Developing a financial plan for a business is no easy feat. It demands diligence, precise information, and painstaking attention to details. And if you have never done it before, you may struggle to create one.
But should you follow the right steps, you may create a plan that not only helps you stay on track with your business goals but also helps you stay focused when your business expands, new challenges arise, and unforeseen events occur. You can also get the support of a financial business planner in creating an effective financial plan.
Let’s get into the nitty-gritty of creating a successful financial plan for your business:
What is a Business Financial Plan?
A financial plan is the section of a business plan that describes how the business will accomplish its financial goals. It contains information on the revenue, expenses, and cash flow of the business. It also includes a summary of the company's current financial situation and an explanation of its long-term objectives.
Given that it offers a framework for decision-making, the plan is a crucial component of the business plan. It is useful for monitoring development and implementing the necessary changes.
How to Build an Effective Business Financial Plan?
Even though a lot of business owners know how essential financial planning is, they often overlook it or put it off until later. If you don't have a financial plan in place, your business might not generate the revenue you had hoped for or might incur unforeseen expenses.
Here are a few steps to take to build an effective business financial plan
1. Review your strategic plan
Strategy must be the first step in the financial planning of your business. As you take into account your objectives for the coming year, you should ask yourself the following questions:
- Should I have to expand?
- Do I need additional equipment?
- Should I bring in more staff?
- Do I need any additional resources?
- What is the impact of my plan on my cash flow?
- Will I require an investment? If so, how much and to what extent?
Next, determine the financial impact for the following year, considering how much will be spent on key projects. You can also hire a financial planner to help you with strategic planning.
A financial business planner assists companies in managing their financial resources so that their clients achieve their goals. They are an expert in analysing financial data and developing strategies, optimising the financial performance of the business
2. Create financial projections
Make monthly budgets by entering your expected revenue from sales projections and your expected costs for labour, supplies, overhead, etc.. Companies with extremely limited cash flow may consider weekly forecasting.
Enter the project expenses that you determined in the previous step in your accounting software or a basic spreadsheet program for this task. Don’t presume that sales will convert to cash immediately. Only enter them as cash if, based on past performance, you anticipate being paid.
Additionally, create a projected balance sheet and an income (profit and loss) statement. You can better predict the effects of each scenario by including various kinds of scenarios in your predictions, including optimistic and pessimistic ones.
When creating your financial projections, it is a good idea to consult a reliable accountancy services company. Since you—and your accountant—will be looking for funding and presenting the plan to your banker and investor, make sure you review it together.
3. Financing Options
It is essential to plan some financing alternatives if the business is going to grow during the financial year. Bank loans and investment from private parties that want to buy shares in the business are two possible sources of investment. You can also speed up the process by setting up these pre-growth financing alternatives.
An important step in creating a business financial plan is tracking its assets and liabilities. The ratio of assets to liabilities can give an idea of the financial situation of the business. Determining the overall value of the business will give you an overview of the financing alternatives available for the coming year.
4. Risks and Contingencies
Managing a business has a number of risks in addition to market downturns. Multiple factors affect business, therefore it's necessary to research them depending on the industry you are in.
Normal business operations may be impacted by changes in the price of raw materials, unpredictable weather patterns, rising interest rates, and several other financial risks. Identifying the risks that the business may face allows you to create a corporate financial strategy with answers for every eventuality.
Upon reviewing the potential risks that may impact the business, the next step is to create backup plans. Emergency plans that you should prepare for negative events that may occur in the future are called contingencies. These plans may take effect upon meeting certain criteria, such as the price of materials surpassing a specific threshold. The financial plan prepares the business to respond to any unexpected developments by creating responses to these developments before they arise.
5. Seek Help from an Expert
For your business, it's not necessary for you to know everything, but you should be open to speaking with those who can provide you with the knowledge you require. Speak with an expert and skilled financial business planner to determine your next course of action when you clearly understand your financial situation and goals.
Financial business planners can determine how to effectively utilise the profits within the business or help avoid a position where your cash flow is negative by understanding the business’s financial condition and determining the best course of action. They brainstorm effective solutions that most business owners may not have considered or help revise the plan so that it is more realistic and achievable.
How Can Unicorn Accountants Help You?
Unicorn Accountants is your financial business planner that can help you create an effective financial plan. We are a leading accountancy and financial еxpеrt firm in London, providing guidance and assistance through our expertise in business plans. We can assist you in managing challenging financial times, making wise financial decisions, and ensuring that your business succeeds in the competitive market. By having a clear understanding of your objectives, your present financial situation, and your progress, we can create an efficient financial plan so that it will set you on the path for success.