Next to your marketing plan, your financial plan is one of the most important parts of your entire business plan. If you don’t monitor your business’ cash flow, you are bound to run into financial hardship that can result in your business failing.
A financial plan seems a little tricky for some, but that’s only because it is the possibly the most serious part of the business plan. It takes a lot of time and focus to make one, but once you get started on it, it will become much easier and you will be glad you did it.
1. Record all your expenses on a balance sheet. This includes rent, utility bills, marketing tools, product supplies, employee salaries, etc. Put down all the expenses you have–including debts that you may have not paid off yet. These are still your expenses because they must be paid. Record what it costs you on a weekly to monthly basis to pay off these expenses. When you see exactly where your money is going, you will be extra careful of how you spend it every month. Keep all the information organized so that you can easily access all your expenses month to month.
2. Break even. Now that you know how much money you are dishing out, you must find out what your break even point is. This is when the amount you have profited (from your sales) and lost (your expenses) is equal. Knowing your break even point is essential to figuring your profit margin.
3. Pay off debts. Look at your balancing sheet. You should now have clear data on all the money you owe. An easy way to free up money to pay off debts is to reduce your expenses. You can do this by shopping around for your business equipment. You will need to get all of your business equipment at the lowest price (but good quality). Even after your business is going well, you will still want to be as frugal as necessary. Do research and price comparisons on the items you need for your business. An article that can help you out with this is How to Cut Costs & Balance Your Budget: Money Management for Small Businesses .
4. Set a budget. For now on, your company must have a set rate for what you will spend on your expenses. This is the best way to save money and keep your business from going into debt. It is the most logical thing to do once you have paid off your old debts. Get together with your team and decide what your company is overspending on. Most likely there are at least one or two areas that can be reduced in cost. But remember: after you have set a budget, you must stick to it.
5. Keep your cash flowing. You can get loans, grants, or investors to help fund your business or you can rely strictly upon your profits? Before you accept loans, remember that loans have to be paid back regardless of your business success or failure. So always accept loans wisely. If you are going to rely solely on profits, then you must have a great marketing plan. You can get tips for that from How to Write a Marketing Plan . Get together with your team and brainstorm strategies to increase sales , then record it in your marketing section.
6. Distribute your money wisely. Now it’s time to decide what expenses will get paid first, second, and so on. Every time your business brings in money, you must always know what the money will be used for.
7. Who will be responsible for managing this money? Find someone who is trustworthy and good with money to handle the finances and the tracking of it. There can be a team of people to do this so that all the responsibility won’t be on one person. And if your business is large enough and you have the funds, you can hire an accountant to take care of all of this.
As you can see, doing a financial plan requires a lot of time and bookkeeping. But I assure you that it’s best to have a financial plan in business. It really helps to keep track of your cash flow and expenses. If you don’t track and record this important information, it may affect your business negatively. But with these tips, I hope you can get a hold of your business finances and become as successful as you desire to be. Good luck.