Starting a new business can be exciting and challenging at the same time. One of the essential steps in setting up a new business is to create a financial plan. A well-crafted financial plan can help you manage your finances, set realistic goals, and keep your business on track. In this article, we will discuss the steps to create a financial plan for your new business.
1. Seek Professional Assistance
Creating a financial plan can be a daunting task, especially if you’re new to entrepreneurship. Seeking the assistance of a financial planner can be beneficial. A financial planner like Milestone Financial can provide you with the knowledge and expertise needed to create a financial plan that is tailored to your business’s specific needs. They can help you set financial goals, create a budget, and develop a cash flow projection. A good financial planner will ask questions about your current situation and goals and then work with you to create a plan that takes into account all of these factors. For example, if your goal is to open up a restaurant in five years, but right now all of your savings are going towards paying off student loans or buying equipment for your new business, then those things may need to be dealt with before they can be addressed in any other way.
2. Determine Your Start-Up Costs
Finding out your start-up costs is the first step in developing a financial plan. These costs include everything from legal fees, office space, equipment, inventory, and marketing expenses. Start-up costs can be divided into two categories: fixed and variable. Fixed costs are those that do not change with production or sales volume. Examples include rent, insurance, and utilities. Variable costs are those that vary with production or sales volume. Examples include materials used to produce products or services, labour costs associated with producing products or services, and shipping fees for delivering products or services to customers. By accurately estimating your start-up costs, you can create a budget and secure funding if necessary.
3. Develop a Cash Flow Projection
A cash flow projection is an essential part of any financial plan. It is a forecast of your business’s cash inflows and outflows over a specific period, such as a month or a year. To create the forecast, start by calculating the amount of sales revenue you expect from your business over the next year. Next, subtract the cost of goods sold from that number to get your gross profit margin percentage. Then multiply this number by 12 months to arrive at your annual sales revenue projection. This amount should be added to any other income streams related to your business (such as interest income or rental income) before subtracting all costs associated with running the business (including taxes and depreciation). The difference between these two numbers will give you an idea of how much cash flow you’ll receive each month after paying expenses and taxes. By developing a cash flow projection, you can identify potential cash flow problems and make informed decisions to ensure that your business remains financially stable.
4. Determine Your Revenue Streams
To create a financial plan, you need to identify your revenue streams. These are the different ways in which your business generates income, such as selling products or services. For example, you may have developed a system for selling products online that’s more efficient than what other companies are doing. If this is the case, you could offer your services as an outsourced solution for other companies who want to streamline their sales process. In this case, both parties would benefit from the relationship: you’d receive payment for your services, and the company would get access to a more effective way of selling its products online. By understanding your revenue streams, you can set financial goals and make informed decisions to grow your business.
5. Develop a Budget
Creating a budget is a critical step in creating a financial plan. A budget is a financial plan that outlines your business’s projected revenue and expenses over a specific period. By developing a budget, you can allocate funds to various areas of your business, such as marketing, salaries, and operations. This can help you make informed decisions about how to spend your money and ensure that you stay within your financial means.
6. Keep Detailed Financial Records
Maintaining detailed financial records is critical to creating a successful financial plan. Accurate and up-to-date financial records can help you monitor your business’s financial health, identify areas of improvement, and make informed decisions. Here are some steps you can take to ensure that you have everything you need:
- Create an accounting system that makes sense for your business. This might mean using Excel spreadsheets or something more complex.
- Set up separate accounts for each category of income and expense (for example, one for rent, and one for salaries).
- Be sure to keep good records of all transactions, this includes making sure that purchases are recorded and categorized correctly.
- Maintain a separate set of books and records for tax purposes.
This can also help you with tax planning and ensure that you remain compliant with legal requirements.
7. Regularly Review and Adjust Your Financial Plan
A financial plan is not a one-time task; it needs to be regularly reviewed and adjusted. As your business grows and evolves, your financial plan needs to evolve as well. Regularly reviewing your financial plan can help you identify potential problems, adjust your budget, and set new financial goals.
Creating a financial plan is an essential step in setting up a new business. By determining your start-up costs, developing a cash flow projection, identifying your revenue streams, creating a budget, seeking professional assistance, keeping detailed financial records, and regularly reviewing and adjusting your financial plan, you can set your business up for success. If you’re unsure about how to create a financial plan, consider seeking the assistance of a financial planner. By following these steps and remaining vigilant about your business’s financial health, you can achieve your financial goals and grow your business with confidence.