strain of putting one's hard-earned money on the line.

Loans can be sourced from various institutions, from traditional banks to credit unions . They offer a substantial sum of money that can be paid back over time, usually with interest .

The main advantage of taking a loan is that the entrepreneur retains full ownership and control of the business.

However, there's the obligation of monthly repayments, which can strain a business's cash flow, especially in its early days. Additionally, securing a loan often requires collateral and a sound credit history.

Investors, including angel investors and venture capitalists , offer capital in exchange for equity or a stake in the company.

Angel investors are typically high-net-worth individuals who provide funding in the initial stages, while venture capitalists come in when there's proven business potential, often injecting larger sums. The advantage is substantial funding without the immediate pressure of repayments.

However, in exchange for their investment, they often seek a say in business decisions, which might mean compromising on some aspects of the original business vision.

Grants are essentially 'free money' often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors.

The primary advantage of grants is that they don't need to be repaid, nor do they dilute company ownership. However, they can be highly competitive and might come with stipulations on how the funds should be used.

Moreover, the application process can be lengthy and requires showcasing the business's potential or alignment with the specific goals or missions of the granting institution.

Preparing Key Financial Statements for Small Businesses

Income statement (profit & loss).

An Income Statement , often termed as the Profit & Loss statement , showcases a business's financial performance over a specific time frame. It details revenues , expenses, and ultimately, profits or losses.

By analyzing this statement, business owners can pinpoint revenue drivers, identify exorbitant costs, and understand the net result of their operations.

For small businesses, this document is instrumental in making informed decisions. For instance, if a certain product line is consistently unprofitable, it might be prudent to discontinue it. Conversely, if another segment is thriving, it might warrant further investment.

The Income Statement, thus, serves as a financial mirror, reflecting the outcomes of business strategies and decisions.

Balance Sheet

The Balance Sheet offers a snapshot of a company's assets , liabilities , and equity at a specific point in time.

Assets include everything the business owns, from physical items like equipment to intangible assets like patents .

Liabilities, on the other hand, encompass what the company owes, be it bank loans or unpaid bills.

Equity represents the owner's stake in the business, calculated as assets minus liabilities.

This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise.

In contrast, mounting liabilities or dwindling assets could be red flags, signaling the need for intervention and strategy recalibration.

Cash Flow Statement

While the Income Statement reveals profitability, the Cash Flow Statement tracks the actual movement of money.

It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.

For small businesses, maintaining positive cash flow is often more vital than showcasing profitability.

After all, a business might be profitable on paper yet struggle if clients delay payments or unforeseen expenses emerge.

By regularly reviewing the Cash Flow Statement, small business owners can anticipate cash crunches and strategize accordingly, ensuring seamless operations irrespective of revenue cycles.

Small Business Budgeting and Expense Management

Importance of budgeting for a small business.

Budgeting is the financial blueprint for any business, detailing anticipated revenues and expenses for a forthcoming period. It's a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges.

For small businesses, a meticulous budget is often the linchpin of stability, ensuring they operate within their means and avoid financial pitfalls.

Having a well-defined budget also fosters discipline. It curtails frivolous spending, emphasizes cost-efficiency, and sets clear financial boundaries.

For small businesses, where every dollar counts, a stringent budget is the gateway to financial prudence, ensuring that funds are utilized judiciously, fostering growth, and minimizing wastage.

Strategies for Reducing Costs and Optimizing Expenses

Bulk purchasing.

When businesses buy supplies in large quantities, they often benefit from discounts due to economies of scale . This can significantly reduce per-unit costs.

However, while bulk purchasing leads to immediate savings, businesses must ensure they have adequate storage and that the products won't expire or become obsolete before they're used.

Renegotiating Vendor Contracts

Regularly reviewing and renegotiating contracts with suppliers or service providers can lead to better terms and lower costs. This might involve exploring volume discounts, longer payment terms, or even bartering services.

Building strong relationships with vendors often paves the way for such negotiations.

Adopting Energy-Saving Measures

Simple changes, like switching to LED lighting or investing in energy-efficient appliances, can lead to long-term savings in utility bills. Moreover, energy conservation not only reduces costs but also minimizes the environmental footprint, which can enhance the business's reputation.

Embracing Technology

Modern software and technology can streamline business processes. Automation tools can handle repetitive tasks, reducing labor costs.

Meanwhile, data analytics tools can provide insights into customer preferences and behavior, ensuring that marketing budgets are used effectively and target the right audience.

Streamlining Operations

Regularly reviewing and refining business processes can eliminate redundancies and improve efficiency. This might mean merging roles, cutting down on unnecessary meetings, or simplifying supply chains. A leaner operation often translates to reduced expenses.

Outsourcing Non-core Tasks

Instead of maintaining an in-house team for every function, businesses can outsource tasks that aren't central to their operations.

For instance, functions like accounting , IT support, or digital marketing can be outsourced to specialized agencies, often leading to cost savings and access to expert skills.

Cultivating a Culture of Frugality

Encouraging employees to adopt a cost-conscious mindset can lead to collective savings. This can be fostered through incentives, regular training, or even simple practices like recycling and reusing office supplies.

When everyone in the organization is attuned to the importance of cost savings, the cumulative effect can be substantial.

Forecasting Small Business Revenue and Cash Flow

Techniques for predicting future sales in a small business, past sales data analysis.

Historical sales data is a foundational element in any forecasting effort. By reviewing previous sales figures, businesses can identify patterns, understand seasonal fluctuations, and recognize the effects of past initiatives.

This information offers a baseline upon which to build future projections, accounting for known recurring variables in the business cycle .

Market Research

Understanding the larger market dynamics is crucial for accurate forecasting. This involves tracking industry trends, monitoring shifts in consumer behavior, and being aware of potential market disruptions.

For instance, a sudden technological advancement can change consumer preferences or regulatory changes might impact an industry.

Local Trend Analysis

For small businesses, localized insights can be especially impactful. Observing local competitors, understanding regional consumer preferences, or noting shifts in the local economy can offer precise data points.

These granular details, when integrated into a larger forecasting model, can enhance prediction accuracy.

Customer Feedback

Direct feedback from customers is an invaluable source of insights. Surveys, focus groups, or even informal chats can reveal customer sentiments, preferences, and potential future purchasing behavior.

For instance, if a majority of loyal customers express interest in a new product or service, it can be indicative of future sales potential.

Moving Averages

This technique involves analyzing a series of data points (like monthly sales) by creating averages from different subsets of the full data set.

For yearly forecasting, a 12-month moving average can be used to smooth out short-term fluctuations and highlight longer-term trends or cycles.

Regression Analysis

Regression analysis is a statistical tool used to identify relationships between variables. In sales forecasting, it can help understand how different factors (like marketing spend, seasonal variations, or competitor actions) relate to sales figures.

Once these relationships are understood, businesses can predict future sales based on planned actions or expected external events.

Understanding the Cash Cycle of Business

The cash cycle encompasses the time it takes for a business to convert resource investments, often in the form of inventory, back into cash.

This involves the processes of purchasing inventory, selling it, and subsequently collecting payment. A shorter cycle implies quicker cash turnarounds, which are vital for liquidity.

For small businesses, a firm grasp of the cash cycle can aid in managing cash flow more effectively.

By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking.

Ultimately, understanding and optimizing the cash cycle ensures that a business remains liquid and agile.

Preparing for Seasonality and Unexpected Changes

Seasonality affects many businesses, from the ice cream vendor witnessing summer surges to the retailer bracing for holiday shopping frenzies.

By analyzing historical data and market trends, businesses can prepare for these cyclical shifts, ensuring they stock up, staff appropriately, and market effectively.

Small businesses, often operating on tighter margins , need to be especially vigilant. Beyond seasonality, they must also brace for unexpected changes – a local construction project obstructing store access, a sudden competitor emergence, or unforeseen regulatory changes.

Building a financial buffer, diversifying product or service lines, and maintaining flexible operational strategies can equip small businesses to weather these unforeseen challenges with resilience.

Securing Small Business Financing and Capital

Role of debt and equity financing.

When businesses seek external funding, they often grapple with the debt vs. equity conundrum. Debt financing involves borrowing money, typically via loans. While it doesn't dilute ownership, it necessitates regular interest payments, potentially impacting cash flow.

Equity financing, on the other hand, entails selling a stake in the business to investors. It might not demand regular repayments, but it dilutes ownership and might influence business decisions.

Small businesses must weigh these options carefully. While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch.

Equity financing, although relinquishing some control, might bring aboard strategic partners, offering expertise and networks in addition to funds.

The optimal choice hinges on the business's financial health, growth aspirations, and the founder's comfort with sharing control.

Choosing Between Different Types of Loans

A staple in the lending arena, term loans offer businesses a fixed amount of capital that is paid back over a specified period with interest. They're often used for significant one-time expenses, such as purchasing machinery, real estate , or even business expansion.

With predictable monthly payments, businesses can plan their budgets accordingly. However, they might require collateral and a robust credit history for approval.

Lines of Credit

Unlike term loans that provide funds in a lump sum, a line of credit grants businesses access to a pool of funds up to a certain limit.

Businesses can draw from this line as needed, only paying interest on the amount they use. This makes it a versatile tool, especially for managing cash flow fluctuations or unexpected expenses. It serves as a financial safety net, ready for use whenever required.

As the name suggests, microloans are smaller loans designed to cater to businesses that might not need substantial amounts of capital. They're particularly beneficial for startups, businesses with limited credit histories, or those in need of a quick, small financial boost.

Since they are of a smaller denomination, the approval process might be more lenient than traditional loans.

Peer-To-Peer Lending

A contemporary twist to the traditional lending model, peer-to-peer (P2P) platforms connect borrowers directly with individual lenders or investor groups.

This direct model often translates to quicker approvals and competitive interest rates as the overheads of traditional banking structures are removed. With technology at its core, P2P lending can offer a more user-friendly, streamlined process.

However, creditworthiness still plays a pivotal role in determining interest rates and loan amounts.

Crowdfunding and Alternative Financing Options

In an increasingly digital age, crowdfunding platforms like Kickstarter or Indiegogo have emerged as viable financing avenues.

These platforms enable businesses to raise small amounts from a large number of people, often in exchange for product discounts, early access, or other perks. This not only secures funds but also validates the business idea and fosters a community of supporters.

Other alternatives include invoice financing, where businesses get an advance on pending invoices, or merchant cash advances tailored for businesses with significant credit card sales.

Each financing mode offers unique advantages and constraints. Small businesses must meticulously evaluate their financial landscape, growth trajectories, and risk appetite to harness the most suitable option.

Small Business Tax Planning and Management

Basic tax obligations for small businesses.

Navigating the maze of taxation can be daunting, especially for small businesses. Yet, understanding and fulfilling tax obligations is crucial.

Depending on the business structure—whether sole proprietorship , partnership , LLC , or corporation—different tax rules apply. For instance, while corporations are taxed on their earnings, sole proprietors report business income and expenses on their personal tax returns.

In addition to income taxes, small businesses may also be responsible for employment taxes if they have employees. This covers Social Security , Medicare , federal unemployment, and sometimes state-specific taxes.

There might also be sales taxes, property taxes, or special state-specific levies to consider.

Consistently maintaining accurate financial records, being aware of filing deadlines, and setting aside funds for tax obligations are essential practices to avoid penalties and ensure compliance.

Advantages of Tax Planning and Potential Deductions

Tax planning is the strategic approach to minimizing tax liability through the best use of available allowances, deductions, exclusions, and breaks.

For small businesses, effective tax planning can lead to significant savings.

This might involve strategies like deferring income to a later tax year, choosing the optimal time to purchase equipment, or taking advantage of specific credits available to businesses in certain sectors or regions.

Several potential deductions can reduce taxable income for small businesses. These include expenses like rent, utilities, business travel, employee wages, and even certain meals.

By keeping abreast of tax law changes and actively seeking out eligible deductions, small businesses can optimize their financial landscape, ensuring they're not paying more in taxes than necessary.

Importance of Hiring a Tax Professional or Accountant

While it's feasible for small business owners to manage their taxes, the intricate nuances of tax laws make it beneficial to consult professionals.

An experienced accountant or tax consultant can not only ensure compliance but can proactively recommend strategies to reduce tax liability.

They can guide businesses on issues like whether to classify someone as an employee or a contractor, how to structure the business for optimal taxation, or when to make certain capital investments.

Beyond just annual tax filing, these professionals offer year-round counsel, helping businesses maintain clean financial records, stay updated on tax law changes, and plan for future financial moves.

The investment in professional advice often pays dividends , saving businesses from costly mistakes, penalties, or missed financial opportunities.

Regularly Reviewing and Adjusting the Small Business Financial Plan

Setting checkpoints and milestones.

Like any strategic blueprint, a financial plan isn't static. It serves as a guiding framework but should be flexible enough to adapt to evolving business realities.

Setting regular checkpoints— quarterly , half-yearly, or annually—can help businesses assess whether they're on track to meet their financial objectives.

Milestones, such as reaching a specific sales target, launching a new product, or expanding into a new market, offer tangible markers of progress. Celebrating these victories can bolster morale, while any shortfalls can serve as lessons, prompting strategy tweaks. F

or small businesses, where agility is an asset, regularly revisiting the financial plan ensures that the business remains aligned with its overarching financial goals while being responsive to the dynamic marketplace.

Using Financial Ratios to Monitor Business Health

Financial ratios offer a distilled snapshot of a business's health. Ratios like the current ratio ( current assets divided by current liabilities ) can shed light on liquidity, indicating whether a business can meet short-term obligations.

The debt-to-equity ratio , contrasting borrowed funds with owner's equity, offers insights into the business's leverage and potential financial risk.

Profit margin , depicting profitability relative to sales, can highlight operational efficiency. By consistently monitoring these and other pertinent ratios, small businesses can glean actionable insights, understanding their financial strengths and areas needing attention.

In a realm where early intervention can stave off major financial setbacks, these ratios serve as vital diagnostic tools, guiding informed decision-making.

Pivoting Strategies Based on Financial Performance

In the ever-evolving world of business, flexibility is paramount. If financial reviews indicate that certain strategies aren't yielding anticipated results, it might be time to pivot.

This could involve tweaking product offerings, revising pricing strategies, targeting a different customer segment, or even overhauling the business model.

For small businesses, the ability to pivot can be a lifeline. It allows them to respond swiftly to market changes, customer feedback, or internal challenges.

A robust financial plan, while offering direction, should also be pliable, accommodating shifts in strategy based on real-world performance. After all, in the business arena, adaptability often spells the difference between stagnation and growth.

Bottom Line

Financial foresight is integral for the stability and growth of small businesses. Effective revenue and cash flow forecasting, anchored by historical sales data and enhanced by market research, local trends, and customer feedback, ensures businesses are prepared for future demands.

With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.

As businesses contemplate external financing, the decision between debt and equity and the myriad of loan types, should be made judiciously, keeping in mind the business's health, growth aspirations, and risk appetite.

Furthermore, diligent tax planning, with professional guidance, can lead to significant financial benefits. Regular reviews using financial ratios allow businesses to gauge their performance, adapt strategies, and pivot when necessary.

Ultimately, the agility to adapt, guided by a well-structured financial plan, is pivotal for businesses to thrive in a dynamic marketplace.

Creating a Small Business Financial Plan FAQs

What is the importance of a financial plan for small businesses.

A financial plan offers a structured roadmap, guiding businesses in making informed decisions, ensuring growth, and navigating financial challenges.

How do forecasting revenue and understanding cash cycles aid in financial planning?

Forecasting provides insights into expected income, aiding in budget allocation, while understanding cash cycles ensures effective liquidity management.

What are the core components of a financial plan for small businesses?

Core components include setting objectives, estimating startup costs, preparing financial statements, budgeting, forecasting, securing financing, and tax management.

Why is tax planning vital for small businesses?

Tax planning ensures compliance, optimizes tax liabilities through available deductions, and helps businesses save money and avoid penalties.

How often should a small business review its financial plan?

Regular reviews, ideally quarterly or half-yearly, ensure alignment with business goals and allow for strategy adjustments based on real-world performance.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Business Financial Plan Example: Strategies and Best Practices

Any successful endeavor begins with a robust plan – and running a prosperous business is no exception. Careful strategic planning acts as the bedrock on which companies build their future. One of the most critical aspects of this strategic planning is the creation of a detailed business financial plan. This plan serves as a guide, helping businesses navigate their way through the complex world of finance, including revenue projection, cost estimation, and capital expenditure, to name just a few elements. However, understanding what a business financial plan entails and how to implement it effectively can often be challenging. With multiple components to consider and various economic factors at play, the financial planning process may appear daunting to both new and established business owners.

This is where we come in. In this comprehensive article, we delve into the specifics of a business financial plan. We discuss its importance, the essential elements that make it up, and the steps to craft one successfully. Furthermore, we provide a practical example of a business financial plan in action, drawing upon real-world-like scenarios and strategies. By presenting the best practices and demonstrating how to employ them, we aim to equip business owners and entrepreneurs with the tools they need to create a robust, realistic, and efficient business financial plan. This in-depth guide will help you understand not only how to plan your business finances but also how to use this plan as a roadmap, leading your business towards growth, profitability, and overall financial success. Whether you're a seasoned business owner aiming to refine your financial strategies or an aspiring entrepreneur at the beginning of your journey, this article is designed to guide you through the intricacies of business financial planning and shed light on the strategies that can help your business thrive.

Understanding a Business Financial Plan

At its core, a business financial plan is a strategic blueprint that sets forth how a company will manage and navigate its financial operations, guiding the organization towards its defined fiscal objectives. It encompasses several critical aspects of a business's financial management, such as revenue projection, cost estimation, capital expenditure, cash flow management, and investment strategies.

Revenue projection is an estimate of the revenue a business expects to generate within a specific period. It's often based on market research, historical data, and educated assumptions about future market trends. Cost estimation, on the other hand, involves outlining the expenses a business anticipates incurring in its operations. Together, revenue projection and cost estimation can give a clear picture of a company's expected profitability. Capital expenditure refers to the funds a company allocates towards the purchase or maintenance of long-term assets like machinery, buildings, and equipment. Understanding capital expenditure is vital as it can significantly impact a business's operational capacity and future profitability. The cash flow management aspect of a business financial plan involves monitoring, analyzing, and optimizing the company's cash inflows and outflows. A healthy cash flow ensures that a business can meet its short-term obligations, invest in its growth, and provide a buffer for future uncertainties. Lastly, a company's investment strategies are crucial for its growth and sustainability. They might include strategies for raising capital, such as issuing shares or securing loans, or strategies for investing surplus cash, like purchasing assets or investing in market securities.

A well-developed business financial plan, therefore, doesn't just portray the company's current financial status; it also serves as a roadmap for the business's fiscal operations, enabling it to navigate towards its financial goals. The plan acts as a guide, providing insights that help business owners make informed decisions, whether they're about day-to-day operations or long-term strategic choices. In a nutshell, a business financial plan is a key tool in managing a company's financial resources effectively and strategically. It allows businesses to plan for growth, prepare for uncertainties, and strive for financial sustainability and success.

Essential Elements of a Business Financial Plan

A comprehensive financial plan contains several crucial elements, including:

• Sales Forecast : The sales forecast represents the business's projected sales revenues. It is often broken down into segments such as products, services, or regions.
• Expenses Budget : This portion of the plan outlines the anticipated costs of running the business. It includes fixed costs (rent, salaries) and variable costs (marketing, production).
• Cash Flow Statement : This statement records the cash that comes in and goes out of a business, effectively portraying its liquidity.
• Income Statements : Also known as profit and loss statements, income statements provide an overview of the business's profitability over a given period.
• Balance Sheet : This snapshot of a company's financial health shows its assets, liabilities, and equity.

Crafting a Business Financial Plan: The Steps

Developing a business financial plan requires careful analysis and planning. Here are the steps involved:

Step 1: Set Clear Financial Goals

The initial stage in crafting a robust business financial plan involves the establishment of clear, measurable financial goals. These objectives serve as your business's financial targets and compass, guiding your company's financial strategy. These goals can be short-term, such as improving quarterly sales or reducing monthly overhead costs, or they can be long-term, such as expanding the business to a new location within five years or doubling the annual revenue within three years. The goals might include specific targets such as increasing revenue by a particular percentage, reducing costs by a specific amount, or achieving a certain profit margin. Setting clear goals provides a target to aim for and allows you to measure your progress over time.

Step 2: Create a Sales Forecast

The cornerstone of any business financial plan is a robust sales forecast. This element of the plan involves predicting the sales your business will make over a given period. This estimate should be based on comprehensive market research, historical sales data, an understanding of industry trends, and the impact of any marketing or promotional activities. Consider the business's growth rate, the overall market size, and seasonal fluctuations in demand. Remember, your sales forecast directly influences the rest of your financial plan, particularly your budgets for expenses and cash flow, so it's critical to make it as accurate and realistic as possible.

Step 3: Prepare an Expense Budget

The next step involves preparing a comprehensive expense budget that covers all the costs your business is likely to incur. This includes fixed costs, such as rent or mortgage payments, salaries, insurance, and other overheads that remain relatively constant regardless of your business's level of output. It also includes variable costs, such as raw materials, inventory, marketing and advertising expenses, and other costs that fluctuate in direct proportion to the level of goods or services you produce. By understanding your expense budget, you can determine how much revenue your business needs to generate to cover costs and become profitable.

Step 4: Develop a Cash Flow Statement

One of the most crucial elements of your financial plan is the cash flow statement. This document records all the cash that enters and leaves your business, presenting a clear picture of your company's liquidity. Regularly updating your cash flow statement allows you to monitor the cash in hand and foresee any potential shortfalls. It helps you understand when cash comes into your business from sales and when cash goes out of your business due to expenses, giving you insights into your financial peaks and troughs and enabling you to manage your cash resources more effectively.

Step 5: Prepare Income Statements and Balance Sheets

Another vital part of your business financial plan includes the preparation of income statements and balance sheets. An income statement, also known as a Profit & Loss (P&L) statement, provides an overview of your business's profitability over a certain period. It subtracts the total expenses from total revenue to calculate net income, providing valuable insights into the profitability of your operations.

On the other hand, the balance sheet provides a snapshot of your company's financial health at a specific point in time. It lists your company's assets (what the company owns), liabilities (what the company owes), and equity (the owner's or shareholders' investment in the business). These documents help you understand where your business stands financially, whether it's making a profit, and how your assets, liabilities, and equity balance out.

Step 6: Revise Your Plan Regularly

It's important to remember that a financial plan is not a static document, but rather a living, evolving roadmap that should adapt to your business's changing circumstances and market conditions. As such, regular reviews and updates are crucial. By continually revisiting and revising your plan, you can ensure it remains accurate, relevant, and effective. You can adjust your forecasts as needed, respond to changes in the business environment, and stay on track towards achieving your financial goals. By doing so, you're not only keeping your business financially healthy but also setting the stage for sustained growth and success.

Business Financial Plan Example: Joe’s Coffee Shop

Now, let's look at a practical example of a financial plan for a hypothetical business, Joe’s Coffee Shop.

Sales Forecast

When constructing his sales forecast, Joe takes into account several significant factors. He reviews his historical sales data, identifies and understands current market trends, and evaluates the impact of any upcoming promotional events. With his coffee shop located in a bustling area, Joe expects to sell approximately 200 cups of coffee daily. Each cup is priced at $5, which gives him a daily sales prediction of $1000. Multiplying this figure by 365 (days in a year), his forecast for Year 1 is an annual revenue of $365,000. This projection provides Joe with a financial target to aim for and serves as a foundation for his further financial planning. It is worth noting that Joe's sales forecast may need adjustments throughout the year based on actual performance and changes in the market or business environment.

Expenses Budget

To run his coffee shop smoothly, Joe has identified several fixed and variable costs he'll need to budget for. His fixed costs, which are costs that will not change regardless of his coffee shop's sales volume, include rent, which is $2000 per month, salaries for his employees, which total $8000 per month, and utilities like electricity and water, which add up to about $500 per month.

In addition to these fixed costs, Joe also has variable costs to consider. These are costs that fluctuate depending on his sales volume and include the price of coffee beans, milk, sugar, and pastries, which he sells alongside his coffee. After a careful review of all these expenses, Joe estimates that his total annual expenses will be around $145,000. This comprehensive expense budget provides a clearer picture of how much Joe needs to earn in sales to cover his costs and achieve profitability.

Cash Flow Statement

With a clear understanding of his expected sales revenue and expenses, Joe can now proceed to develop a cash flow statement. This statement provides a comprehensive overview of all the cash inflows and outflows within his business. When Joe opened his coffee shop, he invested an initial capital of $50,000. He expects that the monthly cash inflows from sales will be about $30,417 (which is his annual revenue of $365,000 divided by 12), and his monthly cash outflows for expenses will amount to approximately $12,083 (his total annual expenses of $145,000 divided by 12). The cash flow statement gives Joe insights into his business's liquidity. It helps him track when and where his cash is coming from and where it is going. This understanding can assist him in managing his cash resources effectively and ensure he has sufficient cash to meet his business's operational needs and financial obligations.

Income Statement and Balance Sheet

With the figures from his sales forecast, expense budget, and cash flow statement, Joe can prepare his income statement and balance sheet. The income statement, or Profit & Loss (P&L) statement, reveals the profitability of Joe's coffee shop. It calculates the net profit by subtracting the total expenses from total sales revenue. In Joe's case, this means his net profit for Year 1 is expected to be $220,000 ($365,000 in revenue minus $145,000 in expenses).

The balance sheet, on the other hand, provides a snapshot of the coffee shop's financial position at a specific point in time. It includes Joe's initial capital investment of $50,000, his assets like coffee machines, furniture, and inventory, and his liabilities, which might include any loans he took to start the business and accounts payable.

The income statement and balance sheet not only reflect the financial health of Joe's coffee shop but also serve as essential tools for making informed business decisions and strategies. By continually monitoring and updating these statements, Joe can keep his finger on the pulse of his business's financial performance and make necessary adjustments to ensure sustained profitability and growth.

Best Practices in Business Financial Planning

While crafting a business financial plan, consider the following best practices:

• Realistic Projections : Ensure your forecasts are realistic, based on solid data and reasonable assumptions.
• Scenario Planning : Plan for best-case, worst-case, and most likely scenarios. This will help you prepare for different eventualities.
• Regular Reviews : Regularly review and update your plan to reflect changes in business conditions.
• Seek Professional Help : If you are unfamiliar with financial planning, consider seeking assistance from a financial consultant.

The importance of a meticulously prepared business financial plan cannot be overstated. It forms the backbone of any successful business, steering it towards a secure financial future. Creating a solid financial plan requires a blend of careful analysis, precise forecasting, clear and measurable goal setting, prudent budgeting, and efficient cash flow management. The process may seem overwhelming at first, especially for budding entrepreneurs. However, it's crucial to understand that financial planning is not an event, but rather an ongoing process. This process involves constant monitoring, evaluation, and continuous updating of the financial plan as the business grows and market conditions change.

The strategies and best practices outlined in this article offer an invaluable framework for any entrepreneur or business owner embarking on the journey of creating a financial plan. It provides insights into essential elements such as setting clear financial goals, creating a sales forecast, preparing an expense budget, developing a cash flow statement, and preparing income statements and balance sheets. Moreover, the example of Joe and his coffee shop gives a practical, real-world illustration of how these elements come together to form a coherent and effective financial plan. This example demonstrates how a robust financial plan can help manage resources more efficiently, make better-informed decisions, and ultimately lead to financial success.

Remember, every grand journey begins with a single step. In the realm of business, this step is creating a well-crafted, comprehensive, and realistic business financial plan. By following the guidelines and practices suggested in this article, you are laying the foundation for financial stability, profitability, and long-term success for your business. Start your journey today, and let the road to financial success unfold.

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Financial projections: how to write the financial plan in business plan.

So, you’ve decided to write a business plan? Good for you! It’s an important document that will help you outline your business goals, strategies, and tactics.

But it’s not just a document for you, as the business owner in charge of everything – it’s also important for potential investors and lenders.

In particular, one of the most important sections of your business plan should be your financial plan or, in other words, your overall financial projections for the next few years – understand, three to five years – distilled in a specific and highly codified format.

Why? Because the financial projections in a business plan are the numbers’ version of your pitch – if something doesn’t add-up, that’s where you see it.

Now, we know that numbers can be impressive (not to say daunting), so in this post, we’ll explain to you how to write a financial plan in your business plan.

We’ll also explain the logic you are supposed to follow to do things right (because financiers expect you to follow a very specific logic).

And we’ll explain what your business plan absolutely needs to include from a financial standpoint.

If that makes sense to you, then let’s get going!

By the way…

Before we dig into the financial projections’ discussion, let us give you a tiny bit of background!

We are professional business coaches, and our job is to push entrepreneurs and business owners to their next steps.

Business planning and business plans are part of that, obviously, therefore we have written a series of free articles on how to write a business plan – of which this page is a part.

We are on a mission to make entrepreneurship fun and accessible, so we provide about 80 percent of our content for free – including a free business plan template to be downloaded down this page.

Still, in case that’s not sufficient, we’ve also created our Business Plan Builder Module , which has been designed to make your life super easy.

Shameless plug: it gives you access to:

• a complete and solid business plan writing work-frame tool
• automated financial tables that take the hassle away (yayyy!)
• two designer-made templates (comprehensive + pitch deck)
• and two hours of tutorial videos recorded with a business coach to explain all the logic you’ll need to master if you plan on writing a business plan that converts.

There’s simply no way to make things easier!

Now, having said that, let’s get going.

As a reminder, what is a business plan about?

To start the discussion, remember that a business plan is about much more than just numbers. As we’ve explained in our article What are Business Plans For? , the role of such a document is to show that beyond a nice business plan pdf nobody really cares about, you have a real business and a plan to get it somewhere.

First, a business plan’s purpose is to help you explain what your project is about. In that sense, the document you need to write should be written as a storytelling instrument, designed, and formulated to tell people a story they will want to read AND remember.

Second, it should give you a way to showcase your main business objectives for the next few years, as well as the strategy you will put into place to get there and deliver on your promises.

Third, your business plan should also provide a market analysis, and a description of your main target segment. That gives the reader a better understanding of your ecosystem’s potential, but more importantly the exercise forces you to look around, open your eyes and do some meaningful research.

You wouldn’t want to drive blindfolded, would you?

Of course, your document should also have a financial component – which is the topic of this article – and there the challenge is to ensure that your financial projections make sense, that they are clear, accurate and easy to follow.

Long things short, investors and bankers expect you to match a very specific business plan outline and format (there’s a code!) and you don’t have much wiggle room there – so be careful in your approach!

What is a Financial Plan & what should it include?

Now, let’s get into the core of this article: financial plans and financial projections. What are they, why are they important – there is a lot to explore.

First things first, what is a financial plan? How important is it in a business plan? And what type of elements is it made of? What are the projected financial statements you need to provide? Oh, and what do we mean by ‘financial projections’ in the first place, by the way?

What is the role of a financial plan in business plan?

A financial plan is the financial part of your business plan. Its purpose is simple: explain to the reader what should be the ins and outs of your project from a financial perspective, and help them see if their own business projections are aligned with yours.

On the one hand, the idea is to put numbers on your project, to make it tangible and show that your vision includes the end and the means.

On the other, it is also to show that you are capable of defending your big idea as well as the projected financials that need to come with it – something that many wannabe entrepreneurs are actually unable to do…

As a side note, and as silly as that might sound, this means that your business plan should include a lot more than just a financial plan and a smart cash flow projection!

That point brings us back to the one we made earlier when we said that a business plan should follow a specific structure (go read that article!), but we mention it again because we want things to be very clear: your business plan should be a matter of storytelling, not just a matter of financial projections!

Typically, we often see accountants work on business plans, and what they produce is rarely enough because they only deliver financial estimates that make no real sense to non-accountants (even less to the entrepreneurs at stake) and leave aside the rest of the topics – particularly the storytelling!

Said differently? The numbers are one aspect of the story, but you still have to come up with the pitch – which is where the rest of the business plan comes in handy.

Make sure to deliver an easy-to-read mix!

Your financial plan must provide your financial projections

To get into the technical part of the discussion, the financial plan in your business plan should include your financial projections, organized in a very formal format.

That makes two distinct points to consider!

On the one hand, you should be able to show with clear numbers what money should come in and when (that’s the income forecasts), for this year but also for the next, the ones after that for three to five years.

On the other, you should also be able to show what money needs to go out to make the business roll. What are the production costs, the fixed and variable expenses, the salaries, and of course the various marketing expenses needed to generate the development you are planning on getting to.

On that point, remember that your cost of client acquisition should also be part of the formalized projections – otherwise your numbers will be flawed (and doomed).

Ultimately, you need to be very clear as to when your new business (or existing business) should break even, as to when should profits be expected, as to when lenders and investors will get their money back, so forth and so on.

It must include specific financial documents people will expect to see

From a very formal perspective, you shouldn’t be trying to make one single projection sheet. Nope! Your readers will expect to see three important financial documents in the financial section of the business plan you will introduce to them.

• A profit and loss statement – also known as your P&L statement, or as an income statement
• A cash flow statement
• And a balance sheet.

First, the P&L table or income statement should show what money is expected to come in or go out, but it should also show if and when the business will make a profit or a loss, year by year, for the next five years.

The sales forecast and the operating expenses should be easy to understand at that stage, and you should also be able to provide your estimated gross profit, your gross margin, as well as your net profit and net margin.

In case you are wondering, your gross profit corresponds to your sales minus your cost of production. Your net profit corresponds to the gross profit minus all the remaining costs.

It’s okay to read that twice…

Not being profitable is also okay, by the way. That’s the game. However, you must be able to explain why you won’t be profitable in a given year, and how you plan on filling the gap in the bank – otherwise your business dies, right?

Second, the cashflow statement should explain your cash flow management strategy and indicate when you will need to fill the bank account in, and why.

For instance, important account receivables could justify a temporary cashflow need, but the gaps left from the previous years should also be visible. Obviously, the funding needs should also be there and aligned with the financial situation of the business.

Third, the balance sheet is a summary of the previous two tables, except that it shows the various elements in terms of assets or liabilities. For instance, the account receivables we mentioned just before would be an asset (because some money is owed to the business) while account payables would be a liability (since the business owes money to someone else).

Does all this sound a little complex?

That’s because it is.

No need to worry, though. We have you covered and will provide all the templates and tools you need further below. For now, just keep reading.

So, what’s the financial plan in a business plan for?

To conclude, the financial plan in business plan should act as a financial cartography of what you have in mind for that business of yours.

• The financial plan should illustrate the plan you have for the business in terms of numbers
• It should include precise financial projections of what you think can be achieved
• It should clearly illustrate your cashflow management strategy
• And it should summarize the information clearly
• All of this through highly standardized tables financiers will understand very easily

What documents should a financial business plan contain?

Getting your financial business plan right is a lot simpler than it seems.

Now, when you’re pitching that business of yours to potential partners, investors or lenders, you’ll need to provide them with a series of financial statements.

Yet, how to produce those documents without jumping into a living nightmare? How to come up with cash flow projections that make sense instead of being purely random?

Word of caution: financial planning for businesses is typically complex.

The question is not only fair, but it is also super-duper common and literally blocks tons of entrepreneurs and small business owners on a daily basis.

Because financial planning for businesses is typically complex.

Because most people aren’t comfortable with numbers.

And because the vast majority of small business owners simply don’t know where to start.

That’s probably why you were looking for either a financial plan pdf template or an example of financial plan for small business owners a few minutes ago, isn’t it?

Typically, here is what happens.

Some try and do their best, but then they don’t feel confident with pitching and defending their financial analysis, so they keep delaying and nothing happens.

Others end up having recourse to external help, even though external business plan consultants usually aren’t a good idea at that stage.

And the rest gives up.

That’s a shame, especially if consider that financial planning for a small business and building a financial plan for a business plan are only a matter of having access to the right method and tools!

Yes, a big (big) part of the work is to guestimate, but the rest is about trusting the process with the right logic, method and tools – and there’s nothing you can’t manage here.

Especially with the right tools!

How to build your financial forecasts?

Now that you understand the different sections of a financial plan, let us talk about how to build financial forecasting.

In plain English, this part of the exercise is where you’ll estimate your company’s income and expenses for the next few years. Therefore, you should keep a few things in mind.

One, you need to have a good understanding of your business in order to create realistic forecasts.

Sounds silly? Maybe, but this is a mistake people make way too much, and when they fail at justifying their financial projections, everything else goes down.

Two, you absolutely want to make sure that your projections can explore various trends, i.e. your pessimistic, optimistic, and most likely scenarios.

• If everything goes extremely well, we’ll get there.
• If everything goes wrong, we’ll get there.
• But… we should reasonably expect to achieve this and that if we obtain the funding we need…

Can you see the idea?

Be sure to also factor in any potential changes or risks that could affect your business.

For example, if you’re expecting a new competitor to enter the market, you’ll need to account for that in your projections. By being realistic and accounting for as many variables as possible, you’ll give yourself the best chance of success so give it some thought!

Pragmatically, how do I come up with reasonable financial forecasts for my business plan?

It’s all a question of common sense, really.

• How much do you plan on selling?
• What are your short, medium and long term financial goals?
• What would be the cost of production?
• What margin does that leave you with?
• What fixed costs would you expect?
• How about variable costs?
• Have you included transaction fees and credit card fees in your costs?
• What is the cost of insurance premiums?
• Will there be any debt to repay?
• What type of budget do you need for marketing purposes?
• What is the cost of acquisition of the client?
• What operational margin does it leave before the taxman comes in?
• What kind of money do you need to meet your long term goals?
• Have you planned for any emergency fund at all?

Right, that’s a long list. But! Answering those questions should give you a strong basis to build financial projections that make sense, because that’s literally how you would read your income statement in the end.

If you were trying to translate boring numbers into a meaningful story, that’s exactly where you would start!

Again, we have you covered with all this.

If you are looking for a concrete and practical financial plan example, make sure to download our business plan template down the page. It will give you the basic pro forma financials you’ll need.

If you need to understand the logic behind the template and would rather use an automated spreadsheet to get everything done, however, then it’s time to stop struggling.

The Impactified Business Plan Builder will provide everything you need: the automated tables and two hours of business coaching videos designed to explain all the logic you’ll need – what are you waiting for?

Why Are Financial Projections so Important in the end?

So, overall, why is creating financial projections so important? Are there various types of financial projections anyway? There are several things to keep in mind here.

First, your financial projections are important because they give bankers and investors the numbers they need (to make an informed decision) in a format they expect to see.

Second, your projections show whether your strategy is aligned with the means at your disposal to achieve it and whether you are aware of the financial engineering required to make your business roll.

Third, and in a related way, forecasts will give you, as the entrepreneur in charge, an opportunity to show if you understand the business for real (or if someone else not present during the discussion wrote the plan for you).

All of these documents are important, but you (nobody else!) will need to be able to tell a story around them.

Investors aren’t just looking for numbers! They invest in teams and people before investing in projects, so they want to know that you understand your business and that you have a plan for the future!

So, make sure your financial projections are accurate and be prepared to answer any questions investors have about them.

Understanding the investment process

To understand how to handle the exercise properly, understanding the investment and funding process in general is important.

What do bankers and investors expect when they are looking at a business plan? How do they decide whether to invest or not? And how do the financial projections help them make that decision?

In short, investors are looking for a return on their investment. So, they want to know what they can expect to earn from their investment, and how that compares to the risks they’re taking.

Your projected income statement is important there, but so are your cashflow projections!

Your financial estimates should therefore show how your business will grow and what profits you’ll generate, both in the short-term and long-term. This information will help investors determine whether or not your business is a good investment.

In contrast, bankers have a much lower risk tolerance and are not interested in funding you – they lend money to those who have money to repay the debt (or some assets to engage as collateral in case something goes wrong). Hence, what they look for is not a high return on investment based on risk, but a repayment capacity based on predictability and wise financial management.

Said differently? You need to create financial projections that make sense and adapt your financial pitch to your audience accordingly.

Show investors that there is a great opportunity to make money at a later stage and show bankers you will be able to start repaying as soon as possible.

Again, if you need to explore the question of investors’ mindsets, we elaborate on that in our video module – it’s time to give it a try!

Business valuation and exit thinking

Last but not least, understanding the investment process means that you also need to start thinking in terms of valuation and exit.

Or, said differently, the financial plan in your business plan must lead you to think about what your business will be worth a few years from now, and about how you will be able to make money (for you and your investment partners) by selling it.

On the one hand, exit thinking relates to the idea that investors invest in a business with the expectation that the business will raise more money later on, at which stage a larger investor will come in and buy the existing investors out.

To make your investors some money, therefore, you have to start thinking in terms of exiting the business at some point – which means progressively turning the business into an asset that works on its own, for you and as much as possible without you.

This mindset is absolutely key – think about it!

On the other hand, the discussion leads us to think in terms of business valuation – understand, how much is the business worth, and how much could it be sold for.

That topic is probably getting too technical for this article’s discussion, so we’ll explore it in another post.

Meanwhile, make sure to listen to the exit & valuation video in The Business Plan Builder module . We explain all this and even go as far as giving you an automated valuation calculator in the financial tables part of the tool – again, you have no excuse!

Avoiding the typical mistakes small businesses make with financial planning

To finish with the discussion, what should you keep in mind if you wanted to turn your financial plan into an asset that generates money rather than frustration?

Like it or not, but small business financial planning isn’t an intuitive thing and people tend to make very typical mistakes you should avoid at all costs!

Know your business

First piece of advice, you really (really, really) want to know your business from every angle.

When you are writing the financial plan in your business plan, it’s important to remember that your projections should represent an estimate of future performance. That’s how investors and lenders will read your numbers anyway.

So, your financial projections and forecasts should be based on realistic assumptions and calculations that you should always be prepared to adjust as needed.

In order to make accurate projections, it is therefore extremely important to have a good understanding of your business and the industry it operates in. You should also consult with industry experts and other professionals who can help you make informed decisions about your business.

Do the exercise yourself!

When you’re writing your financial plan, it’s important to avoid making common mistakes. One of the most common errors is underestimating how much money your business will need to operate.

Another is to rely on business plan consultants to write your financial projections without being able to understand the numbers yourself. This can lead to mistakes if the numbers are incorrect, and it can lead to embarrassing ahem! moments if you can’t explain how this or that number ended up in the document.

The best way to ensure accuracy is to do the exercise yourself with the right tools in hand and the brainstorming support of someone you trust to challenge your thoughts and conclusions.

This can be done with your acting CFO or close financial advisor if you have one, or with a fellow entrepreneur if anyone around you has the right mindset to dig into the discussion with you.

Alternatively, hiring a business coach is another way to brainstorm and challenge yourself – follow the link to find out more about that.

Don’t be a tourist. That’s stupid.

Third piece of advice: don’t enter into a discussion with a potential partner as a tourist – this is stupid, and that could very well kill you.

We have seen countless entrepreneurs walk into a room (let alone into a large startup event) saying that they were raising money for their startup. Yet, more often than not, their financial targets are not set or beyond approximative, which means they can’t explain why they need money and how they are going to spend it.

When you do that, the only thing you do is be stupid and make sure everyone knows about it.

First, because they won’t take you seriously. Would you invest money into someone who can’t tell you how they’ll use it and with what return on investment expectations?

And second, because the people you talk to will most likely ask you to come back to them once you have more information to provide. Which either means “don’t come back before six months to a year” or “please don’t come back at all, I have better things to do with my time and more competent people to talk to”.

Don’t be a tourist or you’ll just burn yourself. That’s stupid.

Turn your numbers into a story

The fourth piece of advice is going to be a repeat from earlier, but it’s important so let’s be redundant.

Now that you’ve written your financial projections, it’s time to go beyond the numbers and start telling your business story. The financial plan in your business plan is a great place to start but remember that it’s just one part of your overall pitch.

You’ll also need to be ready to pitch your idea, product, or service, and be ready to defend your financial plan against questions from investors or lenders.

Think holistically and build a story people will want to listen to, remember and act on. Period!

TL;DR: Get your financial projections right!

Now that you understand the different components of a financial plan, it’s time to learn how to write it. The key to writing a good financial plan is to be realistic. Don’t make assumptions that are unrealistic or impossible to achieve.

Start by estimating your sales and expenses for the first year of business. Be as specific as possible, and remember to include both fixed and variable costs. From there, you can create a cash flow statement that shows how your business will generate and spend money over time.

The goal of a financial plan is to paint a realistic picture of your business’s financial future. So make sure to update your plan as your business changes and grows. With careful planning and accurate numbers, you can ensure that your business will be successful for years to come.

What should your business plan financial plan include?

• A profit and loss statement – also known as your P&L statement, or as an income statement
• A cash flow statement showing if your business plan financial projections are realistic

What is the purpose of your business plan’s financial projections?

• To how the plan you have for the business in terms of numbers
• To show a financial overview of what you think can be achieved, by when, with what means
• To show you have a cashflow management strategy that makes sense
• To show you understand the standardized expectations and know how to play by the book
• To show that, overall, your business proposal makes sense whatever the angle!

Need a reliable template and video tutorial to get your financial business plan & financial projections right?

It’s built around over 2 hours of explanatory videos and comes with everything you’ll need to:

• Figure out what you need to figure out – powerful, uh?
• Understand the business plan code!
• Write a top business plan – with just the right amount of words and pages!
• Build your financial estimates – with an automated financial projections template excel spreadsheet!
• Create a visually appealing pitch deck people will want to read thanks to our designer-made templates!

If you want to stop wasting your time, this is THE most simple business plan template, and you can’t afford to miss it!

Wanna’ start with something free? Our free business plan template is also here to help !

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More Insights on Business Plan Writing

Hey coach! I’m writing a business plan and I’m wondering how to build the financial projections part of the document. What’s the importance of financial projections exactly – I mean, isn’t it absolute BS? How do I write the financial plan in business plan, and even more importantly, how can I make sense of all those messy tables? Can you help me understand this? Thanks in advance!

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How to Create a Financial Plan for Your Business

Home » Blog » How to Create a Financial Plan for Your Business

A wise old Certified Public Accountant gave me some priceless advice when I began my entrepreneurial journey.

“If the math doesn’t work, neither will your business.” 

Upon seeing my blank expression, he explained it a little further.

“A successful business earns more than it spends, and you ensure that happens (within reason) by creating a financial plan that controls every dollar you make.”

How so? I asked.

“Because your financial plan empowers you to control your cash flow, prepare for uncertainties, and take advantage of future opportunities.”

That’s when I knew I needed one.

If so, my step-by-step guide explains how to create a business financial plan that reflects your goals and controls every dollar you make.

What is a financial plan?

At its most basic level, a business financial plan is a document that shows you what money flows in and out of your business, how you earn it, and where you spend it. 

Similar to businesses, no 2 financial plans are the same.

However, a solid financial plan contains several components, including an income statement, cash flow statement, personnel plan, balance sheet, financial projections, and break-even analysis. 

Together, these enable you to control your budget, highlight potential future risks, set goals, calculate your funding requirements, and implement strategies to achieve them. 

While there’s no such thing as a sure thing in life, your financial plan brings your future into your present so that you can control it now.

Why is a financial plan important for a small business?

As you know (or will when you start your business ), entrepreneurs work long hours and make many decisions to ensure their business is on track. A business financial plan helps remove uncertainty from those decisions, replacing it with figures you can rely on and preparing you to take full advantage of investment opportunities when they arise. 

Here’s what Warren Buffet says about opportunities:

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

Your financial plan ensures you’ve got a bucket!

We also use a financial plan to control our cash flow, forecast our future financial business performance (including our income, expenses, and profitability), and stay within budget. 

Together, these help us maximize our assets, confidently navigate any problems during our entrepreneurial journey, and convince investors to believe in our vision. 

What is the difference between a business financial plan and a personal financial plan?

While most financial plans include the same information, some essential differences exist between business and personal plans because your goals likely differ from those of your SMB.

For example, an individual’s financial plan might include retirement, investment strategies, a minimum annual income to reduce tax liabilities, and securing an estate for their children.

In contrast, a business’s financial plan might focus on hiring additional staff, increasing inventory, bringing new products online, expanding into other markets, and even a new brick-and-mortar location. 

As you can see, the goals differ from one to the other, as might yours. That’s why a financial plan is as unique as the business it serves; however, some elements are vital for every financial business plan! 

The key components of a business financial plan

We now know that a thorough financial plan is imperative to the success and stability of your small business. 

Here are the components that can help make that happen:

• Income Statement: Contains information on your revenue, profits, and losses.
• Cash flow statement: Documents how money flows in and out of your business. 
• Balance sheet: Shows your business assets and expenses at a specific time.
• Financial projections: This helps predict your future income and expenses.
• Personnel plan: Identifies if and when you should hire employees.
• Break-Even Analysis: Confirms when you’ll make a profit.

Okay, now let’s look at how you use them to create yours:

How to Create a Business Financial Plan

To create your business financial plan, you must first collect financial information relevant to the 6 critical components you’ll use for its structure. 

Budding entrepreneurs who have yet to start their businesses might be wondering, `How do I collect information I haven’t got?` 

Good point!

Here’s where your business plan comes into play because it contains a financial section that includes your startup and running costs , financial projections, and break-even analysis. 

And those are 3 of the critical components in your business financial plan!

1. Income statement

An income statement (also known as a pro forma income or profit-and-loss statement) contains information on revenue, profits, losses, and fixed and variable operating expenses over a specific period, such as monthly, quarterly, or yearly.

It includes 2 columns containing your income and expenses and, at the bottom, your net profit or loss total.

Here’s an example of how it should look:

• Cost of goods sold (COGS) and operating expenses: These are the direct costs of producing your goods or services and the costs for running your business, such as rent, utilities, wages, insurance, licenses, etc.
• Revenue streams: Usually direct sales or ongoing subscriptions/
• Total net profit or loss: Subtract your costs (and taxes) from your total gross profit.
• Net income: Your total income after you subtract your expenses and taxes.

Next comes your cash flow statement, which might initially look like your income statement, but there are distinct differences.

Your income statement calculates your business’s revenues, expenses, and profits and reflects its financial performance. Your cash flow statement shows where you earn and spend your money, which is essential for staying within budget and paying your bills. 

2. Cash flow statement

Most small businesses need regular cash injections to survive.

But did you know that a lack of cash is the number one reason 82% of small US businesses fail? Source: USChamber.com .

So, it’s crucial to control it using a cash flow statement. 

A cash flow statement for established businesses could include bank statements showing credits (profits) and debits (expenditures). Startups with little cash flow information could include their startup and running costs and any funding sources. 

You can create a cash flow statement using two columns, one for your income and the other for your expenditures. 

And add the name, date, and invoice/receipt number to each transaction to make it easy to follow and correlate with your invoices and receipts. Trust me, your bookkeeper will love you for it!

3. Balance sheet

Your balance sheet is a financial snapshot of your business at a specific moment that lets you view your liabilities, assets, equity, and any up-and-coming extra expenses.

You use a balance sheet to subtract your debts (liabilities) from what you own (assets) to show you your net worth, also known as equity.

Let’s break those down so you know what they involve:

Liabilities: 

Your liabilities are business debts, such as outstanding inventory fees, utility bills, employee wages or compensation, and unpaid taxes.

These fall into 2 categories: current and fixed. 

• Your current assets can include your business bank balance, available cash, and outstanding invoices, known as accounts receivable.
• Your fixed assets include tangible things like your business property, equipment, vehicles, or land.

Note: Some businesses also have intangible assets, such as patents and copyrights.

Your business equity is the value of your assets minus your liabilities, which could also include any stock and share options.

4. Financial projections

A financial projection (also called an income projection) forecasts how much money you think might flow in and out of your business over a set period based on past performances or for startups on their business plan’s market research .

Financial projections can help you in several ways, including:

• Many small businesses need financial projections to identify and prepare for slow sales because of low seasonal demand or a shift in consumer buying trends.
• Your financial projections help you understand the cash you need to reach your business goals by estimating their costs.
• Most new businesses need solid (believable) financial projections to get funding, as they help show you can repay your debts.
• And to help entrepreneurs running a side hustle know when they can take it full-time .

To create your income projection, estimate your future sales income minus your fixed and variable expenses.

5. Personnel plan

Most businesses need the right people to meet their goals and maintain a healthy cash flow.

You use a personnel plan to determine whether to hire employees and if they should be full-time, part-time, freelancers, or contractors on a need-only basis. 

Your personnel plan also calculates employee costs like wages, benefits, worker’s compensation insurance, and payroll taxes to ensure you only hire when you can afford to.

6. Break-even analysis

Your break-even analysis projects when you’ll recoup your investment and earn more than your spending to run your business.

You calculate your break-even date by dividing your variable and fixed costs by your gross profit margin to get a financial figure your business must make to break even.

Need help to determine what your fixed and variable costs are?

No worries:

• Your fixed costs include expenses that remain the same regardless of how many products or services you sell. These include your rent, insurance policies, license and permit expenses , accounting fees, and wages.
• Your variable costs fluctuate relative to your sales or production volume.

The takeaway:

Your break-even analysis tells you the number of products or services you must sell to cover your business and production costs. 

Tips on creating an effective financial plan for your business

Preparation is the key to creating a business financial plan, and you prepare by setting goals, assessing present and future credit needs, estimating every business expense, planning for contingencies, and seeking professional financial advice if required. 

And once your plan is in place, regular monitoring helps ensure your business is on its financial target.

Let’s look at how you do it:

Set your financial goals

Your goals are relative to your business. Some examples include forming an LLC , hiring employees, expanding your product range or services, entering a new marketplace, opening a new branch, or trading abroad.

You must define them (regardless of what they are) because your financial plan aims to help you achieve them.

Consider this proverb when choosing your financial business goals:

“The art is not in making money, but making your money work for you.”

And that’s pretty much the secret to how people get rich!

That’s why now is the time to define your goals and create a strategically driven financial business plan that guides every business decision and ensures you maximize your investments.

Speaking of which!

Know your credit needs 

Your business credit needs are any loans you require when starting, running, or expanding your business.

As most small business owners know, the golden rule in running a small business is to minimize your expenditures because the less money you borrow, the higher your profits and the more accurate your business financial plan will be.

But sometimes, we must borrow to exploit market opportunities , buy equipment, or expand, and knowing your credit needs (and score) can help you get the best deals.

Include those little expenses

No income or expense is too small to consider when running a business that relies on a consistent cash flow.

Benjamin Franklin put it this way:

“Beware of little expenses. A small leak will sink a great ship.” 

The problem many new business owners experience is that it’s easy to account for significant expenses (especially fixed costs), but it’s the small, variable everyday ones that can catch us out and scupper our budget. 

To avoid a sinking feeling, evaluate your monthly fixed and variable expenditures and avoid unnecessary, unbudgeted expenses at all costs.

Monitor your goals

Creating your financial plan is your first step, implementing it the second, and monitoring it the third because that’s how you ensure your strategies are achieving your financial goals. 

To monitor your goals, use those key elements of your business financial plan, including your income and cash flow statement, balance sheet, and financial projections, as they provide an up-to-date assessment.

Regular monitoring also helps you identify potential problems and implement any changes before they harm your business’s financial health. 

Plan for contingencies

Planning for problems relative to your niche, like seasonal fluctuations and new competitors, is standard best business practice. But as recent history has taught us, we must also prepare for the unforeseeable!

You can spot worst-case scenarios (like a falling income) by evaluating your business financial plan’s balance sheet and cash flow statement.

Some ways to plan for contingencies are to have a credit line available and cash reserves that can help keep you afloat should the going get rough. 

Consider hiring help 

Many of the most successful business leaders have a shared secret to their success!

They surround themselves with people who know more than they do about every aspect of their business. 

Steve Jobs explains it perfectly:

“It doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.”

Fortunately, financial experts are available to help you create your business financial plan.

Consider hiring a financial advisor to inform you of prudent financial decisions and investments, and your bank manager can help assess your creditworthiness while considering any past problems that could affect present loan applications.

Financial planning FAQs

What is a business financial plan.

An effective business financial plan contains your business goals and outlines your strategies.

It’s a GPS that guides your SMB’s financial activities by ensuring you make informed decisions on how and where to invest your resources. 

How do you write a business financial plan?

Your financial plan begins with a strategic plan that contains your business goals and what you’ll need to achieve them.

Next, you must create your financial projections, plan for contingencies, and monitor to assess your actual results against your projections to adjust if required. 

What are the 6 components of a financial plan?

Financial plans are as unique as the business they serve. However, 6 components you must include are:

• Cash flow statement: Documents how money flows in and out of your business.
• Personnel plan: Identifies whether you should hire employees.
• Break-Even Analysis: Confirms when you'll make a profit.

What is the best financial statement for a small business?

Your income statement best assesses your business’s financial performance, containing your profits, losses, and equity.

Your balance sheet and cash flow statement are also crucial for running a profitable business. 

Entrepreneurs need many skills, and one of the most important is financial intelligence because it ensures we keep our fingers on our businesses’ financial pulse.

Learning how to create a business financial plan is a great way to gain that skill.

And when you control your income and expenditures, you take control of your business’s financial destiny. Sweet.

One last thing to remember when creating a business financial plan.

The numbers never lie!

This portion of our website is for informational purposes only. Tailor Brands is not a law firm, and none of the information on this website constitutes or is intended to convey legal advice. All statements, opinions, recommendations, and conclusions are solely the expression of the author and provided on an as-is basis. Accordingly, Tailor Brands is not responsible for the information and/or its accuracy or completeness.

Terry OToole

Terry is a serial entrepreneur with over 25 years of experience building businesses across multiple industries – construction, real estate, e-commerce, hotelier, and now digital media. When not working, Terry likes to kick back and relax with family, explore Taoism’s mysteries, or savor the taste of fine Italian red wine.

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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 projections

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)
• Utilities 
• Equipment 
• Supplies 
• Advertising 

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

When you are starting a small business or a startup, you will need to make financial projections for your business.

What is Financial Plan in Business Plan?

How to write a business plan financial section, profit and loss statement.

• Cash Flow Statement
• Balance Sheet
• Sales Forecast
• Personnel Plan

Breakeven Analysis and Business Ratios

Use financial plan as a tool for business management, frequently asked questions (faqs).

Financial plan in business plan helps understand the chances of your business becoming a financial success. Investors want to see a financial plan to know how much money they’ll invest and what the expected return over investment is for them.

We have briefly discussed the process of writing a financial plan in business plan. One thing that can make or break your financial plan in business plan is your honesty about numbers.

Try not to be over-optimistic. See the growth pattern of similar businesses and project closely to them. Don’t overestimate the effects of your competitive advantage.

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A financial plan in business plan is an overview of your business financial projections.

Business plan financial projections include financial reports including Profit & Loss, cash flow statement, and balance sheet.

A financial plan will also discuss sales forecast, employees’ salaries and other expenses forecast, business breakeven analysis, and important business rations that help measure growth.

A business plan financial section is about making simple forecasts and creating a few financial reports. You don’t need to know accounting, nor is it necessary for creating financial projections.

We have outlined and simplified the process of creating a financial plan for business plan. Simply follow the process and take help from our examples and templates to write an excellent financial plan section of a business plan.

Review your Business Goals and Strategic Plan

You have set business goals in your business plan. A strategic plan is how you will navigate to financial success. 

Everything in a business plan that contributes toward your business goals. Before writing financial projections, consider these goals and milestones:

• Expansion plans 
• Adding more people to your team 
• Resources required to meet your business goals 
• Cash flow needs of your business in the short and long term
• Financing needs to meet business goals 

Create Financial Projections

 Financial projections in a business plan will include the following:

• Profit and loss statement

Cash Flow Statement 

Sales forecast .

• Business Ratios and Breakeven Analysis 

We will explore each in detail in the following section. By the end of the article, you will fully understand how to create financial plan in business plan. 

A profit and loss statement is the first financial report you will create when writing financial plan in business plan.

A profit and loss statement reports your business income or loss over a certain period of time.

Profit and loss statement is also known by other names including its short form i.e., P & L statement, income statement, and pro forma income statement.

A profit and loss statement includes total revenues, expenses, and costs. A P&L statement is made for different time intervals like quarterly, bi-annual and annual. It shows net income after the cost of goods sold, expenses, taxes, depreciation, and amortization.

Before creating a P&L statement for your business, you may need to look for the right format for your business structure. For example, you will need a different format for a profit and loss statement for a sole proprietorship and a different one for an LLC.

Check income statement examples to understand and create one yourself. 

Profit and Loss Statement Template

Download our free profit and loss statement templates &  examples, and make a professional income statement for financial plan in business plan. 

Parts of a Profit and Loss Statement 

Every profit and loss statement includes the following elements:

• Total Revenues 
• Cost of Sales or Cost of Goods Sold 
• Gross Margin 

Depending on the business type, a P&L statement may include insurance, taxes, depreciation, and amortization. Make sure to include a forecast for all heads in financial plan in business plan.

Calculate Operating Income 

Start your profit and loss statement by calculating operating income; use this formula. 

Gross Margin – Operating Expenses = Operating Income

Typically, operating income is equal to EBITDA (earnings before interest, taxes, depreciation, and amortization). 

Operating income is also called the gross profit and it does not deduce taxes or other accounting adjustments from the income.

Calculate Net Income 

Use this formula to calculate net income. 

Operating Income – (Interest + Taxes + Depreciation + Amortization Expenses) = Net Income

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A cash flow statement is typically prepared every month. You can create monthly and quarterly cash flow statement in financial plan in business plan.

A cash flow statement informs about the cash your business brought income, the cash it paid out, and how much is still available with the bank.

A cash flow statement gives an understanding of your income sources and expenses. When you forecast your financial reports, a cash flow statement will show your expected income sources and expenses.

A cash flow statement will help potential lenders and investors understand how you plan to make money. It provides reliable data about cash in and cash out. Keep it realistic and in line with the industry number for the most part. An exception may be an innovation or a breakthrough you bring to the market.

Your profit and cash flow are not the same. It is possible to have a cashless, profitable business or a business in loss with plenty of cash. A good cash flow helps you keep your business open and turn things around.

A cash flow statement also reflects your behavior with money. It shows if you spend on spur of the moment or think strategically. When creating a cash flow statement in a business plan, you will need to understand two basic concepts of accounting; cash accounting and accrual accounting.

Professional Business Templates for Small Businesses

Check our extensive library of business templates for small businesses and make use of the templates and examples in writing your business plan.

Difference between Cash and Accrual Accounting 

The difference between cash and accrual accounting is Accrual accounting records revenues/income and expenses when they occur while cash accounting records income/revenue and expenses when the money actually changes hands. 

You will need to decide if you will use cash accounting or accrual accounting. However, the final choice will depend on your business type and product. 

For example, you are selling tickets to a show or you are taking preorders for your new product. Under cash accounting, you will record all income now and expenses when you have actually shipped the product or organized the show. 

However, with accrual accounting, you will record both income and expenses when you have shipped the product or held the show. 

Here, cash accounting will show the months with cash abundance as profitable and the months of spending, like shipping of the products of event organization, as a loss. It is hard to see a pattern and get actionable insight with cash accounting. 

It is a good time to decide about the accounting method you will use when you are writing a financial plan in business plan. 

Check with your accounting consultant and discuss accrual and cash accounting to select the one most suitable for your business.

Balance Sheet 

A balance sheet is a summary of the financial position of your business. 

A balance sheet includes assets, liabilities, and equity. A balance sheet is based on this formula and it is always equal on both sides of the equation. 

Assets = Liabilities + Equity

Here, Assets include your inventory, cash at hand and bank, property, vehicles, accounts receivables, etc. Liabilities are debts, loans and account payables. Equity includes shares proceeds, retained earnings, and owner’s money. 

Download Balance Sheet Template from WiseBusinessPlan and make a balance sheet easy. 

A sales forecast is your projection about the sales you will make in a certain time. Investors and lenders will be interested in seeing your sales forecast. They will estimate your chances of meeting the forecast and projections. 

Keep your sales forecast consistent with the financial reports like the cash flow statement and profit & loss statement.

How To Make A Sales Forecast For A Business Plan?

First, decide the period for the sales forecast, like one month or a quarter. Then, do the following steps to make a sales forecast for that period. 

• List goods or services your business sells
• Forecast sales for each product or service 
• Set per unit price for your goods or services 
• Find sales volume by multiplying units sold with unit price 
• Calculate the cost of goods sold 
• Multiply the cost of goods sold by the number of units sold, this is your total cost 
• Take the total cost amount from the total sales amount

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Personnel Plan 

A personnel plan shows the costs and value of the employees you will hire. 

Very small businesses, startups, or solopreneurs may not need a personnel plan but any business with employees, or plans to hire employees, will need this. 

Forecast the cost of each employee and the value they will provide. You don’t need to discuss everything about employees, just do a short cost-benefit analysis for each position or employee.

Breakeven analysis tells you the number of sales you need to bring in to cover all of your business expenses. 

Use this formula to calculate the breakeven point for your business. 

Break-Even Point (units) = Fixed Costs /  (Sales price per unit – Variable costs per unit) 

Business ratios are like signals for your business. You can quickly spot a growth or fall with a ratio. Some business ratios also help you see business health. 

You are not required to include business ratio forecasts however, it is good to know about them when writing a business plan. 

Here are some of the most used business ratios.

• Gross margin
• Return on sales
• Return on assets
• Return on investment
• Debt-to-equity
• Current ratio
• Working capital
• gross margin
•  return on investment (ROI)
• Debt-to-equity.

One mistake that most people make is thinking that building a business plan is a one time thing. 

Your business plan and your financial projections can help you measure your business growth. You can use these numbers as a yard stick to see if you are meeting your projections or not. 

Here is how you can your business plan as a management tool for your business. 

Schedule monthly and quarterly business review meetings. Compare your actual data for that period with your forecast data and see how you are moving towards your business goals. Adjust your forecast or projections with the help of actual data to keep your growth trajectory in the right direction.

Hire our professional who can help write a business plan !

The financial section of a business plan should include key financial statements such as the income statement, balance sheet, and cash flow statement. It should also provide details on projected sales, expenses, and profitability, along with any assumptions or financial ratios used.

Forecasting sales and revenue involves analyzing market research, understanding your target audience, and considering factors such as pricing, competition, and marketing strategies. Utilize historical data, industry benchmarks, and realistic growth assumptions to estimate future sales figures.

In addition to sales and revenue projections, the financial section should include projected expenses, such as operational costs, marketing expenses, and overheads. It should also outline anticipated profits, cash flow projections, and return on investment (ROI) calculations.

Yes, including a break-even analysis is important as it helps determine the point at which your business will start generating profits. It identifies the sales volume needed to cover all expenses and provides insights into the viability of your business.

Supporting documents may include historical financial statements, tax returns, cash flow statements, balance sheets, and any other relevant financial records. Additionally, include details about any loans, investments, or funding sources that contribute to the financial projections.

Loving the information on this web site, you have done great job on the content.

I thought of the same thing before reading this blog that a business plan is a one-time thing but now I know that a business plan and financial projections can really help you measure business growth. Let me just change my stance from now onward.

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Financial Plans: Meaning, Purpose, and Key Components

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What Is a Financial Plan?

Understanding a financial plan.

• When to Create It
• How to Create It
• Financial Plan FAQs

The Bottom Line

Liz Manning has researched, written, and edited trading, investing, and personal finance content for years, following her time working in institutional sales, commercial banking, retail investing, hedging strategies, futures, and day trading. 

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

A financial plan is a document that details a person’s current financial circumstances and their short- and long-term monetary goals. It includes strategies to achieve those goals.

A financial plan can help you to establish and plan for fundamental needs, such as managing life's risks (e.g., those involving health or disability), income and spending, and debt reduction.

It can provide financial guidance so that you're prepared to meet your obligations and objectives. It can also help you track your progress throughout the years toward financial well-being.

Financial planning involves a thorough evaluation of one’s money situation (income, spending, debt, and saving) and expectations for the future. It can be created independently or with the help of a certified financial planner .

Key Takeaways

• A financial plan documents an individual’s short- and long-term financial goals and includes a strategy to achieve them.
• The plan should be comprehensive and highly customized.
• It should reflect an individual’s personal and family financial needs, investment risk tolerance, and plan for saving and investing.
• Planning in finance starts with a calculation of one’s current net worth and cash flow.
• A solid financial plan provides guidance over time and serves as a way to track progress toward your goals.

The Fundamentals of Financial Plans

Whether you’re going it alone or with a financial planner, the first step in creating a financial plan is to understand how important it can be to your financial future. It can provide the guidance that assures your financial success.

Start your planning effort by gathering information from your various financial accounts into a document or spreadsheet.

Then make some basic calculations that establish where you stand financially.

You may complete the following steps as an individual or a couple:

Calculate Net Worth

To calculate your current net worth , subtract the total for your liabilities from the total for your assets. Begin by listing and adding up all of the following:

• Your assets : An asset is property of value that you own. Assets may include a home, a car, cash in the bank, money invested in a 401(k) plan , and other investments accounts.
• Your liabilities : A liability is something you owe. Liabilities may include outstanding bills, credit card debt, student debt, a mortgage, and a car loan.

Determine Cash Flow

Cash flow is the money you take in measured against the money you spend. To create a financial plan, you must know your income as well as how and when your money is spent.

Documenting your personal cash flow will help you determine how much you need every month for necessities, how much is available for saving and investing, and where you can cut back on spending.

One way to get this done is to review your checking account and credit card statements. Collectively, they should provide a fairly complete history of your income and spending in a wide range of spending categories.

For example, document how much you’ve paid during the year for housing expenses like rent or mortgage payments, utilities, and credit card interest.

Other categories include food, household (including clothing), transportation, medical insurance, and non-covered medical expenses. Still others can include your spending on miscellaneous entertainment, dining out, and vacation travel.

Once you add up all these numbers for a year and divide by 12, you’ll know what your monthly cash flow has been (and where you can improve it).

When establishing your cash flow history, don’t overlook cash withdrawals that may have been used on sundries, from take-out, to shampoo, to sodas. ATM withdrawals can also highlight where you might cut unnecessary spending.

Establish Your Goals

A major part of a financial plan is a person’s clearly defined goals . These may include funding a college education for the children, buying a larger home, starting a business, retiring on time, or leaving a legacy.

No one can tell you how to prioritize these goals. However, a professional financial planner should be able to help finalize a detailed savings plan and specific investing that can help you reach them one by one.

The main elements of a financial plan include a retirement strategy, a risk management plan, a long-term investment plan, a tax reduction strategy, and an estate plan.

Benefits of a Financial Plan

• A financial plan involves a thorough examination of your income and spending.
• It can improve your understanding of your financial circumstances at all times.
• It establishes important short- and long-term financial goals.
• It clarifies the actions required of you to achieve your various financial goals.
• A financial plan can focus your attention on important immediate steps, such as reducing debt and building your savings for emergencies.
• It enhances the probability that you'll achieve financial milestones and overall financial success (however you define it).
• It can guide your efforts over time and provide a means to monitor your progress.
• It can keep you out of financial trouble and reduce the stress and worry you may have experienced in the past.

Reasons for a Financial Plan

Financial planning is a smart way to keep your financial house in order. It's a money tool for everyone, regardless of age, earnings, net worth, or financial dreams. It offers individuals a way to document their personal goals and corresponding financial goals. It can keep people on track to meet ongoing financial needs and major financial goals.

When to Create a Financial Plan

A financial plan is always an advantage for those who want to make sure that they manage their finances in ways that are best-suited for them. You can create one at any time, whether you've just joined the workforce or have been working for years.

Beyond that, here are some particular instances that call for the creation and use of a financial plan. They can also serve as signals to adjust existing plans.

• A new job that results in added income, new expenses, or new opportunities
• An income change that can affect your ability to pay expenses, pay off debt, or save
• Major life events such as marriage, children, or divorce that can change financial objectives and spending needs
• Health adversities that result in re-directing income and spending away from existing goals
• An income windfall, such as an inheritance or insurance payment, that can affect efforts to reach your financial goals (such as providing more money for investing and debt reduction)

How to Create a Financial Plan

Certain steps are needed to create a financial plan. In addition to calculating your net worth, determining your cash flow, and establishing financial goals, as outlined above, here are additional plan elements/steps to include.

Do It Yourself or Get Professional Help

Decide whether you'll create your financial plan on your own or with the help of a licensed financial planner . While you can certainly build a financial plan, a financial pro can help ensure that your plan covers all the essentials.

Build an Emergency Cash Fund

Based on what your cash flow allows, start setting aside enough money in a liquid account to cover all your expenses for at least 6 months (preferably, for twelve) if you find yourself without income due to unexpected events.

Plan to Reduce Debt and Manage Expenses

If you have debt, the faster and more effectively that you can eliminate it, the better for the growth of your savings, your standard of living, and the achievement of specific financial objectives.

Make it a habit to cut expenses whenever possible so that you can add to your savings. In addition, stay on top of expenses that you know you'll have, such as taxes, so you always meet those obligations on time.

Manage Potential Risks

Your financial well-being can be affected when accidents, health problems, or the death of loved ones strike. Plan to put into place the appropriate insurance coverage that will protect your financial security at such times. This coverage can include home, property , health, auto, disability , personal liability , and life insurance.

Plan to Invest

Take part in a retirement plan at work that automatically deducts contributions from your paycheck. And plan to maximize your tax-advantaged investing with a personal IRA if and when your income allows.

Also, consider how you might allocate any other available income to a taxable investment account that can add to your net worth over time. Your plan for investing should take into account your investment risk tolerance and future income needs.

Include a Tax Strategy

Address the goal of reducing your income taxes with tax deductions, tax credits, tax loss harvesting, and any other opportunities that are legally available to taxpayers.

Consider an Estate Plan

It's important to make arrangements for the benefit and protection of your heirs with an estate plan . The details will depend on your stage in life and whether you're married, have children, or have other legacy goals.

Monitor and Adjust Your Financial Plan

Revisit your plan at least yearly (on your own or with a financial professional) and more often if a change in circumstances affects your financial situation. Keep it working efficiently and effectively by adjusting it as needed.

What Is the Purpose of a Financial Plan?

A financial plan should help you make the best use of your money and achieve long-term financial goals, such as sending your children to college, buying a bigger home, leaving a legacy, or enjoying a comfortable retirement.

How Do I Write a Financial Plan?

You can write a financial plan yourself or enlist the help of a professional financial planner. The first step is to calculate your net worth and identify your spending habits. Once this has been documented, you need to consider longer-term objectives and decide on the ways to achieve them.

What Are the Key Components of a Financial Plan?

Financial plans aren't one-size-fits-all, although the good ones tend to focus on the same things. After calculating your net worth and spending habits, you’ll explore your financial goals and ways to achieve them. Usually, this involves some form of budgeting , saving, and investing each month. To ensure that you live comfortably and financially stress-free for the rest of your life, the areas to focus on include an emergency savings plan, a retirement plan, risk management, a long-term investment strategy, and a tax minimization plan.

A financial plan is an essential planning tool for your financial well-being, now and into the future. It involves setting down the current state of your finances, your various financial goals, and methods that can help you achieve them.

It's never too early or late to create a financial plan. And no matter the amount of money that you have, a financial plan can help you to determine the best way to put it to work so that you can meet your financial needs through all of your life stages.

• Financial Plans: Meaning, Purpose, and Key Components 1 of 14
• How To Conduct a Financial Checkup 2 of 14
• How to Manage Lifestyle Inflation 3 of 14
• Your Annual Financial Planning Checklist 4 of 14
• Financial Planning: Can You Do It Yourself? 5 of 14
• The Importance of Making an Annual Financial Plan 6 of 14
• What Is Retirement Planning? Steps, Stages, and What to Consider 7 of 14
• 10 Steps to Financial Security Before Age 30 8 of 14
• 10 Steps to Retire as a Millionaire 9 of 14
• Why Should I Pay Myself First? 10 of 14
• How Can I Budget for Short-Term Expenses and Long-Term Goals? 11 of 14
• How To Adjust and Renew Your Portfolio 12 of 14
• Financial New Year's Resolutions You Can Keep 13 of 14
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As a financial planner, I give my clients 4 tips to make their money last a lifetime

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• I'm a financial planner, and I remind clients to look at a long timespan and plan for the worst.
• There's no easy answer to earning more money, but it's important to not ignore that factor.
• I encourage my clients to focus less on frugality and more on how they'll invest in the future.

As a certified financial planner , my goal is to help self-made professionals build wealth that they can enjoy throughout their lives. To do that, we have to make sure their money will last throughout their lifetimes.

But we also need to make sure that clients actually have opportunities to use their money now  while they're young, healthy, and able to fully experience life.

Here's the process we use to build long-term financial plans that work, including what your investment strategy should consider and why living frugally is a poor strategy for getting rich.

1. Plan for change

Your goals for retirement planning will probably evolve over time. The person you are today will not be the same person who retires in 10, 20, or 30 years.

A long-term financial plan that works accounts for inevitable shifts in goals, values, priorities, and circumstances. Although you might not know exactly what will change, you can still plan for an evolving life.

First, save more than you think you need to when you can. If you find you have excess cash flow, don't default to spending it or upgrading your lifestyle. Direct that money to investments instead so you can grow wealth.

Avoid unrealistic assumptions about future income and expenses. For my own planning, I assume a lower-than-expected growth in income and a higher-than-expected run rate for my cost of living.

When making decisions, opt for choices that allow you to walk away at a low cost. This makes it possible to change or adjust course as needed. Be cautious about decisions that demand fixed commitments (like buying a house) that are difficult to reverse.

2. Look for ways to earn more

Personally, I've shifted from "retire as soon as possible" to a more balanced approach to my financial goals.

I save less money now because I want to use some of my income for important experiences throughout life. I don't want to save everything for use on a distant (and unreliable!) "someday" in the future.

My financial plan can accommodate this choice for two main reasons:

First, I saved aggressively when I could for almost a decade. I've saved at least 30% to 40% of my income . The fact I did so in the past gives me increased flexibility now.

I also put a lot of time and energy into earning more money through growing my business.

If you want to grow wealth, increasing your income will fast-track your efforts. Too many people who want to throw out money tips ignore this reality.

I understand why no one wants to talk about it. Earning more is not easy to do, and there's no one piece of prescriptive advice to give that will help everyone.

But we cannot ignore the importance of making more money if our goal is to create more wealth. There are many avenues that can get you to a higher income, so you don't need one right answer. You need to select and stick with a strategy that makes sense for you.

3. Remember, frugality will only get you so far

No matter what you want to do, you'll need money to afford your chosen lifestyle in the future. And you won't be able to work to earn an income forever. By choice or by circumstance, you will eventually need another way to pay for your needs other than your own work.

This means we must recognize the necessity of saving money and investing . There's no disputing that. The question is how .

Living frugally to get wealthy is possible; it's a simple fact that the lower your expenses are, the more you can save.

But it's an inefficient path to building wealth. There are only so many costs you can cut. And only saving money misses out on opportunities to create assets that increase in value over time.

4. Develop an investment strategy

If you want to grow wealth without pinching pennies, you have to invest — and you have to do that wisely.

A sound investment strategy needs to consider:

• What investment vehicles to use
• The right asset allocation based on your goals and your time horizons
• The expenses associated with your chosen investments and how that may impact your returns
• How to leverage diversification across your portfolio as well as across the specific  brokerage accounts  or assets you invest into
• The tax implications of your choices
• Mistakes to avoid, including speculating, market timing, and taking on too much (or the wrong type) of risk

That just scratches the surface of comprehensive investment management here. But in general, if you want to build an investment strategy that will help you grow wealth, you want to look for:

• Long-term time horizons : The longer your money can be invested, the better your odds of a successful outcome where you see growth of your assets.
• Risk-adjusted strategies : You want to take on enough risk to see a return, but not more than you can actually afford to realize (or more than you need to meet your goals).
• Globally diversified portfolios : Remember that there is a literal world of financial markets out there. Throwing your money into one to three index funds that are all US large-cap stocks or US bonds is not a good example of true diversification.

One final key to keep in mind: You're better off sticking with a decent strategy that works over time than constantly hopping from one thing to another in search of the best strategy ever. Consistency is an underrated element on the road to building wealth.

Watch: 6 simple investing tips for beginners

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• News for JOANN

JOANN Receives Court Approval for Prepackaged Financial Recapitalization Plan

HUDSON, Ohio, April 25, 2024 (GLOBE NEWSWIRE) -- JOANN Inc. (“JOANN” or the “Company”), the nation’s category leader in sewing and fabrics with one of the largest arts and crafts offerings, today announced that the U.S. Bankruptcy Court for the District of Delaware has confirmed the Company’s Prepackaged Joint Plan of Reorganization. JOANN expects to successfully complete its financial restructuring and emerge from the court-supervised process in the coming days.

As reiterated throughout this expedited process, the Company’s more than 800 store locations remain open and JOANN.com continues to offer supplies for any creative need, and the Company was able to preserve the jobs of its more than 18,000 Team Members in connection with this process.

Chris DiTullio, Chief Customer Officer and co-lead of the Interim Office of the CEO, said, “We are pleased to have reached this significant milestone less than 40 days after initiating our court-supervised process. We could not have reached this point without the unwavering dedication of our Team Members, the continued support of our industry partners and landlords, and the tremendous loyalty and enthusiasm of our customers. JOANN will move forward with a strengthened financial foundation, allowing us to invest in customer experience enhancements, our best-in-class product assortments, and our more than 18,000 Team Members nationwide.”

Scott Sekella, JOANN’s Chief Financial Officer and co-lead of the Interim Office of the CEO, added, “We are grateful to our financial and industry stakeholders, whose support enabled us to continue operating smoothly and move through this process on an expedited basis. Their investment not only provides us with additional financial resources, but also reflects their confidence in our Team Members and in our business to seize on the opportunities ahead. With a strengthened balance sheet and improved liquidity, we are better positioned to work collaboratively with our vendors, business partners and landlords, and ultimately to inspire the creativity in our customers that helps them find their happy place.”

In connection with emergence, JOANN will be a private company owned by certain of the Company’s financial stakeholders and industry parties.

Additional information regarding JOANN’s financial restructuring is available at JOANNforward.com. Court filings and information regarding the claims process are available at https://cases.ra.kroll.com/Joann, by calling the Company’s claims agent, Kroll, at 844-488-7837 (toll-free in the U.S.) or 646-777-2384 (for international calls), or by sending an email to [email protected]. Additional information can also be found in a Current Report on Form 8-K that the Company will file with the Securities and Exchange Commission at www.sec.gov.

Latham & Watkins LLP is serving as legal counsel to JOANN, with Houlihan Lokey serving as financial advisor and Alvarez & Marsal North America, LLC serving as restructuring advisor.

Gibson Dunn & Crutcher LLP is serving as legal counsel to certain of the Company’s term lenders, with Lazard serving as financial advisor.

About JOANN

For 80 years, JOANN has inspired creativity in the hearts, hands, and minds of its customers. From a single storefront in Cleveland, Ohio, the nation’s category leader in sewing and fabrics and one of the fastest growing competitors in the arts and crafts industry has grown to include 829 store locations across 49 states and a robust e-commerce business. With the goal of helping every customer find their creative Happy Place, JOANN serves as a convenient single source for all of the supplies, guidance, and inspiration needed to achieve any project or passion.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can generally identify forward-looking statements by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” “vision,” “should,” or the negative thereof or other variations thereon or comparable terminology. Forward-looking statements include those we make regarding the Company’s ability to continuing operating its business and implement the restructuring pursuant to the Chapter 11 cases, including the timetable of completing such transactions, if at all.

The preceding list is not intended to be an exhaustive list of all of the Company’s forward-looking statements. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company’s control. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included elsewhere in this press release are not guarantees. Any forward-looking statement that the Company makes in this press release speaks only as of the date of such statement. Except as required by law, the Company does not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.

Investor Relations: Tom Filandro [email protected] 646-277-1235

Corporate Communications: Amanda Hayes [email protected]

Michael Freitag / Arielle Rothstein / Viveca Tress / Joycelyn Barnett Joele Frank, Wilkinson Brimmer Katcher (212) 355-4449

JOANN News MORE

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Majority of US couples do not have an estate plan, study finds

Ameriprise survey finds couples overwhelmingly tend to trust each other, but many have serious details to work out when it comes to retirement.

Diners weigh in on retirement as new study shows what it would take to retire comfortably

FOX Business' Ashley Webster talks to diners at The Villages in Florida about retirement after a Northwestern Mutual survey claims it will take $1.46M to retire comfortably.

American investors in committed relationships overwhelmingly say they trust their partners and share the same retirement goals , but most have not put an estate plan in place, new data suggests.

Ameriprise Financial's "Couples, Money & Retirement" report released Wednesday found 95% of couples agree they are honest and transparent with one another when it comes to their finances, and 91% said they share the same financial values. 

A new survey by Ameriprise found most American investors in committed relationships have some significant details to work out with their partners when it comes to retirement. (Annette Riedl/picture alliance via Getty Images / Getty Images)

But many have not reached a consensus on a number of emotionally-charged decisions about money .

The survey, which polled more than 1,500 American couples with $100,000 or more in investable assets, focused primarily on those between the ages of 45-70 who have retired within the last decade or plan to do so in the next 10 years.

TAX REFUNDS ARE NOT FREE MONEY: RACHEL CRUZE

While it found that 93% of couples share similar goals for retirement and agree on when to retire, 24% of respondents said they have not come to an agreement on how much money they will need to save or how much they should spend on children and grandchildren, both today and as part of their estates. 

Most couples do not have an estate plan in place, according to a new study by Ameriprise. (iStock / iStock)

In fact, more than half (52%) of couples surveyed said they have not yet set up an estate plan.

Marcy Keckler, senior vice president of financial advice strategy at Ameriprise Financial and a certified financial planner, offers the following advice for couples who still need to set up an estate plan:

1. Don't be intimidated by the concept of estate planning

"Estate planning is for everyone, no matter their wealth or complexity of their financial situation ," Keckler told FOX Business. "At some point, all of us will need an estate plan."

She explained that, at its core, estate planning is about making decisions about what you want to happen after you die or in the event you’re incapacitated and can’t make health-related or financial decisions on your own, even temporarily.

SHOULD YOU TELL YOUR KIDS ABOUT THEIR INHERITANCE?

2. Engage professionals

"A qualified financial adviser and estate planning attorney can help you initiate important, yet often emotional conversations and ensure you have decisions documented to cover a variety of potential scenarios that may arise,' Keckler said.

"Guidance from professionals can ensure your wishes for the legacy you want to leave your heirs and other loved ones are carried out."

Financial advisers can provide expert-led guidance for individuals or couples who have complex finances. (iStock / iStock)

Keckler recommends selecting professionals willing to collaborate, noting that one of the biggest mistakes couples can make is creating a will that specifies beneficiaries and then forgetting to update their accounts to actually identify the correct beneficiary. 

She added that financial advisers and attorneys can work together to help ensure you’ve taken all the steps necessary to have your plan executed according to your wishes.

3. Once you complete your estate plan, be proud of yourself

" Estate planning is an important part of protecting your family and financial legacy," Keckler said. "It’s a big accomplishment that should be celebrated once it’s completed."

She recommends ensuring you know where the original documents and any physical or digital copies are, so you can refer to them in the event they become needed. 

"If you have a doctor or hospital of choice, send them a copy, so they can keep it on file," Keckler suggested. "This can save valuable time and stress you or a loved one would otherwise spend trying to find them in an emergency."

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4. Revisit your estate plan at least every five years, and more frequently if a big life event happens

"Estate plans need to be updated as your life evolves to ensure they reflect your wishes," Keckler added. "Moments in life such as the birth of a child or grandchild, major shifts in income, a divorce, acquisition of new property and a child reaching the age of 18 are a few examples of when your estate plan may need to be revisited."

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Emergency preparedness plans for businesses should Include financial records

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IRS Tax Tip 2024-44, May 3, 2024

When business owners put together an emergency preparedness plan, it should include copies of vital records and financial information.

Here are some things everyone can do to help protect their financial records.

Update emergency preparedness plan annually

Personal and business situations are constantly evolving, so taxpayers should review their emergency preparedness plan annually. The U.S. Department of Homeland Security's Ready.gov website has resources and checklists to help people put together their emergency preparedness plan.

Create electronic copies of documents

Taxpayers should keep important documents in a safe place. This includes bank statements, tax returns and insurance policies. This is especially easy now since many financial institutions provide statements and documents electronically. If original documents are available only on paper, taxpayers can use a scanner and save them on a USB flash drive or in the cloud.

Document valuables

Documenting valuables by taking pictures or videoing them before disaster strikes makes it easier to claim insurance and tax benefits. IRS.gov has a disaster loss workbook that can help taxpayers compile a room-by-room list of belongings.

Tax relief available for disaster situations

Information on Disaster Assistance and Emergency Relief for Individuals and Businesses is available at IRS.gov. Taxpayers should also review Publication 547, Casualties, Disasters and Thefts .

Taxpayers who live in a federally declared disaster area can visit Around the Nation on IRS.gov and click on their state to review the available disaster tax relief. Those who live in counties qualifying for disaster relief receive automatic filing and payment postponements for many currently due tax returns and don't need to contact the agency to get relief.

People with disaster-related questions can call the IRS Special Services Hotline at 866-562-5227 to speak with an IRS specialist trained to handle disaster issues.

If people have lost their tax documents, they can order tax transcripts or request copies of previously filed tax returns and attachments through Get Transcript on IRS.gov, by filing Form 4506, Request for Copy of Tax Return or by calling 800-908-9946 .

More information:

• Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook

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April 26, 2024

Anaplan Announces Agreement to Acquire Fluence Technologies

Integrating Fluence will enhance market-leading connected planning solution by adding best-in-class financial consolidation capabilities to the Anaplan cloud platform

MIAMI, FL – Today, Anaplan, a market-leading platform for connected planning that enables better business decision-making, announced that it has entered into a definitive agreement to acquire Fluence Technologies, a leading cloud native solution leveraged by enterprises across the globe for financial close, consolidation, disclosure management and reporting.  The acquisition is expected to close in early May.  More specifically, the integration of Fluence into the Anaplan platform will provide:

• Consolidations – Out-of-the box software for financial consolidation. Quick to roll out and easy for the finance team to operate, with intuitive workflow automation, consolidation models with built-in intercompany eliminations, account reconciliation, cash flow management and the use of Word, PowerPoint, Excel and Power BI for financial and management reporting.
• Disclosure Management – Designed for evolving reporting demands, enabling finance teams with complete control (no IT required), with familiar Office authoring and publishing in Word and PowerPoint with document setup in minutes.
• Excel Reporting – Insightful, interactive reports on company-wide metrics for any business audience in Excel (i.e. a data-connected Excel add-in for enterprise reporting needs), with over 30 built-in connectors to report on real-time metrics.

Anaplan is the leader in finance planning, transforming how FP&A organizations across the globe enable real-time scenario analysis.   With the addition of consolidation and disclosure management, Anaplan is strengthening its leadership position and enabling organizations to make better decisions faster.  Through seamlessly integrating consolidation with connected planning on a unified platform, finance organizations can reduce system and process complexity, lower costs and improve compliance by navigating statutory audits to GAAP requirements, down to the local entity level.  Moreover, such local entity granularity enhances the robustness of Anaplan’s scenario analysis capability, which is already a distinctive capability of the platform.   “As a chief financial officer, I know the value of merging financial consolidation with cross functional connected planning on a unified platform.  By connecting consolidated actuals to forecasts on a unified connected planning platform, critical financial workstreams including local country/region accountability, transfer pricing studies, tax planning, local cash balance management among others are accelerated with increased fidelity”, said Hemant Kapadia, Anaplan CFO.

“Traditional planning is yesterday’s paradigm,” said Charlie Gottdiener, CEO of Anaplan.  “Today’s model is real-time financial and operational decision-making, and the unification of financial consolidation and connected planning on a common platform facilitates the agility needed to address the collapsing decision cycles associated with planning and scenario analysis.  The same finance team that utilizes the power of Anaplan to dynamically plan their business in real-time will now be able to leverage a familiar, user-friendly UX and UI to control and execute consolidation and disclosure management, and in the process reduce automation costs, accelerate time to decision-making, improve compliance posture and optimize finance capacity for higher-value work.”

After closing, the integration of Fluence into the Anaplan platform, along with accelerated innovation targeting the office of the CFO, will be led by two financial consolidation industry pioneers, Adam Thier, Anaplan Chief Product and Technology Officer and Hervé Capo, Vice President of Product at Fluence, “A key tenet of both companies’ software development philosophy is that the user interface should be simple, but powerful, intuitive and easy to use – our Excel add-in, FluenceXL is a great example of this principle.  It is this software tenet that will guide the integration of Fluence into the Anaplan platform, extending the benefits of Anaplan’s market-leading finance planning solution to financial consolidation”, said Michael Morrison, CEO at Fluence.

About Anaplan

Anaplan provides a market-leading platform for connected business planning that enables better decision-making.  By dynamically connecting financial, strategic, and operational plans in real time, Anaplan’s connected planning platform facilitates the agility needed to address the accelerated decision cycles associated with planning and scenario analysis. Anaplan helps more than 2,400 market-leading customers in over 50 countries navigate their daily planning and decision-making challenges with confidence.   To learn more, visit www.anaplan.com .

Appvion Stock Plan Revives Some Claims of Flawed Transfer (1)

By Jacklyn Wille

The employee stock ownership plan of bankrupt paper company Appvion Inc. on Tuesday had part of its case revived against former corporate directors and financial advisers it says mishandled a decades-old transaction that swapped workers’ 401(k) assets for stock in the company.

The plan has viable claims based on the alleged post-2012 conduct of multiple defendants, including State Street Bank & Trust Co., Reliance Trust Co., and various Appvion corporate directors and officers, the US Court of Appeals for the Seventh Circuit held. The plan’s allegations—that the directors and officers acted carelessly because they had an incentive to artifically inflate ...

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Pro-Palestinian protests at US universities show no sign of slowing

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Widowed Before 40 and Coping With the Financial Consequences

People who suddenly lose a spouse while young can feel unprepared for what their future looks like.

When Rachel Brougham’s husband died in a cycling accident, she said, “my future as I imagined was stolen.” Credit... Nate Ryan for The New York Times

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By Caitlin Kelly

• April 27, 2024

It was April 10, 2018, and Colin Brougham hadn’t sent his usual text to his wife that he was biking home. Instead, he lay dead a few blocks away after a commuter train struck him.

“I knew he was dead before I knew he was dead,” recalled Rachel Brougham, his widow. “My son and I went to the scene, and when I was told it was him, I screamed so loud I think all of Minneapolis heard me.”

Mr. Brougham was only 39.

“My life as I knew it changed in an instant,” Ms. Brougham, now 46, said. “My future as I imagined was stolen. Grief changes your brain chemistry. It changes how you think, how you interact with others, how you work. It literally changes every single thing about your life.”

Those widowed in their 20s and 30s, few of whom may even have a will, can feel even more stunned and unprepared — who expects to die that young?

Ms. Brougham, like anyone whose spouse dies unexpectedly, suddenly faced a variety of complex financial decisions: how to handle mortgage payments, car and student loans, leases, and credit card debts. Blinded by grief, exhausted and overwhelmed, the bereaved must also plan and pay for cremation or funeral costs.

Social Security’s one-time death benefit is only $255 , while the median American funeral in 2021 cost $6,971 (with cremation) or $7,848 (with a viewing and burial), according to the National Funeral Directors Association . Social Security survivor benefits are also available for children. Ms. Brougham’s 15-year-old son, Thomas, receives $2,149 a month until he turns 18 or graduates from high school, whichever is later.

“As a certified financial planner, and someone who specializes in supporting young widows and widowers, I’ve seen firsthand the raw heartache of this unique community,” said Brian K. Seymour II, the founder and chief executive of Prosperitage Wealth in Atlanta. “Losing your partner at a young age, whether to illness or a sudden accident, throws you into a storm of grief and financial upheaval.”

Even if it feels overwhelming, Mr. Seymour recommends getting control of your financial situation immediately.

“Gather all your financial documents — bank statements, investment accounts, life insurance policies, wills — and get yourself organized,” he said. “If you feel lost, seek professional help from a fee-only fiduciary financial adviser who specializes in young widows and widowers. We understand your unique challenges and can tailor a plan that considers your income, debt, benefits and goals.”

Those who have more time to prepare — the spouse is dying of a terminal disease, for example — also face making difficult decisions amid emotional distress.

Sarah Seib, 39, whose husband, Jason Markle, died in 2022 of amyotrophic lateral sclerosis, commonly known as A.L.S. or Lou Gehrig’s disease, had a steady job with a local technology company. Mr. Markle worked for many years at Syracuse University as an undergraduate administrator, but the demands of his disease quickly turned Ms. Seib into his full-time caregiver, costing her that income even as she owed $50,000 in student debt.

As her husband’s health deteriorated, he kept working to the very end because the couple desperately needed his income and health insurance. He communicated through a Tobii Dynavox tablet, which he used by blinking. A GoFundMe campaign provided $20,000 to help with growing costs.

Mr. Markle had a 401(k) plan, but tapping into it early would have meant paying a penalty and taxes. The day he died, Ms. Seib lost access to his health insurance. Her mother, who had moved in to help Ms. Seib financially and emotionally as her husband’s health declined, still lives in Syracuse, N.Y., with her and now pays half the mortgage.

“You need help from all sides,” Ms. Seib said. “A widow’s head is not right and won’t be right for a long time.”

Francisco Rosado, a barber and D.J. who goes by Frank Rose in Orlando, Fla., lost his wife, Rebekkah Rosado, when he was 34 and she was 33. He had been her caretaker for three years as she fought a form of Hodgkin’s lymphoma, a form of blood cancer. Ms. Rosado had run a thriving wedding planning business and kept working as much as she could, but the couple sold their house to cut expenses and pay medical bills. They also received $10,000 from a GoFundMe campaign that allowed Mr. Rosado to stop working and spend time with his wife before she died.

For many people whose spouse is from another country, communicating with family abroad can add complications or welcome support — or both, as it did for Robin Truiett-Theodorson, who, in 2008, became a widow at 36 after five and a half years of marriage to Mark Theodorson, a British man.

Her father assumed her late husband’s car payments, and her family “helped me quite a bit,” she said. Her mother-in-law in Britain sent some money, and Ms. Truiett-Theodorson was grateful their home in Baltimore had no mortgage. She deferred her student debt for 18 months and consolidated her credit card debt.

Many young widows and widowers will also have to face their spouse’s debts, which can add an enormous burden if they are not discharged by creditors.

Jeanette Koncikowski was separated from her husband, Mark, when he died two years after completing chiropractic school. Both were 36, with children 5 and 9 years old. He died of a rare condition, sudden unexplained death in epilepsy, owing about $150,000 on student loans.

“In order to finance that amount, we did a mix of private and federal loans, and he was the sole signatory, later consolidated,” said Ms. Koncikowski, now 45 and living in Eden, N.Y. “At the time of his death, I was originally told by the lender that I would have to pay them back even though I did not co-sign. They said since we were married when the debt was accrued, I was responsible for the debt.”

But once she shared her separation agreement and her husband’s death certificate with the lender, the entire debt was forgiven. “It was a small saving grace in an otherwise horrific experience,” Ms. Koncikowski said.

Daniel Kopp, a certified financial planner in Sarasota, Fla., who lost a spouse when he was 31, said it mattered when the debt was taken on.

“If it was before the marriage and the couple does not live in a community property state — there are nine — then the surviving spouse would generally not be responsible for the student loans,” he said. “Community property states can make the surviving spouse be held liable for paying the private loans if they were taken on after the marriage even if the spouse did not co-sign. It’s the classic financial planning answer: It depends.”

“Student loan borrowers who die will have their federal student loans discharged by providing documentation like a death certificate,” Mr. Kopp added. “However, when it comes to private student loans, it will depend on if there was a co-signer and terms of the loan. Some private lenders will also discharge the debt, but others may attempt to get the surviving spouse to pay.”

Personal, unsecured debts like those from credit cards are generally written off by the issuing companies, Mr. Kopp said.

“I even had a widowed client that tried to pay off the $5,000 balance, and Chase sent her back the check,” he said. “Auto loans typically stay with the vehicle, so if the spouse receives the vehicle through the will, the loan would then go to the spouse.”

Everyone who has received life insurance funds after a spouse’s death knows the mixed emotions they bring.

“It was a great sense of relief — and guilt,” Ms. Brougham said. “I thought, ‘Oh, my God, my husband’s dead and now I have one million dollars.’” In fact, she received $1.575 million from both term and whole life policies, which she invested for future needs.

Mr. Rosado received $250,000 in an insurance payout, and Mr. Kopp said he had received about $300,000. This money helped free them from financial panic at the worst moment of their young lives. In addition, life insurance proceeds are not considered taxable income .

The Broughams had bought life insurance when they were 24 and 25 and Ms. Brougham was freelancing full time for a small newspaper, even though they felt the cost was unaffordable — $1,308 a year.

Being prepared, financially and emotionally, means having difficult conversations even if you feel you’re way too young to have them. The spouses of Ms. Brougham, Ms. Truiett-Theodorson, Ms. Seib and Ms. Koncikowski didn’t have a will or do advance estate planning. But Mr. Rosado’s did.

“I didn’t think death would come in my 30s,” he said. “Maybe in my 70s or 90s.”

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