We’ve been talking a lot about business planning to help your business get ready. In case you missed part one or two of our series, we’ve already covered Getting Started with your Business Plan, and Writing your Business Plan. This time, we’ll be talking about the financials, and all the necessary steps you should be taking to ensure that your 2016 is both successful.. Let’s get started.
The Foundation of a Financial Plan
First of all, let’s talk about all of the key components that make up a successful financial plan. The first element you’ll want to include is a profit and loss statement, which should cover (in detail, with accurate numbers) any way that your business acquires profit or incurs loss. This should include your revenue, your expenses, and the gross margin in between. You should also include a cash flow statement, which is equally as important as your profit and loss statement, that includes how much cash you have, where your cash comes from and will be going, and the schedule for your finances. You’ll also want to include a balance sheet in your financial plan, which should consist of assets, liabilities, and equity. The last thing you’ll need is a sales forecast; let’s go into further detail. We suggest setting up your sales forecast in the form of a chart, graph, or table with accurate numbers, but you’re not finished there. It’s critical that your team understands your sales forecast, so meet with your staff and make sure everyone is on the same page.
Planning Ahead on Sales
Sales are important, because without sales, your company would be nothing. Your sales forecast is a crucial key to your financial plan, because it sets a precedent on where you overextend your financial reach. It can also help you establish healthy expense limits for your business. Your sales forecast should include a month-to-month rough estimation of where sales will be, and should be reviewed regularly throughout the year to see if you are hitting your financial goals. Also, remember not to confuse revenue with profits, because you’ll be setting yourself up for failure in the long run. If you only look at what money you make, and not what money you need for expenditures, then you’ll fall short going into your next quarter.
Avoiding Common Mistakes
Let’s talk about a few common mistakes that you’ll want to avoid in order to ensure your financial plan’s success. First things first, do not put off your financial plan. If you wait until the last minute, you won’t have enough time. Similarly, don’t be too casual when it comes to determining cash flow. Understanding your cash flow is a crucial step in the process, so make sure you consider all aspects of your cash flow when crafting your plan. Another thing you’ll need to keep in mind is that your goals should be clear and detailed. If you leave your goals open ended, you won’t accomplish much, trust us. Other than that, be sure to always keep your priorities in front of you, and use your plan to your advantage because it’s there to help. Remember, no matter how well you plan ahead, you’re never 100% protected unless you have a secure business insurance policy in place. For all of your commercial insurance needs, please feel free to give any of our professional agents a call at any time!