A financial plan proves to be essential as you go about running a business or even try to plan out personal finances. If you have a financial plan template ready for you, then planning becomes much easier for you. But why should you be creating a professional financial plan, why is it necessary for your business, and how do you create one? Here, you will understand all you need to know about creating a professional financial plan for your business.
Before moving on to the “how,” let’s look at “what” a financial plan template is. Essentially, your financial plan helps you figure out your financial goals for you. By creating estimates for every possible expense and revenue, you’re able to ensure your financial position in the future.
Your financial plan template will depict all your possible inflows and outflows for the current and future years. It is perhaps one of the essential elements of your business plan. But what does it help you achieve? Well, your financial plan template comes with a range of benefits for your business. Let’s see some of the benefits it offers.
These are the main reasons why your financial plan template is highly essential for you. Once you have your financial plan template set, you will understand how easy it is to create a business budget. In case you’re unaware of what entails in a financial plan template, then stay tuned to know all there is about one.
Here, we will discuss all the essential parts that are included in a financial plan template. These are the main components that every business includes in its financial planning or their financial plan template.
As you go about creating your plans, you will know about the various types of costs you have to incur. Let’s put all of these costs in broader categories of startup costs and operating costs.
When it comes to the startup costs, these are all the expenses you incur as you go about setting up your business. If you’re a startup or plan to establish a business, you will need to assess all the expenses you will have to deal with to start your business. So, what do these costs include? Let’s take a look.
Your startup costs will surely be more or less similar to the ones mentioned here, depending on your business. Every business incurs startup costs, so you will have to make sure that you plan them properly.
The other type of costs that you will have to consider is the operating expenses. These occur once you start running your business, and you have expenses building up. You cannot get rid of these costs either as they are a part of your business. So, the ultimate solution for this is to plan them out in your financial plan template. So, what do these costs include?
The list for operating expenses goes on and on, depending on your usage of various elements. For instance, the more utilities you use, the more your utility expense will be. So, planning it all out beforehand will in your financial plan template be ideal as it will give you a real picture of what your expenses will be.
Next, you will be creating your income statement to figure out the profitability of your business. Every business has a profitability goal set, and as you go about creating your financial plan template, you will understand how you can achieve this.
The income statement will comprise of revenue, revenue growth over the years, all the expenses, and your profit or loss for the time frame. It will depict whether the decisions you plan on making will result in profits for your business or losses. Your financial plan template’s income statement is one of the key statements that you will have to create.
A core part of the financial plan template is the cash flow projections. These will show you how much money is coming in and going out of your business. Liquidity is highly essential for every business. Through your projections, you will figure out what the cash situation for your business will look like over the years.
Your cash flow projections help you manage your liquidity better. Since you get a clear picture of your expenses, you will understand which ones you can minimize easily. Moreover, this will help you realize whether you’re overspending on irrelevant items.
Sometimes, with limited cash inflow, you will have to take on more investment to increase the business’s flow of money. You can only do this once your financial plan includes an appropriate cash flow projection for the business.
Lastly, one of the main parts of a financial plan template includes the balance sheet. It helps you understand what your business value is over a certain time frame. For instance, if you create a financial plan template for five years, you get an idea of how your business will be valued at the end of the five years.
A balance sheet is also investor-oriented as you get to display your business’s worth through this. It shows you and any potential investor how many assets, liabilities, and the equity distribution of your business for a specific period.
Now, when it comes to creating a financial plan template, it’s not entirely easy. So, here are some tips to help you understand how to create a financial plan template.
One of the main things you can do for your financial model is to make sure that you know your starting expenses. There’s no way that you can avoid these. So, you should consider them beforehand and create your financial plans based on these values.
It will give your financial plan a more realistic approach as well. Do your research for this and figure out all the expenses you will incur as you start your business.
Don’t always focus on measuring your profits. Your financial plan should depict a true picture of your business, not an overly exaggerated one. So, create your financial statements using different periodicities to get into the details of profit margins and revenue growth.
Another key aspect that will help you come up with good forecasts are making use of industry data. Conduct your market researches and figure out how your business stands amongst the competition in the industry.
Cash is essential for every business. So, when you’re creating your financial plan template, you need to ensure that your cash flow projections are as realistic as possible. You need to ensure that you know how much money is in the business at the end of a time frame.
If your projections are inaccurate, you might be left with no money in your business, and you wouldn’t know how to go about the shortage of funds. With an accurate cash flow projection, you will know how short of funds you will be and how much financing the business requires to meet the shortage.
Now, you want to ensure that you have a list of all the assets and liabilities that your business will have. It will help you realize where your business stands after the number of years you have created the financial plan.
Once you have forecasted your balance sheet, you will understand whether the business idea that you’re planning on implementing works in your favor or not. Doing so is highly crucial for you to develop an accurate financial plan template.
As you go about starting your business, you must know where you will breakeven. Don’t go on to starting your business with no financial plan in place. Otherwise, you will be going through a range of difficulties when it comes to trying to meet your costs.
The breakeven point will help you assess how much sales you need to make to cover all your expenses for your business. Ensure that you try not to overlook this as it is essential for you to understand if your business will be profitable or not in the future.
A few other things that you can take note of include doing tons of research to get your data for forecasting. The more in-depth you go with your research, the more realistic your financial plan template will become. It will help you create better forecasting of your financial statements as well.
Creating a financial plan template is no easy task. You want to have a professional on board to create this for you. We, at Oak Business Consultants, are experts in providing impeccable financial plan templates. Visit our website at Oak Business Consultants and get a free consultation.