Starting a new business is always a challenging but exciting time. We’ve compiled a few tips to help you create a foolproof financial plan for your new business.
Why is a financial plan so important?
It is essential that your business plan includes a financial section, as this will help keep your business on track while providing essential information for bankers, or other potential supporters. A financial plan is different from accounting, which looks back on your financial situation; a strong financial plan will look forward to the future.
Calculate your start up costs
Start up costs often include one-off payments that need to be predicted and accounted for. This includes non-optional things such as a business licence, as well as furnishings and new equipment for your business. This could also include marketing materials for initial business promotion. It is essential that you predict these initial costs to prevent any surprises that could stop your business getting off the ground.
Account for monthly expenses
Once your business is up and running, you need to be accounting for all your monthly expenses, allowing you to build up a monthly average from which you can make more accurate predictions in the future. This includes everything from employees’ salaries to new supplies. It is unlikely that initially, sales revenues will not cover these costs, and you should ensure you have a 3-6 month financial cushion.
Redo your financial plan annually
At the start of each year, you should be setting new goals and creating new strategies for your business. This is a good time to stop and consider the direction you want your business to be heading in. If you meet these goals early, set new ones to push your business constantly.
Alongside your business plan, you need to regularly update your financial plan to help you keep on top of things as your business expands. Each new strategy should be followed with a cost estimate, using your finance history as a guide, including ‘what-if’ costs to ensure you have finances to fall back on.
You should also be preparing for situations that could cause cash shortages such as seasonal fluctuations in revenues as well as forecasting costs for business upgrades. This could include the cost of new equipment and staff. You should account for competition, listed by Forbes as one of the most important things to remember when creating a business plan.
A financial plan should be broken into months to allow for more accurate predictions. You need to show where you currently stand alongside you financial predictions for the future, helping others determine if you’re worth investing in. You could outline your predictions for your business for the next 3-5 years, based on your existing financial situation.
Consult a professional
We hope you have found our advice useful and understand just how important it is to have a successful financial plan. For more personal advice, it is strongly advised that you consult a professional. Consult a financial planning specialist, such as Partridge Muir & Warren, so that you can receive the appropriate planning advice to get your new business venture off on the right foot.
There you have it – everything you need to know about planning for your new venture. Whether this is your first business, or you’re a seasoned professional, good luck!