21 Nov, 2017

Startup Business Financial Plan

When planning your startup business one of the most essential steps is creating a financial plan. To make sure you start on the right track you have to do plenty of research. For any entrepreneur who is starting a business the real challenge is preparing financial projections when your company is not actually up and running.

 

Any complete business plan should at least include the following sections:

·         Summary

·         Business Description

·         Products and Services

·         Operational Plan

·         Marketing Plan

·         Management & Organization

·         Startup Expenses & Capitalization

·         Financial Plan

·         Additions

 

First of all, you need to realize that the financial section is not the same as accounting. A lot of people confuse those because many of the included projections look similar, like profit, loss, cash flow and more. Your plan needs to be tailored for specific purposes, such as getting a bank loan and attracting investors, or for specific industries, like retail. It should also reveal when you’re running out of money, how much money you need and it will also enable you to present your vision to your partners, employees and potential funders.

Creating a financial plan can help you identify any weaknesses in your business idea; discover different possibilities that you may not have considered, and decide how you to deal with challenges that are most likely to come up. You can also convince investors or lenders to finance your idea through a well-made business and financial plan.

 

But before we get to more specific information regarding your future financial plan you may want to take our carefully selected tips into consideration. Creating these projections is definitely a journey into the unknown for most entrepreneurs.

 

Perseverance:

Because the majority of the people don’t have a financial background starting a financial plan can seem overwhelming. But time, patience and perseverance are always the key.

 

Research:

When it comes to financials you really need to do the research on your own and find out as much information as possible.

 

Leave no surprises:

Find out everything you can about the whole business plan before you start the financial one. Knowing more will only bring more benefits to the table.

 

Get the help you need:

Because some parts of the financial plan are pretty hard to assembly you should definitely get some help when it comes to putting it all together.

 

There are three major sections that every financial plan should contain:

·         The Starting Balance Sheet

·         The Income Statement

·         The Cash Flow Forecast

 

Now let’s take a closer look at the following slides which present the more detailed structure of what your financial plan will contain. Before you start remember that this represents a great opportunity for you to carefully think through every step of starting your company so you can prepare for success.

1. One of the first things your financial plan should include is a section that contains information on the target market: market size, and the estimation on how much is obtainable by your business. Remember to include what you base the estimations on.

2.  The next step is trying to estimate the starting costs that should include estimate current assets, estimate capital assets and estimate start-up expenses.

3. Starting a balance sheet is definitely the next move. This sheet is one of the three statements your financial plan should include (Cash Flow, Income Statement and Balance Sheet).

The balance sheet has to contain: Total Assets, Planned Investment (Equity), Planned Loans (Liabilities). To be more precise the balance sheet formula is: Assets = Liabilities + Equity. It represents a snap shot of the business at any point in time.

5. Next is the income statement which is one of the most complex parts of the financial plan. It is also probably the most complicated to do. The sheet should have: Start-up Expenses, Forecast Revenue, Forecast Cost of Goods, Forecast Overhead Expenses, Revenue – Expenses = Net Profit

The income statement forecast is crafted to project revenues and expenses over a period of time, most often 6 months or a year. The three things you’ll need to determine are the sales projection, the cost of goods projection and the overhead projection.

 

The estimate of your expenses for the year is represented by the overhead expenses forecast. These expenses usually include: advertising and promotion, insurance, financial charges, automobile, communication, office supplies, travel and accommodations, professional fees and more.

6. The last of the three statements that your plan should include is the cash flow forecast which is the most important financial tool for your startup business. It is a 12 month projection of the receipts and disbursements. It also shows you how cash is expected to flow in and out of your business.

The cash flow projection should predict if or when you won’t have enough money to run your business. Through this forecast you’ll be able to make changes before the problems actually occur.

Make sure you check out different income statements online to get a better idea of how it should look.

Unfortunately, most entrepreneurs make a cash flow in their heads and miss the important point of having an actual forecast. These are only a few of the advantages:

·         Cash management ability

·         A clear schedule for receipts

·         A prioritized schedule for the payment of accounts

·         An approximate sum of money that you need to borrow for your day-to-day operations

·         A safety net for unexpected changes

·         Proof to show your investor that you have the money to make the payments on time.

 

If you’ve successfully created your financial plan the best thing to do is to re-examine your business concept after thoroughly analyzing your final plan. You may realize that there’s need for a few changes or maybe there won’t be, but you know how they say, better safe than sorry.

Handling financial matters is quite difficult for most entrepreneurs so don’t shy away when it comes to getting some help from professionals like accountants or consultants.

 

Always remember that financial plans are essential when it comes to starting and growing your business. Never be negligent with this aspect of running your company. In order to be able to anticipate your problems before they arise you need to check your plan on a monthly basis.