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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.

Financial Management

Small Business Financial Management: Tips, Importance and Challenges

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

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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

• Creating a Small Business Financial Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

Get Any Financial Question Answered

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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Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

Discover a Better Way to Manage Business Plan Financials and Finance Operations

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When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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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 Create a Small Business Financial Plan (w/ Example)

Small businesses are the backbone of the American economy but in any given year, thousands of small businesses close their doors. There are many reasons that may happen, but one is a lack of proper financial planning.

At Select Funding, small business owners are at the heart of what we do. We understand how crucial it is for any business to have a financial plan that spells out the company’s business goals, plans for financial management , and all other relevant information. With that in mind, here is your guide to creating a small business financial plan. We’ve even included a template to help you create your own financial plan.

What is Small Business Financial Planning?

Small business financial planning involves reviewing the financial status of your small business to get an overview and determine whether you have the resources you need to turn your small business into a success story.

The process of financial planning, while challenging, can help you understand how much cash and other resources you have to enable you to measure your progress and meet your business goals. It’s a key step in determining whether your business idea is sustainable.

The document that you need to create is a small business financial plan, which should incorporate key figures including information about your business income and cash flow and other details that will provide you with a clear picture of your finances.

We will share a full template to create a financial plan with you later in this post, but for now, the most important thing to understand is that your financial plan is an overview of your business finances and resources.

Why is it Important for a Small Business to Have a Financial Plan?

We believe that it’s beneficial and essential for every small business to have a financial plan. Here are some of the most important reasons to have one.

Benefit #1: It Helps You Assess Your Business Financial Needs

A small business financial plan is essential because it helps business owners to assess their business’s financial needs. Without a clear overview of your financial status and prospects, it may be difficult to know when it’s time to obtain additional small business financing.

Benefit #2: It Helps You Project Your Growth

It’s difficult to get a small business off the ground and grow it into a successful and sustainable organization. Having a small business financial plan puts the financial facts at your fingertips, making it easy to project your future growth and – just as importantly – set realistic and achievable financial goals.

Benefit #3: It Helps You Recognize Opportunities

When you own and run a small business, it’s essential to have the agility ( and resources ) to recognize and take advantage of opportunities when they arise. Without proper financial management, including the creation of a financial plan, it’s likely that you’ll miss opportunities or lack the resources to take advantage of them when you spot them.

Benefit #4: It Helps You Evaluate Your Progress

If you’re not tracking key metrics such as cash flow and revenue, you may not realize how far your company has come – or how far it could go. A small business financial plan is a living document that you can use to assess your progress, celebrate your achievements, and reallocate resources when necessary.

Benefit #5: It Empowers You for Crisis Management

Even the most successful companies experience a crisis now and again. An example is what happened when the COVID-19 pandemic shut down many businesses or required them to pivot to survive in unforeseen circumstances. Having a financial plan allows small business owners to review their finances and resources quickly, so they can make informed decisions that benefit the company and ensure its survival.

Benefit #6: It Helps with Risk Management

Running a business comes with some unavoidable risks, but some risks are avoidable and having a business financial plan can help you identify them and avoid them before they damage your company. For example, you can put guidelines in place to avoid overspending and create a contingency plan and emergency fund to use if you experience a sales slump or some other crisis.

Benefit #7: It Helps with Fundraising

Finally, every small business needs an injection of cash at some point. The cash may come from small business financing such as a term loan or a line of credit or it may come from a private investor. Either way, having a financial plan will help you determine how much cash you need. It will also make you more attractive to lenders and investors when you have a handle on your finances.

What Does a Small Business Financial Plan Include?

Before we get into the steps required to write a small business financial plan, here’s an overview of the things that should be included in such a plan:

• Balance sheet. Your balance sheet serves as a snapshot of your company’s financial position, showing the differences between your assets and liabilities at the moment it is created. The difference between what you have and what you owe is your business’s net worth. The balance sheet should also include a snapshot of equity, including your equity as an owner and that of any investors.
• Break-even analysis. Your break-even analysis is essential because it tells you how long it will take you to break even, or recoup your investments in your company. These investments may include startup costs and expenses for ongoing operations. The break-even should include a breakdown of both fixed and variable costs. You’ll need to use your sales projection to determine how long it will take you to break even.
• Cash flow statement. Your cash flow statement should reveal both where your cash is coming from and where it’s going. If you’re starting a business, you may not have very much information, but you should include your funding sources and your start-up expenses. An established business can use bank statements to analyze cash flow.
• Sales forecast. Your sales forecast is useful because it requires you to look ahead and determine how many sales you expect to make and how much money those sales will generate. 
• Personnel plan. Finally, your personnel plan serves as an overview of departments within your business, individual positions within those departments, and information about the purpose of each. This element may not be necessary if your business has only a few employees.

Another way of looking at it is that your financial plan should serve as a complete overview of your business’s financial position and projections.

How Do You Write a Small Business Financial Plan?

Before we share our small business financial plan template with you, here are the steps you’ll need to follow to create your small business financial plan:

• Create a list of your existing business assets, liabilities, and equity. Make sure to include any cash you have on hand, including money from investors, as well as a list of any debts you have incurred.
• Think about your strategic goals and what you hope to achieve. For each goal, estimate what resources, financial and otherwise, you will need to achieve it. You should also think about the impact each goal will have on your cash flow .
• Work on your financial projections. These should include sales projections and income projections. It’s our recommendation to create a projection based on your most optimistic assumptions, one created based on your most pessimistic assumptions, and one that illustrates the most likely and realistic scenario.
• Do the necessary calculations. Looking at the list of reports that should be included in your financial plan as outlined in the previous section, do the necessary calculations, so you can include correct figures in your plan.
• Plan for contingencies. Think about what you will do if you run into a cash shortage or fail to meet one of your goals. Deciding ahead of time where you’ll find the money to make up a shortfall makes it less likely that you’ll take the wrong steps.

Once your small business financial plan is complete, it’s essential to revisit it periodically and update it with new cash flow projections, etc. Remember, your financial plan is a living document.

Small Business Financial Plan Template

Here is a basic template that you can use to create your small business financial plan.

Financial Overview: Use this space to provide an overview with key points and takeaways of the financial data included in your plan.

Key Financial Ratios and Indicators: Calculate key ratios and input them here, including ratios for debt, profitability, operations, liquidity, and working capital.

Break-Even Analysis

Financial Statements

Profit and Loss Statement

Cash Flow Statement

Balance Sheet

Sales Forecast

Assumptions

Use this section to support the values provided in your financial plan.

Keep in mind that creating a complete small business financial plan will increase the chances that you can meet financial challenges as they arise and attain your business goals.

Have You Done Financial Planning for Your Business?

Creating a small business financial plan is something that can help you as a business owner. Doing the calculations and making the recommended financial projections decreases the likelihood that you’ll stumble when faced with a crisis and increases your chances of success.

Do you need help with financial planning for your small business? Select Funding has the financing solutions you need. Click here to learn about our small business financing and begin the application process today.

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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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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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Start » startup, business plan financials: 3 statements to include.

The finance section of your business plan is essential to securing investors and determining whether your idea is even viable. Here's what to include.

If your business plan is the blueprint of how to run your company, the financials section is the key to making it happen. The finance section of your business plan is essential to determining whether your idea is even viable in the long term. It’s also necessary to convince investors of this viability and subsequently secure the type and amount of funding you need. Here’s what to include in your business plan financials.

[Read: How to Write a One-Page Business Plan ]

What are business plan financials?

Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you’ll need to plan for your business’s future, and to make your case to potential investors. You will need to include supporting financial documents and any funding requests in this part of your business plan.

Business plan financials are vital because they allow you to budget for existing or future expenses, as well as forecast your business’s future finances. A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Sections to include in your business plan financials

Here are the three statements to include in the finance section of your business plan:

Profit and loss statement

A profit and loss statement , also known as an income statement, identifies your business’s revenue (profit) and expenses (loss). This document describes your company’s overall financial health in a given time period. While profit and loss statements are typically prepared quarterly, you will need to do so at least annually before filing your business tax return with the IRS.

Common items to include on a profit and loss statement :

• Revenue: total sales and refunds, including any money gained from selling property or equipment.
• Expenditures: total expenses.
• Cost of goods sold (COGS): the cost of making products, including materials and time.
• Gross margin: revenue minus COGS.
• Operational expenditures (OPEX): the cost of running your business, including paying employees, rent, equipment and travel expenses.
• Depreciation: any loss of value over time, such as with equipment.
• Earnings before tax (EBT): revenue minus COGS, OPEX, interest, loan payments and depreciation.
• Profit: revenue minus all of your expenses.

Businesses that have not yet started should provide projected income statements in their financials section. Currently operational businesses should include past and present income statements, in addition to any future projections.

[Read: Top Small Business Planning Strategies ]

A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Balance sheet

A balance sheet provides a snapshot of your company’s finances, allowing you to keep track of earnings and expenses. It includes what your business owns (assets) versus what it owes (liabilities), as well as how much your business is currently worth (equity).

On the assets side of your balance sheet, you will have three subsections: current assets, fixed assets and other assets. Current assets include cash or its equivalent value, while fixed assets refer to long-term investments like equipment or buildings. Any assets that do not fall within these categories, such as patents and copyrights, can be classified as other assets.

On the liabilities side of your balance sheet, include a total of what your business owes. These can be broken down into two parts: current liabilities (amounts to be paid within a year) and long-term liabilities (amounts due for longer than a year, including mortgages and employee benefits).

Once you’ve calculated your assets and liabilities, you can determine your business’s net worth, also known as equity. This can be calculated by subtracting what you owe from what you own, or assets minus liabilities.

Cash flow statement

A cash flow statement shows the exact amount of money coming into your business (inflow) and going out of it (outflow). Each cost incurred or amount earned should be documented on its own line, and categorized into one of the following three categories: operating activities, investment activities and financing activities. These three categories can all have inflow and outflow activities.

Operating activities involve any ongoing expenses necessary for day-to-day operations; these are likely to make up the majority of your cash flow statement. Investment activities, on the other hand, cover any long-term payments that are needed to start and run your business. Finally, financing activities include the money you’ve used to fund your business venture, including transactions with creditors or funders.

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Your business is unique and will differ from any example or template you come across. So, use this example as a starting point and customize it to your needs.

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Our sample business plans are examples of what one business owner did. That doesn't make them perfect or require you to cram your business idea to fit the plan structure.

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But, if you don't plan to share your plan with anyone outside of your business—you likely don't need everything.

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How to Write a Business Plan for Investors

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How to Write a Business Plan

10 Qualities of a Good Business Plan

Simple Business Plan Outline

How to Start a Business With No Money

How to Create a Business Plan Presentation

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Business Plan vs. Financial Plan: What’s The Difference?

• December 16, 2022
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When preparing their business plan, entrepreneurs sometimes get confused between different terms, especially the difference between a business plan and a financial plan.

Whilst a business plan must include a financial plan, these 2 documents are very different and have separate objectives.

In this article we explain you what are a business plan and a financial plan, their objectives and what are the key differences between them.

What is a Business plan?

A business plan is a long document that contains a detailed description of your business and your strategy. Unlike a pitch deck, a business plan is a Word document and often includes 30 up to 100 pages.

We use business plans to communicate information about a business to third-parties. We often use it when a business needs funding. Debt investors (e.g. banks or venture debt investors ) almost always require a business plan as part of a loan application. Instead, equity investors usually ask for a pitch deck .

What should you include in a business plan?

Chances are you will find different definitions online for what you need to include in your business plan. Yet, most interested parties (investors or banks) agree on the different elements that a business plan must include, they are:

• Executive summary : usually a one-pager, this section outlines key information about the company such as a short business overview , operations, location and leadership
• Products and services : a detailed overview of the different products and/or services the company offers including features, benefits to customers and pricing. This section can also include, if relevant, information about the production and manufacturing elements (costs, materials and processes). Also, include here any proprietary technology (e.g. patents) your business might have
• Market analysis : a description of the market including its size and its growth. Here you should also include any information about your competitive environment, especially you position yourself vs. competitors
• Marketing strategy : this section explains how a business acquires and retains its customers. Your acquisition strategy ( inbound or outbound for example) as well as your conversion funnel must be clearly explained. If any, you should include here the different marketing campaigns you are running (e.g. paid ads, offline marketing), their goals and historical performance.
• Financial plan : every business plan must include a financial plan. As explained below, a financial plan is the projection in the future of the 3 financial statements . Usually, a financial plan is a 3- to 5-year forecast , depending on the objective of the business plan and the stage the business is in today.

What is a Financial plan?

As explained above, a financial plan is an element of every business plan.

A financial plan can take different forms (charts, tables) yet should always at least show the projection over a certain period ( 3- to 5-year usually) of the 3 financial statements.

A financial plan should also include some historical data (if any). If you have 3 years of historical financial data, include them in there as well. Indeed, investors will want to see how realistic are your projections .

Also, make it clear what are the key assumptions behind your financial forecasts: projecting the future isn’t easy and we often need to make some assumptions. Yet, the more available sources and data points you have to substantiate your projections, the better. Investors appreciate entrepreneurs who are realistic about their projections and understand the opportunities as well as the potentials risks involved. Whenever possible, use historical data and/or industry benchmarks .

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Business | What to do when financial planning does not exist

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Establishing a will and funding a trust is necessary to avoid probate in California.

Last year I got a phone call from a CPA. He was referring to me a recent widow for assistance with financial planning.

Her husband had passed away, and she was overwhelmed by the deluge of paperwork she needed to complete following his death. In addition to the emotional stress from losing a loved one, she was charged with managing the family finances, a task with which she had no experience.

They were both in their 50s. The husband had children from a previous marriage, and they had two children together. Neither had collaborated with a financial planner or an estate planning attorney to plan for their future. The widow trusted her husband. He was a successful business owner, and she assumed their finances were in good order.

After the husband died, the widow’s life quickly changed. While they owned the business together, they also owned many rental homes throughout the region. The rental homes were managed by the husband, which worked well when he was alive. Unfortunately, once he died, things changed quickly. The rental homes were held in the name of the husband as sole and separate property.

Due to the lack of estate planning, they had never discussed the ramifications of how the rental titles would affect the widow after her husband’s death. Because the titling was not in the widow’s name, the rentals would need to pass through probate before she had access to them. This also meant the disbursement of the income and sale of the rental property would be shared with the legal heirs to the estate, according to California state probate code.

Because the husband had separate property assets, the legal heirs included his living children, and his deceased daughter’s children from his former marriage (with whom the family had no relationship). The loss of assets mandated by the probate law affected the widow’s future.

So, what steps should your family take to avoid a similar position?

Review your net worth

A person’s net worth is established by subtracting total liabilities (what you owe) from total assets (what you own).

A statement of net worth is a personal balance sheet of your finances on a given day. You should check this annually.

Simply, your statement of net worth is a snapshot of your finances. It provides a clear view of your assets and liabilities, so you can plan accordingly for your future. Without this, it’s difficult to plan appropriately.

In the case of the widow, while the couple had minimal debt, the stress from not knowing the financial situation caused her health problems.

Implement estate planning

When assets are held in a trust and titled in the name of the trust, they will be distributed according to the direction of the trust.

Once a trust is established, the title of the assets must be physically changed from your name to the name of the trust.

When assets are not titled appropriately, and probate is opened, the courts will follow state statutes to determine the rightful heirs. The court-appointed heirs may not be who you wanted to inherit your assets.

Additionally, the administration of an estate in probate is expensive. All probate fees in California are pre-determined by the state.

Assets funded in a trust will remain private. Those in an estate that are not in a trust must pass through probate and become a matter of public record.

Due to the lack of planning, the surviving spouse in our example was surprised to learn the real estate rentals were titled solely in her husband’s name, meaning the assets would pass through probate before being distributed to his heirs.

If you die without a will in California, your assets will go to your closest relatives under state intestate succession laws. Whether her husband meant for it to happen or not, the widow will only receive a percentage of the income and proceeds from the sale of the real estate.

Review titling, beneficiary designation

The way in which assets are titled will determine who controls the assets, tax consequences, whether the assets are subject to creditors’ claims and who will receive the assets once you pass away. All of this is a critical part of estate planning.

Even the best plans can be undone if the assets are not titled correctly. Understand your titling options and the ramifications to ensure they are consistent with your goals.

Beneficiary designations are typically used for retirement plans, annuities and life insurance policies, which allocate who gets assets or death benefits. Assets with a beneficiary designation will pass outside a trust and avoid probate but need to be reviewed annually to confirm that the titling aligns with the overall estate planning.

In the case of this widow, she learned she was the primary beneficiary on assets under beneficiary designations, providing her with cash to cover income tax owed and her living expenses until the probate assets were distributed.

When you fail to plan for financial well-being, you and your loved ones can be at a disadvantage. It’s common to assume that all is well because everything is working.

In the case of your finances, poor planning may not surface until a death, and by then it’s too late to address. Take the time now to meet with advisers to review finances and implement an action plan that’s beneficial to you and your loved ones now and in the future.

Teri Parker CFP® is a vice president for the Riverside office of CAPTRUST Financial Advisors and has practiced in the field of financial planning and investment management since 2000. Contact her at  [email protected]

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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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• Immediate steps to take 

Understanding your options

Communicating with your lender, avoiding foreclosure, long-term financial planning, what to do if you can't pay your mortgage.

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• When you miss a mortgage payment, you incur late fees and hurt your credit score.
• After three missed payments, your lender can start the foreclosure process. You may lose your home.
• Before missing payments, call your loan servicer to talk about alternatives that may be available.

If you lose your job or face some other financial hardship, it may be difficult to pay your bills, or even cover your mortgage.

But skipping mortgage payments comes with serious consequences that could include losing your house.

Are you finding it hard to make your monthly mortgage payment? Here's what to know about missed payments — and some alternatives that may be available. 

Immediate steps to take 

If you're having trouble paying your mortgage, you need to act fast, as consequences can be serious for missing a payment. You may face a hefty fee or your lender could even foreclose on your house. To prevent this, you should:

Assess your financial situation

If missing a payment is a real possibility, sit down and look at your bank account and expenses. Is there somewhere you could cut corners for a while and free up some cash? Do you have a savings or investment account you could potentially pull from? 

If you're regularly having trouble making your payments, it might be time to consider changing jobs or increasing your hours. Talking to a financial planner or credit counselor may be able to help, too.

Contact your lender as soon as possible

If you think you might have an issue making your payments, call your loan servicer right away. 

"Be proactive in engaging your servicer," says Craig Martin, managing director and global head of wealth and lending intelligence at JD Power. "There are different options available, and waiting is not likely to improve your situation."

The best strategy is to call before missing any payments. If you wait until after, your lender may be less willing to work with you.

There are lots of mortgage relief options for homeowners struggling to make payments. Are you having a hard time paying your mortgage? Here are four strategies for mortgage payment difficulties to consider.

Forbearance agreements

One option is to call your loan servicer and ask about forbearance . This allows you to pause your mortgage payments for a certain amount of time or, in some cases, make reduced payments instead. 

There is usually no fee or penalty for this, and you won't be charged any additional interest during the forbearance period. 

However, you will need to repay the missed payments eventually. Your lender may allow you to set up a repayment plan and spread those costs out over time, or you may need to pay it back all at once. You also might be able to defer the missed payments to the end of your loan term. Your lender will contact you toward the end of your forbearance period to discuss options. 

Loan modification programs

Modifying your loan may also be an option. This is when your lender agrees to change the terms of your loan to make it more affordable. It can include extending your loan term, reducing your interest rate or, in some cases, even reducing your loan's balance. 

"If you're experiencing financial challenges, you may consider a mortgage modification to adjust the terms of your loan to ease the financial squeeze," says Christian Mills,  formerly a home equity conversion mortgage (HECM) loan specialist at Reverse Mortgage Funding. "You may be able to extend your repayment term or lower your interest rate, depending on the options your lender is willing to offer."

Refinancing options

Refinancing can allow you to reduce your monthly mortgage costs, making the payments more affordable.

For this strategy to work, you would need to qualify for a lower interest rate than you have on your current mortgage loan, or you would need to refinance into a longer-term loan. This would allow you to spread your balance out over more months, thereby reducing your payments.

Keep in mind that refinancing does come with closing costs. Freddie Mac estimates that these run around $5,000 per loan. Some lenders may let you roll these closing costs into your loan balance. But remember: This will increase your interest costs in the long run. 

Government assistance programs

Government housing counselors can also help and guide you toward the best path forward. There's usually no cost for this service.

If you're not sure where to find a counselor near you, the US Department of Housing and Urban Development's online search tool can help. All results are HUD-approved counseling agencies. You can also call the HOPE Hotline at (888) 995-HOPE to connect with a counselor who can help.

Talking to your lender or servicer early on in your payment struggles is critical. Are you planning to contact your lender soon? Here's what to do.

Preparing for the conversation

Before calling your lender, you'll want to have some important details on hand — like how many payments you've missed, the total overdue amount, and how much you make each month. You should also have a rough idea of your monthly expenses and how much you have in your checking account, savings account, and any other assets you own. 

You should also be prepared to explain why you've missed payments and whether the issue is going to be temporary or permanent, as this will play into what options they can offer you.

What information to provide

When you talk to your lender, they'll ask you questions about your finances and your challenges with making payments. 

They may also ask you to fill out a mortgage assistance application and submit documents like bank statements and pay stubs. You will also need to provide a written statement explaining your hardship. The lender will then review this and present you with options.

If you think you won't be able to make a monthly payment, call your mortgage servicer as soon as you can. They may be able to work with you.

"In general, servicers and lenders view foreclosure as a last resort," says Craig Martin, managing director and global head of wealth and lending intelligence at JD Power. "It's very costly and can be a long process which they prefer to avoid."

See below for what to do if your lender does move to foreclose on your house.

Steps to take when facing potential foreclosure

The first thing to do if you're facing foreclosure is to call your servicer and ask about any last-ditch options. They may be willing to do a short sale , which allows you to sell your home for less than you owe on the mortgage, or a deed-in-lieu of foreclosure. With these arrangements, you hand over your property to the lender and avoid foreclosure. This helps you keep the foreclosure off your credit report . In some cases, your lender may also cover relocation expenses. 

If these aren't options, get in touch with a local attorney. Foreclosure is a legal process, and you'll want someone on your side to guide you through. 

Legal rights and protections for homeowners

There's a process your lender or servicer must go through before they can foreclose on your house, so they can't just take your home tomorrow. If you miss payments, you'll be contacted about paying those — plus any late fee that's assessed — usually by phone and via letters in the mail.  

After this, you'll receive a Demand Letter or Notice to Accelerate. This will give you 30 days to catch up on payments.

If you still fail to bring your loan current, your lender will schedule a sheriff's sale or public trustee's sale, which is when they'll sell your home to recoup their losses. You should receive notification of the sale date via mail and with a notice taped to your front door. 

If this happens, there may still be a way to reclaim your home after it's been sold off — at least if your state has a redemption period. To do this, you may need to pay the overdue amounts, your lender's attorney's fees, added interest, and other costs.

Proper financial planning is critical if you want to stay on track with your mortgage payments — or any bills, for that matter. If you're having trouble making payments, see the following financial advice for struggling mortgage payers.

Budgeting and financial management strategies 

The best strategy is to avoid missing mortgage payments in the first place. To do this, make sure you have a healthy emergency fund . This ensures you have the cash to cover your payment if you lose your job or are struggling financially. 

You should also have a good household budget , and make sure your credit score is strong, too. A good credit score will give you more options, such as refinancing, if things go awry.

Seeking advice from financial counselors

If you're having a hard time paying your bills, you may want to consult a financial professional. They can help you put together a budget, devise ways to cut expenses, and ensure you have a plan for paying your mortgage and other household bills on time.

The first step is to review your financial situation to understand why you're unable to pay your mortgage, then contact your lender immediately to discuss your circumstances and potential solutions.

Yes, most lenders have programs designed to help borrowers facing financial difficulties, including forbearance, loan modifications, and refinancing options.

A forbearance agreement provides temporary relief by reducing or suspending mortgage payments for a specified period, giving homeowners time to improve their financial situation.

Assistance programs like forbearance may have implications for your credit score. Still, the impact of mortgage assistance on credit is likely much less severe than it would be with a foreclosure.

Refinancing can be a viable option if you qualify for a lower interest rate or different loan terms that reduce your monthly payment. However, consider closing costs and long-term financial implications.

Mortgage lenders will definitely work with you if you're late on payments, as foreclosure is a very time-consuming and expensive process that most try to avoid. While there's no hard-and-fast strategy for how to negotiate with mortgage lenders, they are generally more willing to help if you contact them before you're late on a payment — rather than after.

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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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.”

A Guide to Making Better Financial Moves

Making sense of your finances can be complicated. the tips below can help..

Credit card debt is rising, and shopping for a card with a lower interest rate can help you save money. Here are some things to know .

Whether you’re looking to make your home more energy-efficient, install solar panels or buy an electric car, this guide can help you save money and fight climate change .

Starting this year, some of the money in 529 college savings accounts can be used for retirement if it’s not needed for education. Here is how it works .

Are you trying to improve your credit profile? You can now choose to have your on-time rent payments reported to the credit bureaus  to enhance your score.

Americans’ credit card debt and late payments are rising, and card interest rates remain high, but many people lack a plan to pay down their debt. Here’s what you can do .

There are few challenges facing students more daunting than paying for college. This guide can help you make sense of it all .

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Biden’s DOL Bets on Two-Step Overtime Plan to Survive Lawsuits

By Rebecca Rainey

The US Labor Department’s use of Trump-era wage calculations for the first phase of its expansion of federal overtime pay protections creates a potential legal shield for at least part of a policy change destined for court attacks.

The Biden administration’s newly released rule will first increase the salary threshold for overtime eligibility to $43,888 on July 1, up from its current $35,568. That number is scheduled to jump to $58,656 on Jan. 1, meaning workers making less than that amount are automatically owed time-and-a-half wages.

Labor officials said the gradual increase responds to complaints from business groups that an immediate change would be too drastic for companies to absorb. Some employment attorneys say it may also be a strategy for the agency to extend some overtime rights to new workers while defending the rulemaking, which is expected to face legal challenges from industry groups .

That’s because the first July increase will use the methodology from the Trump administration’s 2019 overtime regulation , which sets the salary threshold at a much lower calculation compared to the new process outlined in the Biden rule.

“Anybody that didn’t sue over the methodology in 2019 is gonna look pretty foolish trying to sue over it now,” said Judy Conti, director of government affairs at the National Employment Law Project, which supports the new overtime update. “The business community rallied around the Trump regulation, so I would imagine they will have no choice but to accept the first tranche of the update.” The Associated Builders and Contractors said it’s weighing a potential legal challenge against the new overtime rule.

While it “appreciates that the DOL recognized the value in retaining the methodology used by the prior administration” for the first increase, the second bump will make “huge numbers” of its members’ employees newly eligible for overtime, according to Ben Brubeck, the group’s vice president of regulatory, labor, and state affairs.

“This will disrupt the entire construction industry, specifically harming small businesses, as the rule will greatly restrict employee workplace flexibility in setting schedules and hours, hurting career advancement opportunities,” Brubeck warned.

Trump Methodology

Under the Fair Labor Standards Act, there are multiple carveouts to overtime pay requirements for certain industries and occupations.

For “ executive , administrative , professional and outside sales ” employees, the DOL uses a three-part test that requires an employee to be salaried, make more than a certain amount per year, and have certain job duties in order to be exempt from time-and-a-half pay requirements.

In 2019, the Trump administration finalized a rule that raised the salary piece of that test to $35,568, a figure based off the 20th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census region, which is currently the South.

The Biden rule would update the salary level by tying it to the 35th percentile of earnings in the poorest Census region, which would encompass more workers and likely produce a higher salary threshold. That formula will apply to the DOL’s second pay threshold bump set for Jan. 1, 2025, and then to triannual updates thereafter.

Attorneys and worker advocates say that because the Trump-Bush methodology hasn’t been successfully challenged in court, the DOL may view it as a more secure avenue than the new formula sought in the new overtime rule.

“What they’re trying to do is not be put back to zero, so to speak, if the rule gets struck down and to give a judge optionality to say, ‘All right, well, I’m gonna enforce the first step up, but I don’t believe I can enforce the second,’” said Brett Coburn, a management-side attorney at Alston & Bird LLP. “So I think it’s probably their effort to get some raise in the minimum salary threshold, even if they ultimately can’t get it where they want it.”

Part of the legal vulnerability surrounding the rule is a 2017 court decision vacating an Obama-era regulation that would have raised the earnings threshold to roughly $47,476 and update it every three years.

The 2016 Obama rule would have tied its salary threshold automatic updates to what the bottom 40% of the lowest wage earners were earning, which is slightly more than the new rule’s 35% level.

But just before it was set to go into effect, the rule was invalidated by a federal judge in Texas, who said the DOL set the salary threshold so high it made the duties piece of the FLSA exemption test irrelevant.

That ruling will likely be used as a roadmap in the challenges against the new Biden overtime rule.

Not An ‘Obstacle’

Not every attorney agrees that the strategy will work, given the size of the increase to just under $44,000 scheduled for July 1.

“I don’t think the intermediate step is going to be an obstacle to companies challenging this rule, particularly when you look at where it ends up in January of ’25,” said Jane Jacobs, a partner at Tarter Krinsky & Drogin LLP.

“That’s still a substantial increase,” she said. “And so, I’m not sure that this device, if you want to call it that, of a two-step increase helps them in a legal challenge, but of course we’ll wait and see.”

The Trump-era overtime rule may also be on uncertain legal ground.

While most large business groups didn’t challenge the Trump rule when it was issued in 2019, a fast-food chain operator based in Texas filed a lawsuit in 2022 seeking to invalidate the rule on the grounds that it went beyond the DOL’s authority.

A federal district court sided with the DOL, and upheld the rule last September. But the company appealed, and the challenge is currently pending in the US Court of Appeals for the Fifth Circuit.

To contact the reporter on this story: Rebecca Rainey in Washington at [email protected]

To contact the editors responsible for this story: Jay-Anne B. Casuga at [email protected] ; Genevieve Douglas at [email protected]

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