Long before you start your business, and before you finalize your business plan, you’ll need to have a financial plan in place. How is your business going to make money? How much will you spend on startup costs and overhead? What are your biggest financial risks?
But if you’re new to the world of entrepreneurship, or if you don’t have much experience in financial planning, this may seem overwhelming to you. Fortunately, putting together a financial plan may be easier than you think.
Prepare to Make a Good Impression
Whether you’re eventually going to present this financial plan to prospective investors or just some potential partners, it’s important to make a good impression. That means making sure you’re presenting as much accurate information as possible and presenting it in a format that looks appealing. Simple upgrades, like adding spiral binding or upgrading the paper stock you use, can make a massive difference in how your numbers are received.
Start With Strategy
In the early stages of preparing your financial plan, you need to think about strategy. How is your business going to develop and what is the financial impact of your decisions going to be?
- Startup needs. You can start by evaluating your needs to get the business up and running. What are the bare essentials that your business needs to start selling products or services and collecting revenue from customers? For many businesses, this is a physical storefront or a website, initial equipment, initial inventory, and employees.
- Expansion plan. What are you going to do from there? How and when are you going to expand? What is needed for your expansion, and how much money is it going to cost you to get those needs?
- Profitability. How are you going to make money? Chances are, you’re going to sell a product or a service for a specific price, but how much is it going to cost you to produce that item? What other expenses are you going to have to account for?
- Cash flow. What will the cash flow of your organization be like? When are you going to break even? You may have to wait until later in your financial plan development to answer these questions accurately.
Do Your Research
Objective research is going to ground your financial plan, so be thorough. There are several areas of research that can help you acquire accurate costs and make better financial projections, including:
- Target market and demand. Who is your target market? Are they genuinely interested in your products and services? How much would they be willing to pay for them? And ultimately, how much revenue would that be able to generate?
- Industry growth projections. What does the future of this industry look like? Is this on an upward trajectory, and can you expect your audience to grow in the near future? What about the distant future?
- Current competitors. How are your closest competitors operating? Can you find details on how much they’re spending and how much they’re making? If not, what can you gather about their start up path in their current operations?
List Your Startup Needs
Next, you’ll need to calculate your full startup costs.
Make a list of all the things you’re going to need to start operating the business. This will likely include, but won’t be limited to:
- Physical property/office space
- Your website (and associated needs)
- Communications and utilities
- Legal services
- Initial inventory
- Marketing and advertising
- Employee salaries
Prepare Sample Profit and Loss Statements
Your profit and loss (P&L) statement is a concise summary of all the revenue you’ve generated and all the expenses you’ve paid for a given period. It’s one of the best financial summaries you can make for a business. Once you have a better idea of how your business is going to make money, you can prepare a sample profit and loss statement as an example to show what it will be like when the business begins operations.
Come Up With Contingencies
Come up with contingency plans as well. What happens if your startup costs are far more than you anticipated? What if market demand isn’t as robust as you initially thought? Backup plans can save your business from certain failure.
Here are some additional tips to find more success when creating a financial plan for the first time:
- Be realistic. Don’t exaggerate for the sake of making a better impression; you’ll only prove your lack of realism.
- Base everything in research. Prove what you claim with sources.
- Expect the unexpected. Understand that entrepreneurship is fraught with uncertainty and chaos.
It’s not easy to put together a financial plan, especially if you’re a new entrepreneur. But with ample research and dedication, you can put together a decisive and impressive document.