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Create Your Company Financial Plan in 6 Steps

A financial plan differs from financial statements.

Instead of looking at the past, you project what will happen in the future, forecasting income and expenses. Projections can be used as an early warning system to help you plan for cash flow dips and identify financing requirements.

You can also use it to monitor your finances. This will allow you to quickly assess your progress and avoid any problems. These are the six steps you need to make your financial plan.

Read: Why 90% of startups fail and how to become profitable

1. Reexamine your strategic plan

Financial planning should begin with the company’s strategic plans. Consider what you want to achieve at the beginning of each year. Ask yourself these questions:

  • What do I need to expand?
  • Do I require more equipment?
  • Do I need more staff?
  • Are there other resources I can use?
  • What will my plan do to my cash flow?
  • Do I need financing? What amount?

Next, calculate the financial impact over the next 12 months, including spending on a major project.

Read: 9 important steps to create your business plan

2. Make financial projections

You can create monthly financial forecasts by recording sales forecasts and expected expenses for labor, supplies, overhead, etc. Now add the costs of the projects that you have identified in step 1.

You can either use simple spreadsheet software or other tools in your accounting program. Do not assume that sales will immediately convert to cash. You should only enter them as cash if you anticipate getting paid based on previous experience.

Prepare a projection of income (profit or loss) and a balance sheet projection. You can include multiple scenarios, including optimistic, pessimistic, and most likely. This will help you anticipate the impact of each scenario on your projections.

Your accountant may be able to help you with your cash flow projections. As your banker or investor will need financing, it is you who must discuss the plan with your accountant.

6 steps to create your company’s financial plan

3. Arrange to finance

Your financial projections can be used to calculate your financing requirements. Talk to your financial partners before you leave for work to discuss your options. Bankers will be more confident in their financial management if they have well-prepared projections.

4. Prepare for contingencies

What would you do in the event that your finances suddenly went downhill? It is a smart idea to have an emergency fund of money in case you are in need. There are two options: keep a large cash reserve and have lots of credit available.

5. Monitor

Compare your actual results to your projections throughout the year to determine if they are on track or need to be adjusted. Financial problems can be detected early on by monitoring.

6. Get help

Consider hiring an expert to assist you in putting together your financial plan if you are not a financial expert.

Get our free financial planning template and start creating your financial plan today.

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