How to Develop a Financial Plan for Your Small Business‍

Business owners are always looking for ways to grow their companies. That sounds like a challenge, but it’s also an opportunity. As long as you have a clear idea of how you plan to achieve that growth, it can be a positive experience. With that in mind, the good news is that there are plenty of small business growth strategies that you can implement right now. However, it does take planning. Outlined are five key steps you should take to develop a financial plan for your small business.

Define Your Small Business Goals

The first step in creating a financial plan is to figure out your short-term and long-term goals. Short-term goals can be considered for the next 12 to 36 months. They are the things you want to achieve in the next year. Long-term goals are more long-term. They can be as long as five to ten years. They are the things you want to achieve in the long run. For instance, your long-term goal could be to achieve a $100 million valuation.

Assess Your Financial Health

Before you start making financial plans, you must know where you currently stand financially. Most business owners will have a basic understanding of their company’s financial health, but you may want to look at your details:

  1. Get to know how much money your business is currently making.
  2. Find out what it costs to run the business.
  3. Subtract the revenue from the cost to determine how much profit your company makes.

Keep in mind that profit isn’t the same thing as profit margin. Profit is gross profit, which means it doesn’t consider taxes or expenses. On the other hand, the profit margin accounts for taxes and other expenses.

Review Your Current Situation

Once you know where your company stands financially, it’s worth looking at the bigger picture. This includes your business’s current situation. Figure out what your business currently does. With this, you’ve got an idea of the market you’re operating in. It’s also useful because it gives you a better sense of your competition. Once you know what your business does, you can figure out whether it’s profitable or not. This step helps you identify if you have room to grow. Do this by looking at the profit margin of your business. If your margins are low, you probably have room to grow because you can increase profits by lowering costs.

Set Clear And measurable Goals

Now that you know your short-term and long-term goals, it’s time to figure out how to reach them. One way to do that is to create clear and measurable goals. 

Clear – The goal needs to be specific enough that you know what it is. The clearer it is to you, the more successful you’ll be. 

Measurable – It should be possible to measure the goal to know whether you’ve succeeded or not. 

Test your assumptions

During the development of your financial plan, you’ll need to make assumptions. It’s important to do this because there might be things that you don’t know, such as the macroeconomic climate. Therefore, it’s important to test your assumptions. This means running a small set of numbers through your company’s numbers so that you can see how they would play out in reality. For example, you could test the assumption that you’d sell 10 percent more products in 2018 if you lowered your price by 5 percent.

Once you’ve completed the steps outlined above, it’s time to develop your financial plan. This means you’ll need to take your plan and put it into action. Find out what you need to do to hit your financial goals. Remember that this isn’t a one-time exercise. You’ll need to continue reevaluating your plan and implementing new strategies until you achieve your financial goals.