4 Steps to Creating a Financial Plan for Your Small Business

Rami Ali

When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan. It helps you pitch investors, anticipate growth and weather cash flow shortages. To get started, you need to learn some of the key elements to financial planning.

What is a Financial Plan?

A financial plan helps determine if an idea is sustainable, and then keeps you on track to financial health as your business matures. It’s an integral part to an overall business plan and is made up of three financial statements—cash flow statement, income statement and balance sheet. In your plan, each of these will include a brief explanation or analysis.

Key Takeaways

  • A financial plan helps you know where your business stands and lets you make better informed decisions about resource allocation.
  • A financial plan has three major components: a cash flow projection , income statement and balance sheet.
  • Your financial plan answers essential questions to set and track progress toward goals.
  • Using financial management software gives you the tools to make strategic decisions efficiently.

Why is a Financial Plan Important to Your Small Business?

A well-put-together financial plan can help you achieve greater confidence in your business while generating a better understanding of how to allocate resources. It shows your business is committed to spending wisely and its ability to meet financial obligations. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.

It’s also an important tool when asking investors to consider your business. Your financial plan shows how your organization manages expenses and generates revenue. It shows where your business stands and how much it needs from sales and investors to meet important financial benchmarks.

Components of a Small Business Financial Plan

Whether you’re modifying your plan or starting from scratch, a financial plan should include:

Income statement: This shows how your business experienced profit or loss over a specific period—usually over three months. Also known as a profit-and-loss statement (P&L) or pro forma income statement, it lists the following:

  • Cost of sale or cost of goods (how much does it costs to produce your goods or services?)
  • Operating expenses like rent and utilities
  • Revenue streams, usually in the form of sales
  • Amount of total net profit or loss, also known as a gross margin

Balance sheet: Rather than looking backward or peering into the future, the balance sheet helps you see where you stand right now. What do you own and what do you owe? To figure it out, you’ll need to consider the following:

  • Assets: How much cash, goods and resources do you have available?
  • Liabilities: What do you owe to suppliers, personnel, landlords, creditors, etc.?

Shareholder equity (the amount of money generated by your business): Use this formula to calculate it:

Shareholder Equity = Assets – Liability

Now that you have these three items, you’re ready to create your balance sheet. And just as the name implies, when complete, you’ll want this to balance out to zero. On one side, list your assets, such as cash on hand. And on the other side list your liabilities and equity (or how much money is generated by the business). The balance sheet is used along the other financial statements in order to calculate business financial ratios, discussed further below.

Balance Sheet

Why have a balance sheet? It can provide insight into your business and show important measures like how much cash you have, what your obligations are and what kind of profit you’re making all at a glance.

Personnel plan: You need the right people to meet goals and retain a healthy cash flow. A personnel plan looks at existing positions and helps you see when it’s time to bring on more team members, and whether they should be full-time, part-time, or work on a contractual basis. It looks at compensations levels, including benefits, and forecasts those costs. By looking at growth and costs you can see if the potential benefits that come with a new employee justify the expense.

Business ratios: Sometimes you need to look at more than just the big picture. You need to drill down to specific aspects of your business and keep an eye on how individual areas are doing. Business ratios are a way to see things like your net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets. Numbers used to calculate these ratios come from your P&L statement, balance sheet and cash flow statement and are often used to help request funding from a bank or investors.

Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.

Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.

Income projections: How much money will your company make in a given period, usually a year. Take that and then subtract the anticipated expenses and you’ll have the income projections . In some cases, these are rolled into profit and loss statements.

Assets and liabilities: Both of these elements are part of your balance sheet. Assets are what your company owns, including current and long-term assets. Current assets can be converted into cash within a year. Think of things such as stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use like furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are divided into current and long-term categories. Examples of current liabilities in a financial plan are accrued payroll, taxes payable, short-term loans and other obligations due within a year. Long-term liabilities include shareholder loans or bank debt that matures more than a year later.

Break-even analysis: Your break-even point—how much you need to sell to cover all your expenses—will guide your sales revenue and volume goals. Start by calculating your contribution margin by subtracting the costs of a good or service from the amount you pay. In the case of a bicycle store, the sale price of a new bike minus what you paid for it and the salary of your bike salesperson, your rent, etc. By understanding your fixed costs, you can then begin to understand how much you’ll need to markup goods and services and what sales and revenue goals to set in order to stay afloat or turn a profit.

Video: How to Build a Financial Plan

Create a strategic plan: Starting with a strategic plan helps you think about what you want your company to accomplish. Before looking at the numbers, think about what you’ll need to achieve these goals. Will you need to buy more equipment or hire more staff? Is there a chance of new goals affecting your cash flow? What other resources will you need?

Determine the impact on your company’s finances and create a list of existing expenses and assets to help with your next steps.

Create financial projections: This should be based on anticipated expenses and sales forecasts . Look at your goals and plug in the costs needed to achieve them. Include different scenarios. Create a range that is optimistic, pessimistic and most likely to happen, so you can anticipate the impact each one will have. If you’re working with an accountant, go over the plan together to understand how to explain it when seeking funding from investors and lenders.

Plan for contingencies: Look at your cash flow statement and assets, and create a plan for when there’s no money coming in or your business has taken an unexpected turn. Consider having cash reserves or a substantial line of credit if you need cash fast. You may also need to plot ways to sell off assets to help break even.

Monitor and compare goals: Look at the actual results in your cash flow statement, income projections and even business ratios as necessary throughout the year to see if you need to modify your plan or if you’re right on target. Regularly checking in helps you spot potential problems before they get worse.

Three Questions Your Financial Plan Should Answer

Once you’ve created your plan, you should have answers to the following questions:

  • How will your business make money?
  • What does your business need to get off of the ground?
  • What is the operating budget ?

Financial plans that can’t answer these questions need more tweaking. Otherwise, you risk starting a new venture without a clear path and leave behind valuable insight.

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Using spreadsheets can get the job done when you’re just getting started. However, it’s easy to get overwhelmed, especially if you’re collaborating with others in your organization.

Financial management software is worth the expense because it offers automated capabilities such as analysis, reporting and forecasting. Plus, using cloud-based financial planning tools like NetSuite can help you automatically consolidate data and improve efficiency. Everyone across your organization can access and analyze up-to-date information, which leads to better informed decisions.

Whether you’re looking to secure outside funding or just monitor your business growth, understanding and creating a financial plan is crucial. Once you have an overview of your business’ finances, you can make strategic decisions to ensure its longevity.

Financial Management

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Small Business Financial Management: Tips, Importance and Challenges

It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.

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How to Develop a Small Business Financial Plan

By Andy Marker | April 29, 2022

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Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.

Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .

What Is a Small Business Financial Plan?

A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

Craig Hewitt

Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”

Why Is It Important for a Small Business to Have a Financial Plan?

All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.

Mark Daoust

Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”

To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .

What Does a Small Business Financial Plan Include?

All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.

Ahmet Yuzbasioglu

  • Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
  • Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
  • Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
  • Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
  • Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .

How to Write a Small Business Financial Plan

Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.

“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”

1. Create a Plan

Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.

2. Gather Financial Information

Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.

3. Create an Income Statement

Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.

Income Statement

4. Create a Balance Sheet

Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.

Balance Sheet

5. Create a Cash Flow Statement

As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”

Cash Flow

6. Create Other Documents as Needed

Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.

Breakeven Point

  • Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”

7. Save the Plan for Reference and Share as Needed

The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.

Janet Patterson

Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at  Highway Title Loans.

Small Business Financial Plan Example

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Example Microsoft Excel | Google Sheets

Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.

Small Business Financial Plan Starter Kit

Download Small Business Financial Plan Starter Kit

We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.

Small Business Income Statement Template 

Small Business Income Statement Template

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.

Small Business Balance Sheet Template 

Small Business Balance Sheet Template

Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets

This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter. 

Small Business Cash Flow Statement Template 

Small Business Cash Flow Template

Download Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.

Break-Even Analysis Template 

Break Even Analysis Template

Download Break-Even Analysis Template Microsoft Excel | Google Sheets

This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.

Personnel Plan Template  

Personnel Plan Template

Download Personnel Plan Template Microsoft Excel | Google Sheets

Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.

Sales Forecast Template

Sales Forecast Template

Download Sales Forecast Template Microsoft Excel | Google Sheets

Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.

Small Business Financial Plan Dashboard Template

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets

This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.

Tips for Completing a Financial Plan for a Small Business

You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:

Jesse Thé

  • Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
  • Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
  • Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
  • Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
  • Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”

Do Small Business Owners Need a Financial Planner?

Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.

Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run. 

Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”

For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .

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6 Elements of a Successful Financial Plan for a Small Business

Table of contents.

small company financial plan

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.


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A Financial Plan for a Small Business

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The business financial plan commonly appears in the overall business plan for a small business. However, the financial plan is a self-supporting document intended to support and direct the actions of the business. It explains what your business can afford, how it can afford to do it and what the expected profits will be. For a small business, a well-written business plan can be the difference between you carrying the business or the business carrying you.

Linked Business Statements

A financial plan for small business organizations should include four standard forms that attached documents support. The standard financial documents for small business include the personal financial statement, the balance sheet, the income statement and the cash flow statement, explains Inc. magazine . These forms provide a well-rounded financial view of your business, from your personal finances to the business finances. The forms explain how your business generates income, how it spends the income and whether it can support itself.

The Supporting Documents

The supporting documents of the financial plan are those that place merit into your financial figures. Depending on the information provided in your statements, these documents can include stock documents, life insurance policies, real estate deeds, tax statements, bank statements and register receipts and accounting ledgers. Within the business plan, these supporting documents are included in the document’s appendix and are organized in a fashion that provides easy reference.

Calculating Different Ratios

You can easily go wrong with your financial plan if you simply pull out your documents and fill in the numbers. The financial plan is an analysis of your business that lenders and investors use to determine your business’ viability. The information within this plan helps determine your business’ financial ratios, or scorecards.

Institutions and financial specialists use an array of ratios to identify the information they seek about your business. Some of the most common financial ratios include the liquidity ratios , such as the working capital and acid test, as well as the asset management ratios, such as the debt management ratios like the accounts payable turnover and leverage tests.

Updating With Formulas

The break-even formula is one of the most important aspects of the small business financial plan. This formula uses the information within the income statement to determine the point at which your company begins to generate a profit. The break-even formula is the company’s fixed expenses divided by its margin percentage. The margin percentage is determined by subtracting your business’ total variable expense from its total net sales and then determining what percentage that margin represents.

For instance, if your company has ​ $100,000 ​ in net sales with ​ $50,000 ​ in total variable expenses, the margin would be ​ $50,000 ​, or 50 percent of the net sales. The break-even point of your business with ​ $150,000 ​ in fixed expenses is ​ $75,000 ​. Therefore, all business income you generate above ​ $75,000 ​ is a profit.

Periodic Evaluation Reviews

Once completed, your financial plan will not only display a snapshot of your business’ finances, but also forecast what it expected. As a result, your financial plan will eventually become outdated and require revisions.

Periodic reviews of your financial plan will not only assist you in keeping your small business on track, but it also will help you to identify the areas where you need restrictions and expansions. A quarterly review of the financial plan is an effective schedule that will help to keep you ahead of unexpected financial developments.

  • Inc.: Financial Statements
  • FI: Liquidity Ratio

Writing professionally since 2004, Charmayne Smith focuses on corporate materials such as training manuals, business plans, grant applications and technical manuals. Smith's articles have appeared in the "Houston Chronicle" and on various websites, drawing on her extensive experience in corporate management and property/casualty insurance.

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  • Creating a Small Business Financial Plan

small company financial plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

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Table of contents, financial plan overview.

A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.

For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ensure sustainable growth.

The strength of a financial plan lies in its ability to offer a clear roadmap for businesses.

Especially for small businesses that may not have a vast reserve of resources, prioritizing financial goals and understanding where every dollar goes can be the difference between growth and stagnation.

It lends clarity, ensures informed decision-making, and sets the stage for profitability and success.

Understanding the Basics of Financial Planning for Small Businesses

Role of financial planning in business success.

Financial planning is the backbone of any successful business endeavor. It serves as a compass, guiding businesses toward profitability, stability, and growth.

With proper financial planning, businesses can anticipate potential cash shortfalls, make informed investment decisions, and ensure they have the capital needed to seize new opportunities.

For small businesses, in particular, tight financial planning can mean the difference between thriving and shuttering. Given the limited resources, it's vital to maximize every dollar and anticipate financial challenges.

Through diligent planning, small businesses can position themselves competitively, adapt to market changes, and drive consistent growth.

Core Components of a Financial Plan for Small Businesses

Every financial plan comprises several core components that, together, provide a holistic view of a business's financial health and direction. These include setting clear objectives, estimating costs , preparing financial statements , and considering sources of financing.

Each component plays a pivotal role in ensuring a thorough and actionable financial strategy .

For small businesses, these components often need a more granular approach. Given the scale of operations, even minor financial missteps can have significant repercussions.

As such, it's essential to tailor each component, ensuring they address specific challenges and opportunities that small businesses face, from initial startup costs to revenue forecasting and budgetary constraints.

Setting Clear Small Business Financial Objectives

Identifying business's short-term and long-term financial goals.

Every business venture starts with a vision. Translating this vision into actionable financial goals is the essence of effective planning.

Short-term goals could range from securing initial funding and achieving a set monthly revenue to covering startup costs. These targets, usually spanning a year or less, set the immediate direction for the business.

On the other hand, long-term financial goals delve into the broader horizon. They might encompass aspirations like expanding to new locations, diversifying product lines, or achieving a specific market share within a decade.

By segmenting goals into short-term and long-term, businesses can craft a step-by-step strategy, making the larger vision more attainable and manageable.

Understanding the Difference Between Profitability and Cash Flow

Profitability and cash flow, while closely linked, are distinct concepts in the financial realm. Profitability pertains to the ability of a business to generate a surplus after deducting all expenses.

It's a metric of success and indicates the viability of a business model . Simply put, it answers whether a business is making more than it spends.

In contrast, cash flow represents the inflow and outflow of cash within a business. A company might be profitable on paper yet struggle with cash flow if, for instance, clients delay payments or unexpected expenses arise.

For small businesses, maintaining positive cash flow is paramount. It ensures that they can cover operational costs, pay employees, and reinvest in growth, even if they're awaiting payments or navigating financial hiccups.

Estimating Small Business Startup Costs (for New Businesses)

Fixed vs variable costs.

When embarking on a new business venture, understanding costs is paramount. Fixed costs remain consistent regardless of production levels. They include expenses like rent, salaries, and insurance . These are predictable outlays that don't fluctuate with business performance.

Variable costs , conversely, change in direct proportion to production or business activity. Think of costs associated with materials for manufacturing or commission for sales .

For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.

One-Time Expenditures vs Ongoing Expenses

Startups often grapple with numerous upfront costs. From purchasing equipment and setting up a workspace to initial marketing campaigns, these one-time expenditures lay the foundation for business operations.

They differ from ongoing expenses like utility bills, raw materials, or employee wages that recur monthly or annually.

For a small business owner, distinguishing between these costs is critical. One-time expenditures often demand a larger chunk of initial capital, while ongoing expenses shape the monthly and annual budget.

By categorizing them separately, businesses can strategize funding needs more effectively, ensuring they're equipped to meet both immediate and recurrent financial obligations.

Funding Sources for Small Businesses

Personal savings.

This is often the most straightforward way to fund a startup. Entrepreneurs tap into their personal savings accounts to jumpstart their business.

While this method has the benefit of not incurring debt or diluting company ownership, it intertwines the individual's personal financial security with the business's fate.

The entrepreneur must be prepared for potential losses, and there's the evident psychological strain of putting one's hard-earned money on the line.

Loans can be sourced from various institutions, from traditional banks to credit unions . They offer a substantial sum of money that can be paid back over time, usually with interest .

The main advantage of taking a loan is that the entrepreneur retains full ownership and control of the business.

However, there's the obligation of monthly repayments, which can strain a business's cash flow, especially in its early days. Additionally, securing a loan often requires collateral and a sound credit history.

Investors, including angel investors and venture capitalists , offer capital in exchange for equity or a stake in the company.

Angel investors are typically high-net-worth individuals who provide funding in the initial stages, while venture capitalists come in when there's proven business potential, often injecting larger sums. The advantage is substantial funding without the immediate pressure of repayments.

However, in exchange for their investment, they often seek a say in business decisions, which might mean compromising on some aspects of the original business vision.

Grants are essentially 'free money' often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors.

The primary advantage of grants is that they don't need to be repaid, nor do they dilute company ownership. However, they can be highly competitive and might come with stipulations on how the funds should be used.

Moreover, the application process can be lengthy and requires showcasing the business's potential or alignment with the specific goals or missions of the granting institution.

Funding Sources for Small Businesses

Preparing Key Financial Statements for Small Businesses

Income statement (profit & loss).

An Income Statement , often termed as the Profit & Loss statement , showcases a business's financial performance over a specific time frame. It details revenues , expenses, and ultimately, profits or losses.

By analyzing this statement, business owners can pinpoint revenue drivers, identify exorbitant costs, and understand the net result of their operations.

For small businesses, this document is instrumental in making informed decisions. For instance, if a certain product line is consistently unprofitable, it might be prudent to discontinue it. Conversely, if another segment is thriving, it might warrant further investment.

The Income Statement, thus, serves as a financial mirror, reflecting the outcomes of business strategies and decisions.

Balance Sheet

The Balance Sheet offers a snapshot of a company's assets , liabilities , and equity at a specific point in time.

Assets include everything the business owns, from physical items like equipment to intangible assets like patents .

Liabilities, on the other hand, encompass what the company owes, be it bank loans or unpaid bills.

Equity represents the owner's stake in the business, calculated as assets minus liabilities.

This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise.

In contrast, mounting liabilities or dwindling assets could be red flags, signaling the need for intervention and strategy recalibration.

Cash Flow Statement

While the Income Statement reveals profitability, the Cash Flow Statement tracks the actual movement of money.

It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.

For small businesses, maintaining positive cash flow is often more vital than showcasing profitability.

After all, a business might be profitable on paper yet struggle if clients delay payments or unforeseen expenses emerge.

By regularly reviewing the Cash Flow Statement, small business owners can anticipate cash crunches and strategize accordingly, ensuring seamless operations irrespective of revenue cycles.

Preparing Key Financial Statements for Small Businesses

Small Business Budgeting and Expense Management

Importance of budgeting for a small business.

Budgeting is the financial blueprint for any business, detailing anticipated revenues and expenses for a forthcoming period. It's a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges.

For small businesses, a meticulous budget is often the linchpin of stability, ensuring they operate within their means and avoid financial pitfalls.

Having a well-defined budget also fosters discipline. It curtails frivolous spending, emphasizes cost-efficiency, and sets clear financial boundaries.

For small businesses, where every dollar counts, a stringent budget is the gateway to financial prudence, ensuring that funds are utilized judiciously, fostering growth, and minimizing wastage.

Strategies for Reducing Costs and Optimizing Expenses

Bulk purchasing.

When businesses buy supplies in large quantities, they often benefit from discounts due to economies of scale . This can significantly reduce per-unit costs.

However, while bulk purchasing leads to immediate savings, businesses must ensure they have adequate storage and that the products won't expire or become obsolete before they're used.

Renegotiating Vendor Contracts

Regularly reviewing and renegotiating contracts with suppliers or service providers can lead to better terms and lower costs. This might involve exploring volume discounts, longer payment terms, or even bartering services.

Building strong relationships with vendors often paves the way for such negotiations.

Adopting Energy-Saving Measures

Simple changes, like switching to LED lighting or investing in energy-efficient appliances, can lead to long-term savings in utility bills. Moreover, energy conservation not only reduces costs but also minimizes the environmental footprint, which can enhance the business's reputation.

Embracing Technology

Modern software and technology can streamline business processes. Automation tools can handle repetitive tasks, reducing labor costs.

Meanwhile, data analytics tools can provide insights into customer preferences and behavior, ensuring that marketing budgets are used effectively and target the right audience.

Streamlining Operations

Regularly reviewing and refining business processes can eliminate redundancies and improve efficiency. This might mean merging roles, cutting down on unnecessary meetings, or simplifying supply chains. A leaner operation often translates to reduced expenses.

Outsourcing Non-core Tasks

Instead of maintaining an in-house team for every function, businesses can outsource tasks that aren't central to their operations.

For instance, functions like accounting , IT support, or digital marketing can be outsourced to specialized agencies, often leading to cost savings and access to expert skills.

Cultivating a Culture of Frugality

Encouraging employees to adopt a cost-conscious mindset can lead to collective savings. This can be fostered through incentives, regular training, or even simple practices like recycling and reusing office supplies.

When everyone in the organization is attuned to the importance of cost savings, the cumulative effect can be substantial.

Strategies for Reducing Costs and Optimizing Expenses in a Small Business

Forecasting Small Business Revenue and Cash Flow

Techniques for predicting future sales in a small business, past sales data analysis.

Historical sales data is a foundational element in any forecasting effort. By reviewing previous sales figures, businesses can identify patterns, understand seasonal fluctuations, and recognize the effects of past initiatives.

This information offers a baseline upon which to build future projections, accounting for known recurring variables in the business cycle .

Market Research

Understanding the larger market dynamics is crucial for accurate forecasting. This involves tracking industry trends, monitoring shifts in consumer behavior, and being aware of potential market disruptions.

For instance, a sudden technological advancement can change consumer preferences or regulatory changes might impact an industry.

Local Trend Analysis

For small businesses, localized insights can be especially impactful. Observing local competitors, understanding regional consumer preferences, or noting shifts in the local economy can offer precise data points.

These granular details, when integrated into a larger forecasting model, can enhance prediction accuracy.

Customer Feedback

Direct feedback from customers is an invaluable source of insights. Surveys, focus groups, or even informal chats can reveal customer sentiments, preferences, and potential future purchasing behavior.

For instance, if a majority of loyal customers express interest in a new product or service, it can be indicative of future sales potential.

Moving Averages

This technique involves analyzing a series of data points (like monthly sales) by creating averages from different subsets of the full data set.

For yearly forecasting, a 12-month moving average can be used to smooth out short-term fluctuations and highlight longer-term trends or cycles.

Regression Analysis

Regression analysis is a statistical tool used to identify relationships between variables. In sales forecasting, it can help understand how different factors (like marketing spend, seasonal variations, or competitor actions) relate to sales figures.

Once these relationships are understood, businesses can predict future sales based on planned actions or expected external events.

Techniques for Predicting Future Sales in a Small Business

Understanding the Cash Cycle of Business

The cash cycle encompasses the time it takes for a business to convert resource investments, often in the form of inventory, back into cash.

This involves the processes of purchasing inventory, selling it, and subsequently collecting payment. A shorter cycle implies quicker cash turnarounds, which are vital for liquidity.

For small businesses, a firm grasp of the cash cycle can aid in managing cash flow more effectively.

By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking.

Ultimately, understanding and optimizing the cash cycle ensures that a business remains liquid and agile.

Preparing for Seasonality and Unexpected Changes

Seasonality affects many businesses, from the ice cream vendor witnessing summer surges to the retailer bracing for holiday shopping frenzies.

By analyzing historical data and market trends, businesses can prepare for these cyclical shifts, ensuring they stock up, staff appropriately, and market effectively.

Small businesses, often operating on tighter margins , need to be especially vigilant. Beyond seasonality, they must also brace for unexpected changes – a local construction project obstructing store access, a sudden competitor emergence, or unforeseen regulatory changes.

Building a financial buffer, diversifying product or service lines, and maintaining flexible operational strategies can equip small businesses to weather these unforeseen challenges with resilience.

Securing Small Business Financing and Capital

Role of debt and equity financing.

When businesses seek external funding, they often grapple with the debt vs. equity conundrum. Debt financing involves borrowing money, typically via loans. While it doesn't dilute ownership, it necessitates regular interest payments, potentially impacting cash flow.

Equity financing, on the other hand, entails selling a stake in the business to investors. It might not demand regular repayments, but it dilutes ownership and might influence business decisions.

Small businesses must weigh these options carefully. While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch.

Equity financing, although relinquishing some control, might bring aboard strategic partners, offering expertise and networks in addition to funds.

The optimal choice hinges on the business's financial health, growth aspirations, and the founder's comfort with sharing control.

Choosing Between Different Types of Loans

A staple in the lending arena, term loans offer businesses a fixed amount of capital that is paid back over a specified period with interest. They're often used for significant one-time expenses, such as purchasing machinery, real estate , or even business expansion.

With predictable monthly payments, businesses can plan their budgets accordingly. However, they might require collateral and a robust credit history for approval.

Lines of Credit

Unlike term loans that provide funds in a lump sum, a line of credit grants businesses access to a pool of funds up to a certain limit.

Businesses can draw from this line as needed, only paying interest on the amount they use. This makes it a versatile tool, especially for managing cash flow fluctuations or unexpected expenses. It serves as a financial safety net, ready for use whenever required.

As the name suggests, microloans are smaller loans designed to cater to businesses that might not need substantial amounts of capital. They're particularly beneficial for startups, businesses with limited credit histories, or those in need of a quick, small financial boost.

Since they are of a smaller denomination, the approval process might be more lenient than traditional loans.

Peer-To-Peer Lending

A contemporary twist to the traditional lending model, peer-to-peer (P2P) platforms connect borrowers directly with individual lenders or investor groups.

This direct model often translates to quicker approvals and competitive interest rates as the overheads of traditional banking structures are removed. With technology at its core, P2P lending can offer a more user-friendly, streamlined process.

However, creditworthiness still plays a pivotal role in determining interest rates and loan amounts.

Crowdfunding and Alternative Financing Options

In an increasingly digital age, crowdfunding platforms like Kickstarter or Indiegogo have emerged as viable financing avenues.

These platforms enable businesses to raise small amounts from a large number of people, often in exchange for product discounts, early access, or other perks. This not only secures funds but also validates the business idea and fosters a community of supporters.

Other alternatives include invoice financing, where businesses get an advance on pending invoices, or merchant cash advances tailored for businesses with significant credit card sales.

Each financing mode offers unique advantages and constraints. Small businesses must meticulously evaluate their financial landscape, growth trajectories, and risk appetite to harness the most suitable option.

Small Business Tax Planning and Management

Basic tax obligations for small businesses.

Navigating the maze of taxation can be daunting, especially for small businesses. Yet, understanding and fulfilling tax obligations is crucial.

Depending on the business structure—whether sole proprietorship , partnership , LLC , or corporation—different tax rules apply. For instance, while corporations are taxed on their earnings, sole proprietors report business income and expenses on their personal tax returns.

In addition to income taxes, small businesses may also be responsible for employment taxes if they have employees. This covers Social Security , Medicare , federal unemployment, and sometimes state-specific taxes.

There might also be sales taxes, property taxes, or special state-specific levies to consider.

Consistently maintaining accurate financial records, being aware of filing deadlines, and setting aside funds for tax obligations are essential practices to avoid penalties and ensure compliance.

Advantages of Tax Planning and Potential Deductions

Tax planning is the strategic approach to minimizing tax liability through the best use of available allowances, deductions, exclusions, and breaks.

For small businesses, effective tax planning can lead to significant savings.

This might involve strategies like deferring income to a later tax year, choosing the optimal time to purchase equipment, or taking advantage of specific credits available to businesses in certain sectors or regions.

Several potential deductions can reduce taxable income for small businesses. These include expenses like rent, utilities, business travel, employee wages, and even certain meals.

By keeping abreast of tax law changes and actively seeking out eligible deductions, small businesses can optimize their financial landscape, ensuring they're not paying more in taxes than necessary.

Importance of Hiring a Tax Professional or Accountant

While it's feasible for small business owners to manage their taxes, the intricate nuances of tax laws make it beneficial to consult professionals.

An experienced accountant or tax consultant can not only ensure compliance but can proactively recommend strategies to reduce tax liability.

They can guide businesses on issues like whether to classify someone as an employee or a contractor, how to structure the business for optimal taxation, or when to make certain capital investments.

Beyond just annual tax filing, these professionals offer year-round counsel, helping businesses maintain clean financial records, stay updated on tax law changes, and plan for future financial moves.

The investment in professional advice often pays dividends , saving businesses from costly mistakes, penalties, or missed financial opportunities.

Regularly Reviewing and Adjusting the Small Business Financial Plan

Setting checkpoints and milestones.

Like any strategic blueprint, a financial plan isn't static. It serves as a guiding framework but should be flexible enough to adapt to evolving business realities.

Setting regular checkpoints— quarterly , half-yearly, or annually—can help businesses assess whether they're on track to meet their financial objectives.

Milestones, such as reaching a specific sales target, launching a new product, or expanding into a new market, offer tangible markers of progress. Celebrating these victories can bolster morale, while any shortfalls can serve as lessons, prompting strategy tweaks. F

or small businesses, where agility is an asset, regularly revisiting the financial plan ensures that the business remains aligned with its overarching financial goals while being responsive to the dynamic marketplace.

Using Financial Ratios to Monitor Business Health

Financial ratios offer a distilled snapshot of a business's health. Ratios like the current ratio ( current assets divided by current liabilities ) can shed light on liquidity, indicating whether a business can meet short-term obligations.

The debt-to-equity ratio , contrasting borrowed funds with owner's equity, offers insights into the business's leverage and potential financial risk.

Profit margin , depicting profitability relative to sales, can highlight operational efficiency. By consistently monitoring these and other pertinent ratios, small businesses can glean actionable insights, understanding their financial strengths and areas needing attention.

In a realm where early intervention can stave off major financial setbacks, these ratios serve as vital diagnostic tools, guiding informed decision-making.

Pivoting Strategies Based on Financial Performance

In the ever-evolving world of business, flexibility is paramount. If financial reviews indicate that certain strategies aren't yielding anticipated results, it might be time to pivot.

This could involve tweaking product offerings, revising pricing strategies, targeting a different customer segment, or even overhauling the business model.

For small businesses, the ability to pivot can be a lifeline. It allows them to respond swiftly to market changes, customer feedback, or internal challenges.

A robust financial plan, while offering direction, should also be pliable, accommodating shifts in strategy based on real-world performance. After all, in the business arena, adaptability often spells the difference between stagnation and growth.

Creating a Small Business Financial Plan

Bottom Line

Financial foresight is integral for the stability and growth of small businesses. Effective revenue and cash flow forecasting, anchored by historical sales data and enhanced by market research, local trends, and customer feedback, ensures businesses are prepared for future demands.

With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.

As businesses contemplate external financing, the decision between debt and equity and the myriad of loan types, should be made judiciously, keeping in mind the business's health, growth aspirations, and risk appetite.

Furthermore, diligent tax planning, with professional guidance, can lead to significant financial benefits. Regular reviews using financial ratios allow businesses to gauge their performance, adapt strategies, and pivot when necessary.

Ultimately, the agility to adapt, guided by a well-structured financial plan, is pivotal for businesses to thrive in a dynamic marketplace.

Creating a Small Business Financial Plan FAQs

What is the importance of a financial plan for small businesses.

A financial plan offers a structured roadmap, guiding businesses in making informed decisions, ensuring growth, and navigating financial challenges.

How do forecasting revenue and understanding cash cycles aid in financial planning?

Forecasting provides insights into expected income, aiding in budget allocation, while understanding cash cycles ensures effective liquidity management.

What are the core components of a financial plan for small businesses?

Core components include setting objectives, estimating startup costs, preparing financial statements, budgeting, forecasting, securing financing, and tax management.

Why is tax planning vital for small businesses?

Tax planning ensures compliance, optimizes tax liabilities through available deductions, and helps businesses save money and avoid penalties.

How often should a small business review its financial plan?

Regular reviews, ideally quarterly or half-yearly, ensure alignment with business goals and allow for strategy adjustments based on real-world performance.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website , view his author profile on Amazon , or check out his speaker profile on the CFA Institute website .

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Do you own a business, which activity is most important to you during retirement.

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  • Comfortable Lifestyle: $3,500 - $5,500
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  • Luxury Lifestyle: $8,000+

Part 4: Getting Your Retirement Ready

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Create a Winning Financial Plan for Your Small Business

1. develop a financial plan for your small business, 2. understand your business's financial needs, 3. make a budget and track your actual results, 4. evaluate your business's financial position, 5. invest in your business's future, 6. improve cash flow and balance your budget, 7. maximize your business's tax benefits, 8. protect your business's assets, 9. prepare for emergencies.

What are the different types of financial plans for small businesses ?

There are many different types of financial plans for small businesses, but two main types are profit and loss plans and asset/liability plans.

Profit and loss plans are designed to help small businesses make money while controlling their expenses. These plans typically include a budget, profit and loss statements, and tax returns.

Asset/liability plans are designed to help small businesses protect their assets and liabilities. This type of plan typically includes a budget, asset allocation, and liability allocation.

Before Blockchain Capital, I was cranking out startups like an incubator. Brock Pierce

When it comes to setting up a successful small business , understanding your business' financial needs is key. This is especially true if you're starting a new business or expanding an existing one. Here's a breakdown of each category and what you need to know to make the financial planning process as smooth and stress free as possible:

1. Business expenses: This includes everything from rent to payroll costs. Be sure to track your expenses and make sure you're getting the most bang for your buck.

2. Current assets: This includes everything from cash reserves to assets such as patents and trademarks. Make sure you're assessing how much of each type of asset you need in order to stay afloat.

3. Financial obligations: Make sure you understand your company's debt levels and how much funding you'll need in order to reach profitability. Also, be aware of any tax liabilities that may impact your bottom line .

Now that you've got a better understanding of your business' financial needs, it's time to start creating a financial plan ! By following these steps, you can create a plan that will help keep your business on track and on top of its game long into the future.

Understand Your Business's Financial Needs - Create a Winning Financial Plan for Your Small Business

What are the most important steps in creating a successful financial plan for your small business ?

1. Define your business' purpose and mission. This will help you determine what you need to bring in money to make ends meet.

2. Decide what your business is worth and figure out how much you can realistically generate in revenue each month.

3. Set realistic estimates of your monthly expenses and make changes as needed to stay within your budget.

4. Make sure you have accurate records of your sales and expenses so that you can track your progress over time.

5. Create a financial plan that fits your unique business situation and goals. There's no one-size-fits-all approach, so make sure to tailor the plan to fit the needs of your business.

Make a Budget and track Your Actual Results - Create a Winning Financial Plan for Your Small Business

Do you want to create a winning financial plan for your small business? If so, you need to focus on how to evaluate your business' financial position.

There are many different ways to evaluate a business' financial position. You can look at things like the company's net income, cash flow, and cash equivalents. You can also look at the company's debt and investment portfolio.

The most important thing is to use the right tools to help you evaluation your business' financial position. There are a number of different evaluation tools available, including ratios, performance metrics, and market analysis .

You have a business, but it is not doing as well as you would like. Why?

There are many reasons your business could be struggling. Maybe you are not investing in it as much as you should be. Maybe you are not keeping up with changes in the market. Or maybe you are not taking advantage of opportunities that come your way.

Whatever the reason, if your business is not doing well, it is likely because you have not put enough money into it. Here is a guide on how to create a winning financial plan for your small business , and how to put that money to work for you:

1. Start by understanding your business' key challenges. Once you know what needs to be done to improve your business, it's time to start thinking about ways to address them. This means coming up with a plan that addresses all of the areas where your business falls short: marketing, accounting, technology, and more.

2. Choose the right tools and strategies. When it comes time to invest in your business, make sure you have access to the right tools and strategies that will help you succeed. This means choosing the right Funding sources (banks and other investment vehicles), wisely planning your spends (tracking expenses and deciding which areas of your business need more investment), and ensuring that all of your marketing channels are working together (tracking leads and converting them into customers ).

3. Invest now rather than later. It's always better to invest early than later in order to get the most return on investment for your money. That being said, don't wait too long before putting some money into your business - if you do, you may find yourself in a difficult situation down the road when things start going wrong (and there's no guarantee).

4. Don't be afraid to ask for help from others - even if they do not offer financial advice themselves! There are plenty of people out there who can help increase profits for their businesses - contact them today if you need some guidance!

Invest in Your Business's Future - Create a Winning Financial Plan for Your Small Business

One of the best ways to improve your small business' cash flow and balance your budget is to create a winning financial plan. This plan should include:

1. Review your expenses and make cuts where necessary.

2. Create efficient budgeting processes that are easy to follow.

3. Make smart investments that will help you grow your business.

4. Keep a positive attitude and stay focused on your goals.

Improve Cash Flow and Balance Your Budget - Create a Winning Financial Plan for Your Small Business

1. Make sure your business is registered with the US small Business administration (SBA). As a registered small business owner , you will have more opportunities to receive federal tax breaks and deductions.

2. Make use of the 1040EZ form to report your income and expenses. This form is available from most businesses and can be filed by mail or online.

3. Use the US Internal Revenue Service's online Form 1040A to report your net profits or losses for the year ending December 31. Use this form to report any taxable income that was generated in excess of $5,000.

4. Use the US Internal Revenue Service's online Form 1040A to report your taxable income for the year ending December 31, and also use the line "Other Income" to report any nontaxable income that you received in addition to your regular income from your business activities.

5. Use the US Internal Revenue Service's online Form 1040X to report any foreign taxes paid on your net profits or losses during the year. You will also need to provide this form with all of your financial information, such as Your social security number and taxpayer identification number (ITIN).

6. Use the US Internal Revenue Service's online Form 8K to report any changes in ownership of your business during the year. This form can be filed within 60 days of such changes, and it will provide you with a summary of all transactions that occurred during the year.

7. Use Form 8K if you sell or give away your business during the year, or if you change your name or trade names with another small business owner in order to keep your business registration under one name only. You must file this form within 60 days of such changes, and include all information required on Form 8K including Your new name, contact information for each other small business owner, and any other relevant information about the sale or transfer.

Maximize Your Business's Tax Benefits - Create a Winning Financial Plan for Your Small Business

Small businesses are typically very vulnerable to financial losses. They have a limited amount of money available to them to cover any claims that may come up. To protect your business' assets, you should create a financial plan that takes into account your business' specific needs and circumstances.

When it comes to your business' finances, it's important to take into account the following:

1. Your business is small and can't afford to pay for big-ticket items like a attorneys fees or file taxes on its own. In this situation, you'll need to work with an experienced financial planner to come up with a plan that will protect your assets and give you the best possible chance of staying afloat.

2. Your business is likely not registered with the IRS and will not be able to claim tax breaks or deductions. In this situation, you'll need to find another way to fund your operations and protect your assets. A financial planner can help you do this by creating a plan that aligns with your specific business needs and circumstances.

3. Your business is likely in an uncertain legal environment. If something goes wrong with your business, it could go through bankruptcy, which would leave all of your assets behind - including those protected by your financial plan! It's important that you have a plan in place if something happens to you, so make sure you're well-prepared!

4. Your business is likely not generating enough revenue to justify hiring an accountant or taking on additional expenses like filing taxes or insurance premiums on its own behalf. This might mean relying on outside sources of funding (like venture capitalists) to help support your operations until things improve - something that a financial planner can help with!

Protect Your Business's Assets - Create a Winning Financial Plan for Your Small Business

Emergencies can come in many forms, such as a major financial loss, a natural disaster, or even a sudden shift in customer demand. In any given situation, your small business will need to create a written financial plan that takes into account both short-term and long-term financial contingencies.

One of the most important steps in preparing for emergencies is knowing your current cash flow. This information can be used to create a rough estimate of your monthly income and future spending needs. Additionally, keep track of your assets and liabilities to help identify any potential problems down the road.

Once you have a good idea of your monthly expenses and assets, its time to start creating your budget. Every business has unique spending needs andmust tailor their budget specifically to their unique circumstances. However, some general tips for budgeting for small businesses include:

1) Use exact numbers when describing your expenses so you can be sure you are not overspending

2) Try to come up with reasonable goals rather than unrealistic ones

3) Make allowances for unexpected costs (e.g., travel costs) by creating budgets that reflect those contingencies

4) Use trailing balances to keep track of past months spending

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6 Financial Planning Tips for Small Business Owners

Scott Strandberg

When starting a small business, it’s easy to find yourself swept up in all the excitement of a first sale or a new customer. After all, your first thoughts probably go to growing your business, building an audience, or developing new products and services that can pad your bottom line. In other words, your small business financial plan may not be at the top of your mind.

However, while these are all integral components of a successful business, small business owners must also wrap their heads around their finances. Financial planning for small business owners may seem complicated, but with a few key insights and helpful software tools, it doesn’t have to be.

The basics of financial planning

What is financial planning in business , and how can you leverage it to boost your bottom line? A financial plan maps your current finances and how you want them to grow. It typically includes information about your company’s income, expenses, balance sheets, investments, insurance, etc.

The more prepared you are for your business future, the more successful you will be. Careful financial planning can reduce surprises and help you pursue actionable financial goals. Though these can vary from business to business, six critical elements of any successful small business financial plan exist.

Set data-driven goals

From expense management tools to time tracking and reporting, you can leverage your existing data to set realistic, achievable goals for your business’s financial health. For example, sales data can help service- or project-driven companies determine how to allocate resources while developing timelines and project estimates.

Time tracking can help you allocate your workforce and develop growth plans for your staff and brand. When setting goals for your business finances , ensure you have the appropriate data to back them up.

Allocate your budget based on specific needs

Too often, small business owners develop their budgets based on feelings and intuition instead of specific, realized needs. Unfortunately, this can mean short-changing particular budgets while inflating others, making it difficult to balance your small business financial plan .

Some of the most significant expenses for many businesses are staffing, taxes, and materials. You should use your existing knowledge and incoming information to allocate these portions of your operating budget more accurately. Then, with more robust budgeting in mind, you’re well on your way to achieving your business finance goals.

Reduce unnecessary costs

One of the most critical components of financial planning for small business owners is cutting unnecessary spending. Which services are your most profitable? Which types of projects are dragging down your bottom line? Through careful financial planning, businesses can streamline their processes and eliminate aspects that aren’t pulling their weight.

You can use time-tracking software to see where you’re overspending on labor and adjust your schedules accordingly. You can also review comprehensive expense management tools and detailed reporting to get more precise insights into where you’re spending too much and where you could save money. Reducing unnecessary costs can help you develop a financial safety net if something goes wrong within your operations.

Understand your projections for the future

Specific projects and careful future planning can help you navigate even the roughest bumps in your small business journey. When planning for your brand’s future, you must consider common budgetary hurdles like growth, expansion into new markets, fresh product releases, and increased staffing needs.

At its simplest, your small business financial plan can include some of your data-driven goals alongside a future timeline by which you aim to hit specific milestones. You can also get more detailed and complex with future projections, including expansion goals, funding opportunities, and market launch plans.

Even if you’re not developing a more aggressive growth plan, you should know what your business could look like in six months, a year, and two years. By setting realistic, firm projections for your brand’s future, you can develop a more robust small business financial plan to help you remain agile as you continue growing.

Develop a recovery plan

Every business goes through the occasional hardships, whether it’s a product launch that didn’t take off or a slow sales period. It’s how these businesses bounce back that matters. In these cases, financial planning for business owners must include an effective recovery plan that details how you’ll power through a slump or retool a lackluster product.

One significant component of any recovery plan includes your approach to risk management. While it’s unlikely that you can develop a business finance plan that addresses every potential risk you may face while running your brand, you can identify some of the largest ones and implement safeguards that will help keep you operating. These tasks include understanding how to navigate loss and theft. You may also want to consider a few cash flow contingencies in case of revenue drops, weaker launches, or other financial shortcomings.

Constantly monitor your time utilization with the right tools

Time-tracking software is one of the easiest ways to see where you are and aren’t meeting your financial benchmarks within your business. Are you overstaffing slow periods and spending far too much on labor costs? Are you understaffing your busiest days, negatively impacting customer satisfaction, and missing out on sales opportunities? While we often think of labor scheduling as a way to overspend, it’s always possible to sell yourself and your employees short.

That’s where well-implemented time-tracking software and business analysis tools can play into financial planning for small businesses . With time-tracking tools, you can more accurately see where you’re spending on labor and compare that to economic data to ensure that money is well-spent. By doing this, you can more thoroughly staff key shifts and reduce coverage on days where it might not be as beneficial to have multiple staff members coordinating operations.

Work with Elorus to make small business financial planning more intuitive.

Ready to take control of your small business financial planning ? Elorus is here to help. Elorus provides all-inclusive business software that encompasses time tracking, reporting, and expense management so you can more clearly spot opportunities and risks within your existing business finances .

In a few quick steps, you can use the Elorus platform to price your services more accurately, develop clear time-tracking metrics, and review business reports that give you more granular insight into your overall performance and financial health. The best part is that you can do this all in one place without paying for piecemeal software tools or disconnected platforms.

If you’re looking to save time and money within your small business without sacrificing data, insights, or performance cues, Elorus has you covered. Sign up for free today to learn more about the Elorus platform and get started. We’ll be happy to guide you through our software and help you understand how we can help streamline financial planning for a small business .

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small company financial plan


4 steps to creating a financial plan for your business

  • Small Business Tips
  • Aug 15, 2023
  • By deependra

In business, just like in life, simply “winging it” on a hope and a prayer may not be the thing to do. Small business owners can benefit from having a plan . After all, prior planning prevents poor performance.

There are some hard truths in business that can benefit any business regardless of industry, such as having a rock-solid financial plan and having a strategy for reducing your exposure to risk , which may include small business insurance .

For small business owners, a carefully considered financial plan or a carefully developed financial checklist can be critical to the success of your small business, which is to say that a financial plan may be a priority for your business.

Creating an effective business financial plan is not always easy, and the blunt reality of the honest numbers in your financial plan can be intimidating. That notwithstanding, writing a financial plan for your small business is an important step for starting or growing your small business.

What is a financial plan?

A financial plan for your business is a snapshot that shows the financial position of your business and its future growth. A small business financial plan is made up of a number of important financial documents.

You may engage a financial planner to help with developing your financial plan, but keep in mind that creating a business plan also includes other elements that are not necessarily related to your business finances. You will also use your financial plan to guide your business decision-making, as well as to apply for a business loan and to attract investors.

The business benefits of financial planning

Now that we’ve defined what is a financial plan, let’s look at why you may consider creating a financial plan for your small business. Well, a financial plan’s main purpose is to help you with business planning. When accurately created a financial plan for business gives business owners an honest and precise overview of their business finances. This can be a big help when it comes to planning the course forward for your small business.

There are several types of financial planning that your small business may consider, including cash flow planning, insurance planning, and tax planning, all of which can contribute in their own way to the long-term success of your business.

Your small business financial plan can help you to achieve your financial goals because it can be used to analyse your business performance, identify ways to cut costs, and even evaluate the viability of introducing new products or services to your offering. It’s beneficial to investors as well, who want to know how your business is performing and its potential for growth.

The essential components of a small business financial plan

When developing a financial plan for your business, there are five key elements to include in your financial checklist that you will benefit from understanding, as listed below.

Profit and loss statement: A profit and loss statement displays your total revenue and cost of goods, as well as all other business expenses. Ultimately, your profit and loss statement shows the net income for your business.

Balance sheet: Your balance sheet lists all of the assets, liabilities, and equity for your business.

Sales forecast: Your sales forecast will help you to project your cash flow for the financial year. This is an accurate estimate of how much you expect to earn and what sales you believe you will make throughout the financial year.

Personnel plan: While a personnel plan may not be relevant for every small business, if you plan on hiring staff for your business, you will benefit from having a clear idea of the costs involved in bringing on employees and what value the employees can bring to your business.

Break-even analysis: When creating your business plan, in simple terms your break-even analysis determines the amount of profit that you need to make to cover all of your business expenses. Accounting systems can be a great way to gather all of this information for your business.

If you operate an existing business, there’s a good chance that you already have all of this information available to you in your accounting system.

Four steps for calculating your profit and loss

Determining your profit and loss can be a great place to begin if you already have a profit and loss report for your small business. It will give you handy information on your income and expenses. This information can be critical if you intend to invest in any form of business planning, as it will help you to identify areas where you may be able to reduce your costs or increase your revenue.

If yours is a brand new business, you will be required to put some time and considered thought into estimating a large number of projected business figures. You will likely know some of your costs, but market research and industry benchmarks can be your friend when it comes to determining your projected profits and losses.

1. Calculate your cash flow projections

Whichever type of financial planning you use in your business, accurately determining your cash flow projections can be a critical factor in financial planning and achieving your financial goals for a small business. However, it is often overlooked. You can benefit from knowing your monthly incomings and expenses when you are creating a cash-flow projection.

Remember to always have enough cash on hand to run your business. You will use money for rent, wages, and other business expenses. You can do this by analysing previous financial years. You’ll have to make some guesses if this is not possible. Allow for late payments of invoices when projecting your cash flow.

2. Stick to a single method of accounting

Cash accounting and accrual accounting are both options for your small business. Accrual accounting is when you record income and expenses as they occur. Cash accounting, on the other hand, is when you record income and expenses only when money changes hands. Cash accounting can be a handy option for smaller businesses that prefer to accurately predict their cash flow.

If your business take pre-orders you may benefit from using the accrual method, which ensures that your expenses and income are matched for specific events, such as a business that promotes concerts. You could sell all of your tickets in June, but the concert may not be held until October. In this scenario, your income and expenses would not line up if you used cash.

3. Balance your accounts

A balance sheet, as mentioned above, shows your assets and liabilities at any given moment. Consider all the assets you own, such as your inventory, materials, and company vehicles. Also carefully look at your liabilities.

You may have unpaid invoices and business loans. You’ll have to estimate the value of assets and liabilities for a new business based on what you require to get up and running.

4. Run a break-even point analysis

The break-even point is perhaps the most important aspect of any business financial plan. It takes into account your profit and expenses and shows how many sales you have to make to cover your costs. It’s important to get this right because if you don’t, your business won’t be able to turn a profit – which is clearly not ideal.

New business owners who are just starting out in business ownership may make the mistake of trying to manipulate their profit and expenses projections in order to arrive at a favorable break-even point. However, honesty is considered the best policy here; it is in business owners’ interests to always be honest regarding profit margins, because otherwise you may find your business in serious financial strife.

Experience small business insurance done better today!

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Explore your business insurance options with BizCover today and discover just how easy buying business insurance can be. Compare competitive business insurance quotes from Australia’s leading insurers online or call the BizCover team on 1300 920 868 and enjoy business insurance done better today.

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How to Conduct Small Business Financial Planning Effectively

September 14, 2023

by Joanne Camarce

small business financial planning

In this post

  • Why is financial planning important for a small business?

How to craft a strong financial plan for your small business

  • Financial planning considerations small businesses make
  • Financial planning tips for small businesses

As a small business owner, financial planning can feel overwhelming.

But financial planning is crucial for small businesses. Not only does it provide you with an entire overview of your financial health, but it helps you figure out how to grow and develop your business as efficiently as possible. 

There are many budgeting and forecasting software for small businesses that can estimate future revenue and expenses by planning the financial resources you need. 

What is small business financial planning?

Small business financial planning is the process of reviewing revenue, turnover, assets, capital, inventory, and anything else concerning a business's financial affairs. It summarizes the financial health of a business and outlines its financial goals for the future. 

Whether it's a long-term investment plan or a short-term plan for revenue growth, your financial plan will be clear as to what your goals are and how you can plan to achieve them. 

In this article, we’ll discuss everything you need to know about financial planning as a small business . We’ll cover what financial planning is, whether you need a financial advisor, and how to create a solid financial plan for your business.

We’ve also got some valuable tips for financial planning as a small business and an overview of a few essential things to bear in mind when creating a financial plan. 

Why is financial planning important for a small business? 

You just finished registering your business through a qualified registered agent . Now, you’ve got a lot on your plate running the actual business, and finance is a complex subject. Here are a few reasons to plan your finances: 

  • Understanding your financial situation: As a small-to-mid-size business, it’s important to have clear oversight of your financial health. With oversight of your finances, you’ll know what resources you have available, what areas of your business are doing well, and what areas need improvement. 
  • Identifying areas of growth: Financial planning is a great way to identify areas of growth. It shows you where you can improve your business and how to spend your money. And as a small business owner, you need to make sure you’re spending your money as efficiently as possible. 
  • Thinking about the long term: Financial planning is the perfect opportunity to think about the long-term growth of your small business. You can create a step-by-step plan to get from where you are now to where you want to be. 

Do you need a financial advisor as a small business owner? 

A financial advisor helps you make informed decisions about what to do with your money and other assets. 

But the question is: do you need one?  In short, no. You don’t need a financial advisor. But there are benefits to using one if you’re running a small business.

These include:

  • Saving time: With a financial advisor taking care of your money, you can spend less time managing your finances and more time running your business.
  • Evaluating market trends: Financial advisors know the industry inside and out. They’re on top of all the latest economic trends that influence the way you run your business. 
  • Saving money: Using a financial advisor isn’t cheap, but it can help you save money in the long run. With such a wide range of industry knowledge, they’ll find ways you can cut costs that you might not have considered.

Even though a financial advisor isn’t a necessity, there are certainly reasons you should think about using one as a small business owner. It might seem like a lot of money to spend, but it’ll save you both time and money. 

Unfortunately, there isn't a one-track system to create a successful financial plan. Every company is different, which means financial plans change from business to business.  But there are some best practices you can follow to make sure your financial plan is as strong and stable as possible. 

Identify any capital required 

First things first, you must identify the capital you need to help your business grow.  Knowing what capital you need helps you plan your finances more efficiently and maximize your resources. 

Not to mention, it allows small business owners to figure out how much they have (in terms of money, resources, and assets) in comparison with what they need. 

So how can you identify the capital you need? First, you need to figure out what capital you already have. This will give you a solid starting point to find the capital you need to get to where you want to be. 

Spend some time reviewing what your business already has, and go from there. Once you know what resources you have available, you can think about what capital you need. 

Create a balance sheet 

A balance sheet reveals your company’s assets, liabilities, and equity. It adds your liabilities (any debt or losses) to your equity (what your business is worth) to determine the value of your assets. 

Here’s an example of a balance sheet in action: 


When combined with other documents, such as an income statement or cash flow statement , small business owners get a pretty clear picture of their financial health.

How can you create a balance sheet? Follow these steps to create your own: 

  • List all your assets along with their current market value
  • Outline all your debts and liabilities
  • Subtract the value of your liabilities from the total value of all your assets

What you’re left with is the equity ( net worth ) of the business. 

To keep things simple, the free balance sheet template is also available.

Produce a cash flow statement 

As a small business owner, it’s important to keep on top of your operating cash flow . 

Having a healthy cash flow is an important part of running a successful business. It gives you a buffer for emergencies, allows you to pay your employees on time, and provides you with the funds you need to run your business. 

To keep track of your cash flow, you need to create a cash flow statement. A cash flow statement is a financial document that summarizes all the cash going in and out of your company. It shows how the company's operations are running, where money is coming from, and how it’s being spent.

Here’s an example: 


With a cash flow statement in place, you can easily measure how well your company manages its cash position. 

Project your future earnings 

Part of the financial planning process involves projecting your future earnings. The most efficient way to do this is to create an earnings forecast. Based on how your company has performed in the past, you make predictions about future earnings over a specific period. 

In other words, you use past data to predict your future earnings.

But how is this useful for a small business? There are a few ways: 

  • Find your future goals: Forecasting helps you figure out where you want your company to be further down the road and map out the journey to get there. 
  • Align your team: When you conduct an earnings forecast, you create a goal for everyone to work toward. By doing this, you align your company to hit certain targets. 
  • Show investors your roadmap: As a small business, you might be thinking about getting investors involved . An earnings forecast outlines the course of your business development, which investors will certainly want to see. 

Financial planning considerations small businesses make 

For your outline, you only need bullet point descriptions of content you plan to write. When it comes to financial planning, there are certain considerations small businesses need to keep in mind that large companies won’t. 

Or if a large corporation needs to take the same consideration, they’ll probably review it from an entirely different perspective. Let’s take a look at some of the financial planning considerations you need to be aware of as a small business owner. 

1. Retirement planning 

We know what you’re thinking. Isn’t retirement planning important for every business, not just small businesses? You’re right. Every business owner should think about retirement planning. But small business owners need to do it sooner rather than later. 

Large corporations have retirement planning and processes in place for employees. But as a small business owner, this job is up to you. 

Here are a couple of things to think about when it comes to retirement planning: 

  • Distribute your finances: Preparing for retirement involves saving, distributing, and investing your money. The most common investments are usually retirement accounts, which allow you to grow your money with tax benefits and interest. If you’re giving away any assets to friends or family, be sure to check whether they are tax deductible . 
  • Create a will or trust: Retirement planning takes life expectancy into account. Having a living will or trust in place will protect your assets in the event of an accident or incapacitation. 

Get your ducks in a row as soon as possible to make sure you can enjoy a long and happy retirement. The sooner you factor it into your financial plan, the more chance you will reach your goal. 

2. Risk management

Every business faces risk. Whether that’s losing market share to a new competitor or taking a hit in product sales, there’s always a possibility things won’t go to plan. 

But the potential loss for a small business can be detrimental if you don’t have a risk management plan. A risk management plan outlines the possible financial issues your business might face and how to mitigate them. This will ensure that you’re prepared for the worst-case scenario. 

And if you’re thinking about getting an investor on board, they’ll be pleased to know you have a plan to tackle any challenges that come your way.

So when it comes to your financial planning, make sure you think about integrating a risk management plan, too. It might seem like a lot of effort, but if things don’t go your way, you’ll be glad to have a plan of action in place. 

3. Tax planning 

No one wants unexpected fines and charges, especially if you’re a small business. A large fine from the authorities could be the difference between a successful year or cutting costs across the company. 

Fortunately, this is where tax planning can help. 

Tax planning involves organizing your finances in the most tax-efficient way. It identifies areas where you can save money and claim money back. It also reduces your likelihood of getting unwanted fines. As a result, you can put more money back into your business. And as a small business, the more money you can invest in your growth, the better. 

If you’re not sure where to start with tax planning, don’t worry. There’s a lot of tax software out there that can help you out. 

Financial planning tips for small businesses 

We’ve covered a lot of ground so far, so let’s wrap things up by looking at four of our most useful financial planning tips for small businesses. 

1. Review your operating expenses 

Operating expenses are costs incurred from your core business operations. For example, the rent you pay for your workspace or your inventory costs.

Taking stock of your operating expenses allows you to identify the cost of running your business, which is vital for financial planning. With this information, you can work out your net profit. This means you can figure out how much money you have leftover after all your expenses are settled. 

And as a small business, keeping on top of your net profit is the key to success. Without an SMB accounting system, you won’t know what money you have available, which could result in overspending. 

If you’re not sure where to start, there are plenty of expense management platforms out there to make the job easier. 

2. Outline your business goals 

Clearly outlining your business goals gives your financial planning direction. When you have company goals in place, you can tailor your financial plan to achieve those goals. 

Imagine your business goal is to increase your annual turnover by 10% within the next year. As a result, your financial plan outlines how you can cut costs on production to offer a lower price to consumers. 

Take a look at the pricing page from ActiveCampaign . This software is entirely online, meaning it can offer services for a very reasonable price. 

Offering a lower price has a higher chance of increasing your conversions and getting a higher annual turnover. 

Make sure you’re clear on what your company goals are before you create a financial plan. By aligning business goals with the financial planning process, you have a higher chance of achieving them. 

3. Consider your funding options 

If you haven’t already, make sure you explore the loans and grants that are available  to small businesses. 

Securing funding can help you reinvest your capital, grow your company, and improve your financial health. The good news is that there’s a variety of funding options out there for small businesses.

Organizations such as the U.S. Small Business Association and the U.S. Government (among others) offer funding options for small businesses. You’ve got nothing to lose by applying, so take a look at what’s out there. 

4. Build your credit score 

If you consider funding or investment, you don’t want poor business credit to be a problem. Investors and shareholders aren’t going to invest in a business with a bad credit score. It could also cause problems with acquisitions and other business transactions further down the road. 

So what can you do to improve your credit score and keep it strong? Pay your bills on time. Don't miss credit card payments. Don't accept any loans with interest rates you can't afford. This will make sure your credit rating stays above the line.

When cents make sense

You’ve now got a pretty solid understanding of small business financial planning and some best practices to follow when creating a financial plan. 

Now it’s time to put all this knowledge into practice.

If you’re worried about taking on this arduous task, don’t be. There are ways to make the process easier to manage. With the right platform, you can streamline the planning process and keep everything stored in one location.

Take a look at the best financial analysis software for small businesses to monitor your financial performance efficiently.

budgeting and forecasting software

Money talks. What's yours saying?

Use the right budgeting and forecasting software for your small business to plan your finances accurately.

Joanne Camarce photo

Joanne Camarce grows and strategizes B2B marketing and PR efforts. She loves slaying outreach campaigns and connecting with brands like G2, Wordstream, Process Street, and others. When she's not wearing her marketing hat, you'll find Joanne admiring Japanese music and art or just being a dog mom.

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