How to prepare a financial plan for a business (Part 2)

When it comes to success in business, a solid financial plan is crucial.  It is the best tool for showing where a business stands and sets owners on track to achieve their business goals.  It shows how choices made will impact revenue, how to spend wisely and how to meet financial obligations.  But where do you start in creating this plan?

Below are four steps business owners should take to write their financial plan:

Step 1 – Create a strategic plan

Business owners should think about what they want the business to achieve and what is needed to reach those goals, for example recruiting additional employees or buying more equipment. What will the cost be for these additional resources? This will form the basis of the strategic plan.

Step 2 – Create financial projections

Start with a sales forecast. What will be the sales figures during a given period? This is an extremely important part of the financial plan and should be continuously updated as part of the planning process. Also, goals should be reviewed, and the costs needed to achieve them included.  Perhaps it is worth including different best and worse-case scenarios to see how the financial projections alter.

Step 3 – Have a contingency plan

Always have a plan in case things take a turn for the worst.  Review the cash flow forecast and spot the pain points – how quickly can a business afford lose money and how long can it continue to operate? Use the balance sheet to calculate a quick ratio to measure the near cash or quick assets in times of need. Also include temporary amendments to the employee contract terms, for example, reducing salary or reducing workdays to help get the business through a sticky patch.

Step 4 – Monitor and compare goals

Compare actual results in the cash flow statement and the profit and loss statement regularly to see if the business is on target or if the plans need to be amended. Potential problems can be picked up quickly and sorted out before they become damaging with regular monitoring.

A financial plan is an essential tool for the growth of a business.  However, some business owners might feel overwhelmed when thinking about everything that needs be included, especially if they are unconfident in dealing with numbers.  Perhaps consider outsourcing the production of a financial plan to a bookkeeper or accountant, and they can advise on how to read the document so it can be effectively used in the decision-making process for the business.

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