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. Statements Your small business financial plan should include four standard forms that attached documents support.
Because planning involves looking well into the future, it is a highly creative finance business planning process as well as an analytical one.
Benefits Companies that make a concerted effort at financial planning can grow their revenues at a more accelerated pace than organizations that have an inefficient planning process.
Financial planning provides the numerical logic for decision making. It shows where the business should concentrate its resources for maximum effectiveness in building revenues and managing costs. Efficient financial management allows more funds to be available for marketing, expanding operations and product development, which in turn brings about more growth.
Considerations Strategic planning determines the course of action the company will take: Financial planning takes the actions described in the strategic plan and converts them into dollars.
The financial plan shows the revenues projected to result from the implementation of the strategies and the expenses required to implement the action steps. Senior management and marketing and operations personnel are heavily involved in the strategic planning process.
Their efforts must be coordinated with those of the financial staff in charge of preparing the financial plan. Significance Financial planning in business requires proficiency in using spreadsheet software. Even in smaller companies, the financial models created to predict future revenues can be complex.
Research and data gathering skills are also important. The accuracy of the financial plan depends on the quality of information used in the assumptions for the financial models.
Creating realistic assumptions for key variables such as projected unit sales and pricing is critical. Time Frame A business should prepare a financial plan once a year. This will include developing a forecast profit-and-loss statement for each of the next 12 months.
Some businesses also prepare a long-range financial plan for as long as five years in the future. The long-range plan is useful for companies whose product development plans require a long time to complete. Potential Each month, actual financial results are compared to the numbers in the forecast, and efforts are made to identify and analyze significant variances.
These variances may require an adjustment in strategy to get the enterprise back on track toward its revenue and profit goals.
Variance analysis shows when the competitive environment has changed significantly from what the company expected.
Changes in cost factors can also cause significant variances. For example, the negative effects of increases in the costs of fuel can be severe for some businesses. Many start-up companies face the additional problem of having a business model that has not been tried before, so there is little data available on which to base the financial plan.
References 1 Small Business Administration:Business-planning tools and information from the maker of the Business Plan Pro software. U.S.
Small Business Administration Government-sponsored website aiding small and midsize businesses. The Income Statement is one of the three financial statements that you need to include in the Financial Plan section of the business plan.
The Income Statement shows your revenues, expenses, and profit for a particular period. 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.
The financial part of a business plan includes various financial statements that show where your company currently stands and where it expects to be in the near future. This information helps you.
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Finance is the major factor for any business setup. A financial business plan is one that is made by a financial advisor appointed by the business firm. Such a plan can be helpful in the income, balance sheet or the cash inflow and outflow of the business.