How to make a financial plan for a business
By Parasolla | Updated on Sep 15, 2022
How to make a financial plan for a business
Making a professional financial plan is an important factor to run your business and manage your money in the right way. Also, having a financial plan is essential to avoid a potential crisis in the future.
In this article, we are going to teach you how to make a financial plan for your business in 7 steps.
1. Calculate launching costs
Before starting your business, you should calculate all the costs of launching your project. This will help you understand the potential costs you must pay. In addition, you will analyze your situation if you have enough funds to run your business.
So, the first paragraph you should consider is the start-up costs. These costs should include every financial detail related to your business from the beginning until you make your first few sales.
However, launching costs are different from one business to another and there is no constant formula to make it but you are recommended to make research the market situation and what your business needs. In this way, you can make a professional plan for your project costs.
2. Consider the potential profits and losses
Starting a business does not mean it will be profitable. Some entrepreneurs spend millions to run a business and, in the end, their business fails!
So, when you make your financial plan, you should consider the good and bad aspects. As a result, you need to include the potential profits and losses.
In this way, you will be able to know the potential profits that will flow into your business budget. Also, you will be prepared to rescue your business if it failed as you have a plan for the financial losses.
In general, to calculate the potential profits and losses, you should discuss the following two cases:
1. The profits: If everything worked in the right way depending on the financial plan you prepared.
2. The losses: If you had unexpected problems when you try to run your business. For example, you have a factory to produce a kind of food and one of the expensive machines broke down. So, you should make a strategy to solve this kind of loss such as allocating money for fixing the machines.
3. Prepare the balance sheet
The balance sheet is a financial statement used to track business finance and know their value within a specific period.
So, when you make a financial plan, you should make a balance sheet to know your business value. The balance sheet should include the following main items:
1. Current assets: It refers to the assets that can be converted easily to money. Such as inventory, and cash.
2. Fixed assets: These refer to the properties that you can’t transfer easily to money.
In this way, you will be able to know the value of your company in the market. Also, you can use the balance sheet to assess your company’s financial health.
4. Manage your cash-flow
The cash flow is the money that is transferred in and out of a company. And it can be cash or current or fixed asset.
When you make a financial plan for your project, you should consider the potential cash flow as it is one of the most important aspects to monitor your financial situation.
To manage your business cash flow, you should monitor and calculate all the cash and cash equivalents that are transferred in and out of your company. Depending on that you can analyze your business financial situation.
For example, if you sell your products to the suppliers in the market and you don’t get cash immediately, you lose the balance in your budget because you spend money to produce your products but you don’t get money when you sell them.
5. Allocate money for the financial crisis
Another aspect you need to consider when you make your financial plan is allocating money for emergencies. There is no financial plan in the world that can protect your business from all the risks.
So, you should allocate a budget to use when you have unexpected problems. The appropriate amount of money you should use for these cases is different from one business to another depending on the business type and its requirements in the market.
6. Develop your financial plan
Creating a primary financial plan doesn’t mean that you should leave it without changes forever. It is the opposite, you should keep analyzing the results and develop your financial plan to improve the results.
To do that, you should monitor the default financial numbers you used to make your plan and compare it with the final results. After that, you can know what mistakes you have and how you can improve your plan to get a better financial plan.
7. Consult a financial advisor
If you found some challenges when you make your financial plan, you can ask for help from an expert person to give you advice and provide you with some professional financial tips.
Also, He can plan or recommend specific procedures to improve your products to meet the needs of their clients and increase your profits. All of these procedures will help you to build a better financial plan.
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