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Developing a solid financial plan is vital and great for your business, but it can be the most challenging task. Without one, you will find it challenging to make sound decisions that affect your business’s future success. Companies with a comprehensive financial plan are better prepared to pitch to investors and lenders who give them small business funding.
A solid and proper financial plan makes receiving funding more accessible and achieving long-term success. This article discusses some vital ideas for developing a financial plan that meets your small business needs. You will also find some key components to add to your loan and financing options.
Start by Evaluating Your Financial Situation
To develop a successful financial business plan, you need to evaluate your numbers. Here are some steps to assessing your financial situation:
- Determine your net worth and its trend: Finding your net worth is a common way. Just subtract the value of your assets from your liabilities.
- Calculate your debt-to-income ratio: Next, focus on your income and calculate your debt-to-income percentage. Do this by taking your total debt payments and dividing them by your monthly gross income.
- Where’s your money going to?: You need to be aware of where every penny comes from and goes to in your small business. Begin keeping a budget.
- Set financial goals: Where do you want to be at the year’s end or in five or ten years? Write your answer down on paper and work towards being more financially accountable.
Steps to Develop a Successful Financial Business Plan
A successful business plan can help steer your business in the right direction. These steps we’ve compiled here should guide you in creating a successful financial business plan:
- Review your strategic plan: At the beginning of any financial project, you should review your business’s plan. You need to think about what you hope to accomplish. Your financial business plan should contain a personnel plan, profit and loss statement, balance sheet, cash flow statement, business ratio, and break-even analysis.
- Come up with financial projections: You need to develop monthly financial projections by recording sales forecast, expected labor, overhead, and supplies’ expenses. Also, prepare projected income statements and balance sheet projections.
- Determine financing needs: Use the financial projections you come up with to determine your financing needs. Well-prepared points will make it easier to secure small business loans.
- Make contingency plans: Unforeseen circumstances occur in business a lot. You need to be prepared for them by emergency finances like keeping room on your line of credit or a cash reserve.
- Monitor, evaluate, and compare goals: Observe your actual results in your income projections, cash flow statement, and business ratios.
Research Different Types of Loans and Financing Options Available to Small Businesses
There are much small business funding, financing options, and loans available to small businesses that you can utilize. Entrepreneurs use several methods to gain access to capital for their small businesses and personal savings. External financing falls into two major categories:
- Equity Financing: Equity financing is the funding given in exchange for future profits or partial business ownership.
- Debt Financing: Debt financing is business funding that businesses must repay with interest.
Government agencies and non-profits sometimes offer grants to small businesses. Funding availability largely depends on how mature or established a company is. Financing a start-up is more challenging because there are no business records, making it easier to attract equity financing than debt financing. Growing businesses will find funding easier because they already exist and have financial statements to back them up.
Track Your Progress and Make Adjustments
There’s a need to track the progress of your financial plan. Keep the positive momentum going and build future wealth and investment funds if you’re on track. If you’re not on your way, you should consider making a better budget to increase your savings, work towards improving your credit score, and pay off debt. Review your assets and liabilities from time to time.
Conclusion
Long-term business success depends on preparation and planning, and the key to such practice is a solid financial plan. Such a plan helps you pitch to investors, predict cash flow, and anticipate business growth. Remember that small business funding is available to small businesses if you need it.
