If you’re like most small business owners, you probably wear a lot of hats. You’re the CEO, the marketing manager, the salesperson, and the accountant. It can be tough to find time to focus on your finances when you’re trying to run your business. That’s why hiring certified practising accountants can be the help you need. But making sure you’re taking part in writing a solid financial plan in place is a must for your business. With this plan, you know the roadmap for your business, setting the goals and how you intend to achieve them. In writing a successful financial plan, there are main components that you need to keep in mind. Here we highlight some of them.
Statement of Financial Position
The Statement of Financial Position is also known as a balance sheet. This statement will provide an overview of your assets, liabilities, and net worth at the beginning and end of any given financial period. When creating this portion of your plan, you’ll want to include current assets such as cash, accounts receivable, inventory, or investments; long-term assets such as real estate and equipment; liabilities such as accounts payable, payroll tax, or loan payments; and equity, which is the difference between your assets and liabilities.
Cash Flow Projection
Did you know that cash flow is one of the most important aspects of a business? Without it, you can’t pay employees or suppliers. To ensure your cash flow remains strong, this portion of your plan should include projections for sales, cost of goods sold, operating expenses, and capital expenditures for the upcoming year. Use historical data (as far back as you have it) to help you forecast those numbers. As your business changes, so should your projections.
Break-Even Analysis
In a small business, it’s essential to know when you’ve reached the break-even point. This section of your financial plan should calculate fixed costs, such as rent, salaries, and insurance; variable costs, such as cost of goods sold, shipping, and packaging supplies; and income, such as sales. Once you have those numbers in place, use them to identify when your revenue covers those expenses.
Sales Forecasting
No matter the size of your business, forecasting sales is an important part of a successful financial plan. This section should include projections for how much you expect to sell and what type of products/services will be sold. It can also include any discounts or special promotions that you’ll be offering on those items. Knowing this information ahead of time will help you to determine a budget for marketing and advertising. Though there are two other elements, expense outlays and operations plan, these four components are the main foundation for a solid financial plan.
Get started on yours today to start seeing results for your business. With clear goals and strategies, you’ll be able to measure and track progress to make changes or adjust accordingly as needed.