How to Make A Financial Plan for A Business In 6 Steps

A financial plan is a section of your existing business plan. Your financial plan should include financial statements indicating where your company stands currently and where it expects to be in the near future. Smart business owners use a financial plan to determine how much financing their business might need in the future.

Pre-Qualify in Minutes!

A financial plan also helps lenders determine if lending you money is a wise use of their funds and can indicate the net worth of your business at the end of a certain time period.

If you don’t have a business plan yet, look into business planning software. Palo Alto Software is a good place to start.

Here are the elements you should include in your financial plan.

1. 3 Key Financial Statements

The financial section is composed of three statements of financial projections: the income statement, the cash flow statement and the balance sheet, and a brief explanation/analysis of these three statements.

Income Statement

The Income Statement, also called the profit and loss statement or P&L, summarizes revenue and expenses. Revenue keeps your business alive. It’s the money received during a certain accounting period. For example, if you have a landscaping business, revenue is what you earn per hour or per project.

If you have an online boutique, your revenue comes from the products that you sell. Expenses include items like the cost of inventory, payroll, business taxes, business insurance and loan payments. The bottom line is revenue minus expenses, showing if your company is profitable or expects to be soon. For more detailed information, review this post from the SmartBiz blog: How to Prepare an Income Statement.

Balance Sheet

The SBA describes the balance sheet as one of the most important financial statements, showing a snapshot of a company’s financial standing. The balance sheet reveals what a business owns and what it owes by breaking down a company’s assets, liabilities, and owner’s equity at a specific point in time. This helps you determine the financial strength and ability of your business.

Read How to Create a Balance Sheet for Your Business from the SmartBiz blog for the basic balance sheet equation and how to put it all together.

Cash Flow Statement

Simply put, the cash flow statement shows money flowing into and out of a business. Investopedia explains that cash flow statements measure how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses. For more detailed information and an example, review this post from the Basic Accounting Help blog: Example Statement of Cash Flows.

2. Sales Forecasting

Sales forecasting is a way to determine your future sales and is a key element of any financial plan. Without a solid idea of future sales, it’s almost impossible to manage your inventory and your cash flow.

Sales forecasting may sound complex but one financial professional put it into perspective, saying “If you think sales forecasting is hard, try running a business without a sales forecast. That’s much harder.” The Lean Business Planning Blog has a step-by-step guide to help you forecast: How to Forecast Sales.


3. Create Expense Budget

Your expense budget will help you understand how much it’s going to cost to make the sales you’ve forecasted. Your operating expenses include rent, utilities, marketing, and payroll. You can divide your expenses by “fixed costs” like rent and payroll and by “variable costs” like marketing. Once you’ve nailed down your fixed and variable costs, review this article: A Fast and Easy Way to Build an Expense Budget.

4. Break Even Analysis

A break-even analysis as a financial calculation to help you determine when your business (or new product or service) will be profitable. Done correctly, it should show the number of products or services you need to sell to cover your costs.

When you break even, you’re not making or losing money, but all your costs are covered. Your break-even point is equal to your fixed costs, divided by your average price, minus variable costs.

5. Personnel Plan

If you operate without employees, you can summarize this section with one or two sentences. If you have labor costs, this is where you determine how payroll affects your overall business.

Your personnel plan should justify the necessity of each member of your team. Start by describing each employee and outlining their training, expertise and knowledge pertaining to your business. You’ll also include positions that you want to hire in the future with experience required and compensation information.

6. Review Strategic Plan

Do you have a strategic plan for the future? Taking the time to formulate a strategic plan is one of the best ways to reach short- and long-term goals. SmartBiz Loans CEO Evan Singer has over 20 years of business experience. He recently wrote an article for Forbes about the benefits of long-term planning.

Take a look at the article here to use as a guide as your review your plan: How To Create A Long-Term Plan For Your Small Business.

Finally, Keep Your Financial Plan Handy!

Many business owners spend lots of time crafting a financial plan only to tuck it away and not reference again. Make sure you regularly review your financial plan and make adjustments when needed.

A complete and up-to-date financial plan is one business document lenders will want to review. Make sure it’s an accurate reflection of where you are and where you want to go. If you lack the expertise to put together this type of plan, your accountant or another financial professional can help.