Running a business provides multiple opportunities for growth and overall success. However, amidst the day-to-day operations and strategic decision-making, one critical aspect often gets overlooked: creating a solid financial plan.
If you’ve never made one, or want to revise your current one, read on to learn the essential steps and strategies on how to make a financial plan for a business.
Let’s dive in!
What is a Financial Plan?
A financial plan is a comprehensive document that outlines your company's
financial goals,
- Strategies,
- Projections, and
- Actions to achieve financial success and sustainability.
It serves as a roadmap for managing finances, making informed decisions, and monitoring financial performance over a specific period, typically one to five years.
8 Remarkable Benefits of a Financial Plan for Business
A well-developed financial plan helps you allocate resources effectively, track progress, anticipate challenges, and optimize financial outcomes.
Other key benefits include:
- Goal Setting — Helps you set clear and measurable financial goals, such as increasing revenue, improving profitability, reducing costs, or expanding operations.
- Resource Allocation — It allows you to allocate resources effectively by budgeting for expenses, investments, and growth initiatives.
Furthermore, it helps prioritize where to allocate funds based on strategic priorities and expected returns.
- Cash Flow Management — Helps you forecast cash inflows and outflows, identify potential cash shortages or surpluses, and plan for working capital needs.
This way, you ensure your business has sufficient liquidity to meet its financial obligations.
- Risk Mitigation — Helps you identify and assess financial risks, such as market fluctuations, economic changes, competition, or operational challenges.
- Decision Making — Provides a framework for making informed decisions about investments, expansions, pricing strategies, cost-cutting measures, etc.
As a result, you can evaluate options, assess trade-offs, and choose the best course of action.
- Performance Evaluation — Serves as a benchmark for evaluating your business's financial performance against targets, budgets, and KPIs.
- Attracting Investors and Financing — Demonstrates your company's financial stability, growth potential, and ability to generate returns, thus enhancing your credibility and appeal to potential investors, lenders, or partners.
- Strategic Planning — Aligns financial goals with overall business objectives and long-term vision, helping you set priorities, assess opportunities, and ensure financial sustainability.
What Are The Key Elements of A Financial Plan?
A comprehensive financial plan for a business usually includes several key elements that outline financial goals, strategies, and projections.
💰 Financial Goals
You should start with clearly defining financial goals that align with your company's overall objectives, such as:
- Revenue targets,
- Profit margins,
- Cost reduction goals,
- Growth targets, and
- ROI objectives.
Once you’ve defined your goals and objectives, you’ll have a better idea of your current position and the direction you want your business to take.
💰 Sales Forecast
It serves as the foundation for the financial plan and refers to projections of anticipated sales revenues based on market research, historical sales data, industry trends, and sales strategies.
💰 Expense Forecast
Forecasting helps you estimate operating expenses, including costs related to production, marketing, overhead, personnel, rent, utilities, and other operating costs.
Detailing these expenses helps you manage cash flow and budget.
💰 Profit and Loss Statement
The P&L, or Income statement, shows your company's revenues, expenses, and net income over a specific period and provides insights into your profitability and performance.
💰 Cash Flow Statement
It represents a projection of cash in- and outflows over a specific period, helping you manage cash flow effectively, anticipate funding needs, and ensure financial stability.
Moreover, it provides insights helping you see how you generate and use cash in your business.
You need to take into account operating, financing, and investing activities to get an overall view and identify areas for improvement.
💰 Balance Sheet
The Balance Sheet provides a comprehensive view of your company's financial health. You can look at it as a snapshot of your company's financial position at a specific time, detailing its assets, liabilities, and shareholders' equity.
- Assets — Represent what you own and control.
- Liabilities — Represent obligations or debts that you owe to external parties, such as creditors, suppliers, lenders, or other businesses.
- Shareholders' Equity — Reflects the net worth of your business after deducting its liabilities.
💰 Budget
It is a detailed plan outlining how your company will allocate resources to achieve its financial goals, including revenue targets, expense allocations, capital expenditures, and contingency funds.
💰 Capital Structure
Capital structure gives you an overview of the company's equity financing, debt financing, and other sources of capital.
In other words, it outlines how the company intends to fund its operations and growth initiatives.
💰 Financial Ratios & Metrics
Financial ratios help you evaluate, analyze, and interpret various aspects of your company's
- Financial performance,
- Efficiency,
- Profitability,
- Liquidity,
- Solvency, and
- Overall health.
Consequently, they provide valuable insights into your company's financial position and help stakeholders, investors, creditors, and management make informed decisions about the business.
💰 Break-even Analysis
It determines the point at which your company's total revenues equal its total costs, resulting in neither profit nor loss.
Thus, it is the point at which total sales or revenue cover all fixed and variable costs, resulting in zero net income.
The break-even point is a critical metric as it indicates the level of sales or production volume you need to cover all expenses.
How to Make a Financial Plan for Business in 8 Steps?
The key elements of financial planning are excellent indicators of what goes into a financial plan and what factors you should pay attention to.
1. Set Financial Goals
The first and crucial step in making a financial plan is defining your short-term and long-term goals and objectives.
These can range from increasing revenue, improving cash flow, reducing costs, and expanding operations to achieving certain profitability margins.
In order to set your goals more clearly, jot down questions relevant to your objectives.
For example,
- What is your target revenue for the next year?
- How much are you willing to invest in expanding your operations?
- What cost-cutting measures can you implement to increase profitability?
This way, you can create a roadmap for your financial plan and prioritize the steps to achieve those goals.
It's crucial to be specific, realistic, and measurable when setting your financial goals to ensure they are achievable and serve as a guiding principle for your financial decisions.
And speaking of specific, realistic, and measurable, the SMART framework is a handy “assistant” that can help you better define your goals.
2. Assess Your Current Financial Situation
Before you can make any future financial decisions, you need to know your current financial situation and state of business.
Evaluate your current financial position by reviewing financial statements, cash flow reports, budget forecasts, and KPIs.
You must understand your revenue streams, expenses, assets, liabilities, and overall financial health.
Puls Project enables you to manage all your financials, track balances and spending across different accounts and companies in one secure place.
3. Dedicate a Budget
Developing a detailed budget is an essential aspect of financial planning.
By outlining expected income and expenses for each period, monthly, quarterly, or annually, you have a clear understanding of your financial situation. Therefore, you can make informed decisions to ensure the success of your business.
However, when creating a budget, it is important to not only list out your sources of income and expected expenses but also to analyze and prioritize where you should allocate your resources.
Once you strategically allocate resources to different business functions, such as marketing, operations, and research and development, you can ensure smooth and efficient operation of your business.
📌 Note:
It is essential to align your budget with your financial goals.
4. Forecast Revenue and Expenses
Besides evaluating your current situation, it is also vital to anticipate future expenses and overall conditions that may affect your business’s finances.
Naturally, you shouldn’t base projections on your assumptions, but on factual and historical data, market trends, industry benchmarks, and sales forecasts.
Don’t forget to consider factors like seasonality, economic conditions, and potential growth opportunities to get a more holistic view of your business's financial landscape.
Furthermore, when anticipating future expenses, you shouldn’t account for regular operational costs but any potential unforeseen expenses.
If you plan ahead and budget for these contingencies, your business will be better equipped to handle possible financial challenges.
Did you know that with Puls Project, you can schedule draft payments to see how they will impact your balance immediately?
Doing so lets you know how to prepare for the expense and what actions to take.
5. Manage Cash Flow
Managing cash flow is the staple of your financial health.
You need to monitor your cash flow regularly to ensure you have enough liquidity to cover your day-to-day operational expenses, as well as any debt obligations and unexpected costs.
It is paramount to have a clear understanding of where your money is coming from and where it is going in order to make informed decisions about how to allocate your resources.
💰 One way to effectively manage cash flow is to implement cash flow forecasting to anticipate any potential cash shortages or surpluses and adjust your financial plan accordingly.
Thus, you can avoid financial crises and ensure you have enough funds to cover unexpected expenses.
💰 In addition to monitoring and forecasting your cash flow, it is also vital to actively manage your accounts receivable and accounts payable.
By staying on top of your invoicing and payment collections, you can ensure a steady stream of income.
💰 Similarly, negotiating favorable payment terms with your suppliers can optimize your cash flow and improve your overall financial stability.
With Puls Project, you can easily manage cash flow and see all your balances in a single view.
What’s more, the system will automatically detect any cash gap in your flow, enabling you to make any necessary adjustments and relocate your resources.
6. Identify Financing Needs
Data from the cash flow statement and balance sheet can better prepare you for potential worst-case scenarios.
For example, if incoming cash flow suddenly dries up, having a plan in place can help mitigate the impact on operations.
You can implement various contingency strategies, such as maintaining cash reserves, getting a line of credit for quick funding, selling assets, etc.
Puls Project allows you to get a loan of up to €100,000 for 12 months in only 3 steps and within 48 hours.
Furthermore, you can tailor the loan to your needs and use it when and where you need it.
7. Manage Risks
Risk management is tightly connected with contingency strategies since both provide assets to mitigate risks and help you manage the ones that occur.
These risks can come in many forms:
- Market fluctuations, where changes in consumer demand or overall economic conditions can impact sales and profitability.
- Regulatory changes, such as new laws or policies implemented by government agencies, could also present risks by increasing costs or limiting growth opportunities.
- Competitive pressures from other businesses.
- Disruptions in the supply chain, whether by natural disasters, political unrest, or other unforeseen events, could cause production delays or increased costs for sourcing materials.
Therefore, you need to develop risk mitigation strategies that address a specific threat, such as:
- Diversifying revenue streams to reduce reliance on a single market.
- Staying up to date on regulatory changes and adapting business practices accordingly.
- Conducting regular assessments of competitors and adjusting strategies, and
- Establishing contingency plans for potential disruptions in the supply chain.
8. Monitor and Review
Nothing is set in stone, especially in the dynamic business environment. Therefore, you need to regularly revise and update every financial plan you make.
Monitor your financial performance against your plan, analyze variances, and identify areas for improvement.
Also, conduct periodic reviews to adjust your financial plan in response to changing conditions.
With Pulse’s Label Assignment feature, you can label transactions to group financial activities based on criteria such as project, department, or purpose.
This way, you’ll always have a neat and organized view, allowing for easier monitoring and reviews.
How to Improve Financial Planning with Puls Project?
Establishing your financial roadmap is the essence of running not only a successful, but financially healthy business that can navigate and mitigate risks.
With Puls Project, you get a robust set of tools to easily create your financial plan while automating tedious and error-prone tasks.
Thus, our cash flow management tool enables you to:
🔥 Centralize your financial operations on a single dashboard and connect multiple bank accounts from over 4,000 banks.
🔥 Group financial activities across multiple banks and companies and get a clearer view of spending optimization, compliance, tracking, etc.
🔥 Track your business performance by analyzing profitability over any period based on label, category, counterparty, company, or account.
🔥 View balances of all accounts in one go, manage invoice payments and maintain a clear payment history.
🔥 Automate expense tracking by inputting your regular monthly expenses once, and you’ll automatically see them the following month.
🔥 Improve credit limits through consistent financial planning and help us understand your business better so we can allow you an automatic increase in your credit limit.
🔥 Get automatic loan calculation based on group level after connecting your business bank account, all within 48 hours.
And many more.
Enticed to discover more ways Puls Project can help you?
Sign up for Puls Project and master your finances in no time.
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