Your business plan outlines your company’s objectives and the strategies you will implement to make them happen. It’s not simply a document that you show to your bank manager, it’s the very essence of the way that your brand operates and evolves. That’s why business plans have quite a few sections that need to be covered, including an executive summary, company description, market analysis and competitive analysis, as well as explanations of how management, staffing, marketing, sales and funding will work in line with projections.
When it comes to the financial side, there’s a lot that has to be included. We’ve put together some tips so that you don’t miss anything out, or you could even apply them to an existing business plan to make your daily operations run more smoothly.
Create a spreadsheet that clearly gives your projected sales over the next three years. There should be individual columns for the first twelve months and then it can either be monthly or quarterly for years two and three.
Likewise, different types of sales should be segmented into rows, such as a marketing agency separating graphic design income from revenue made through social media management, or a shop listing all of its products and estimating gross sales of each on a monthly basis.
In the same way that you forecast money that will come in, you should do the same for all outgoings. Everything needs to be included, from large regular costs such as rent, wages and the purchasing of stock, to utility bills, software, transportation, insurance, and anything else your company needs to buy in order to run.
It’s also a good idea to split these into fixed costs (rent, payroll, bills) and variable costs (advertising, events, entertaining), as the variables can always work around the fixed.
A cash flow statement represents money moving in and out of your business, which needs to take into account the possibility of late payments and unexpected costs. If you expect every penny owed to land in your account on time, prepare to be in for a surprise – that’s why a realistic cash flow will help to prevent your business stumbling as a result of insufficient funds.
It can be hard to estimate how much income will flow into your new business, but by using the information from your projected sales, expenses and cash flow, you can come up with a practical forecast.
The easy way to work things out is that sales minus cost of sales is gross margin, and gross margin minus expenses and taxes is net profit. Working out these figures can greatly clarify your overall business plan and will likely result in the further fine-tuning of your overall strategy.
Assets and liabilities
Many of the costs revolving around assets will only apply when first setting up a business, such as purchasing furniture, equipment, technology and anything else that’s integral to getting started. Liabilities include bills payable, outstanding expenses, bank overdrafts and loans, which are usually short term and are necessary for the founding of your company.
It may sound blatantly obvious, but a business needs to make more money than it’s spending in order to be viable. However, this very rarely happens within the first year and sometimes takes two years or more. The key is to work out when you think your business will break even – the longer it takes, the smaller the chances of it being sustainable in the long run.
Get in touch
We hope that these tips have made things clearer and boosted your confidence in how to write and develop a financial business plan. If you’d like to find out how we support start-ups, give us a call on 01482 235575 or use our contact form and share your vision with us.