FINANCIAL PLAN

Financial planning is the task of determining how a business will afford to achieve its
strategic goals and objectives. Usually, a company creates a Financial Plan immediately after
the vision and objectives have been set. The Financial Plan describes each of the activities,
resources, equipment and materials that are needed to achieve these objectives, as well as the
timeframes involved.
The Financial Planning activity involves the following tasks:

 Assess the business environment

 Confirm the business vision and objectives
 Identify the types of resources needed to achieve these objectives
 Quantify the amount of resource (labor, equipment, materials)
 Calculate the total cost of each type of resource
 Summarize the costs to create a budget
 Identify any risks and issues with the budget set.
Performing Financial Planning is critical to the success of any organization. It provides the
Business Plan with rigor, by confirming that the objectives set are achievable from a financial
point of view. It also helps the CEO to set financial targets for the organization, and reward staff
for meeting objectives within the budget set.
The role of financial planning includes three categories:

1. Strategic role of financial management

2. Objectives of financial management
3. The planning cycle
When drafting a financial plan, the company should establish the planning horizon, which is the
time period of the plan, whether it be on a short-term (usually 12 months) or long-term (2–5
years) basis. Also, the individual projects and investment proposals of each operational unit
within the company should be totaled and treated as one large project. This process is
called aggregation.
A financial plan for a business can help managers determine if they can achieve the
organization's goals. The financial plan is one of the first things created to help managers make
decisions that are in the best interest of the organization.

WHAT IS FINANCIAL PLANNING

Financial planning for a business is the task of determining how the organization will
afford to achieve its strategic goals. Usually, an organization creates a financial plan
immediately after the vision and objectives have been determined. The financial plan describes
each of the activities, resources, equipment, and materials that are needed to achieve an
organization's objectives as well as the timeframe.
6 STEPS TO CREATE YOUR COMPANY’S FINANCIAL PLAN
Getting a good handle on your finances is one of your most crucial jobs as an
entrepreneur. Yet, many business owners don’t do the basic financial housekeeping that will
give them greater control over their company and more peace of mind.

EARLY WARNING SYSTEM

A financial plan is different from your financial statements. Instead of looking at what’s
already happened, you make projections for the coming months, forecasting income and
outlays. Your projections will act as an early warning system, helping you to plan for cash flow
dips, identify financing needs and pinpoint the best timing for projects.

It also gives you a tool for monitoring your finances, allowing you to gauge your progress and
quickly head off trouble. Here are six steps to create your financial plan.

1.REVIEW YOUR STRATEGIC PLAN

Financial planning should start with your company’s strategic plan. Think about what
you want to accomplish over the plan’s timeframe. Then, determine the financial impact in the
next 12 months, including spending on major projects such as equipment purchases, a move to
a new location or a website redesign.

2. DEVELOP FINANCIAL PROJECTIONS

Create monthly financial projections by recording your anticipated income based on

sales forecasts and anticipated expenses for labour, supplies , overhead, etc.. (Businesses with
very tight cash flow may want to make weekly projections.) Now, plug in the costs for the
projects you identified in the previous step.
For this job, you can use simple spreadsheet software or tools available in your accounting
software. Don’t assume sales will convert to cash right away. Enter them as cash only when you
expect to get paid based on prior experience.
Also prepare a projected income (profit and loss) statement and a balance sheet projection. It
can be useful to include various scenarios—most likely, optimistic and pessimistic— for your
projections to help you to anticipate the impacts of each one.

3.ARRANGE FINANCING
Use your financial projections to determine your financing needs. Approach your
financial partners ahead of time to discuss your options. Well-prepared projections will help
reassure bankers that your financial management is solid.
4.PLAN FOR CONTINGENCIES
What would you do if your finances suddenly deteriorated? It’s a good idea to have
emergency sources of money before you need them. Possibilities include maintaining a cash
reserve or keeping lots of room on your line of credit.

5.MONITOR
Through the year, compare actual results with your projections to see if you’re on target or
need to adjust. Monitoring helps you spot financial problems before they get out of hand.

6.GET HELP
If you lack expertise, consider hiring an expert to help you put together your financial plan.

HOW TO CREATE A FINANCIAL BUSINESS PLAN

A financial business plan is essential to help your small business. These important
documents are put together to help your business plan for the future. Make no mistake. This
part of your business plan might look like accounting but a financial business plan is designed to
look forward.

Here’s how to put one of these plans together

IMPORTANT PARTS OF A FINANCIAL BUSINESS PLAN

First off, it’s important to remember these don’t necessarily follow any kind of sequence.
Although they include profit and loss statements, a balance sheet and cash flow statements,
you might jump back and forth when you first start putting one of these together.
For example, when you put together a cash flow, the numbers might tell you that you
need to go back and rejigger your estimates for expenses and sales.
.
That said, there are some important benchmarks you’ll need to cover when you’re
putting together one of these financial business plans.

SALES FORECAST

Using a spreadsheet is the best way to put together a sales forecast. You’ll want to
forecast the sales for your small business over the course of three years to attract investors and
lenders. For the first year, you want to set up columns for sales monthly. Afterwards, you can
go to a quarterly basis for years number two and three.
EXPENSES BUDGET

Putting together and expenses budget will help to balance out your sales forecast. In a
nutshell, this will tell you how much money it’s costing to produce what you’re selling. This will
have a variety of different categories including leased equipment and utility payments. Of
course, you can’t forget other items like payroll and rent as well as depreciation on any
equipment that you use.
CASH FLOW STATEMENT

When you put the sales forecast and the expenses budget together, you get a cash flow
statement.
“The cash flow statement is often overlooked but it provides a good summary of what’s
going on in the other financial statements. It tracks the changes in the balance sheet as well as
incorporates PL and Equity statement items,” Steven Vertucci, CPA Audit Partner
,MaloneBailey, LLP, wrote in an email to Small Business Trends.

This is one of the underpinnings of any financial business plan. It’s the fulcrum that many
lenders will look at that you can use to gauge your projected success or failure going forward.
The cash flow statement is important to show you where you need to tweak your business
model — what you can keep and what needs to be discarded.

It’s based at least partially on all the other elements in your financial plan. Experts
suggest that if you have a business that’s been running for a few years, you can use profit and
loss statements and balance sheets from the past.

If you’re a start up you need to break down this part of your financial statement into 12-
month pieces.

Robert Riordan is a CPA. He also emailed some comments to Small Business Trends on
the importance of putting a financial business plan together.

“Learn to go over all the numbers and watch where the expenses are going. Know what a
budget is and follow it. Learn how to apply financial ratios to see where your business is going.
Try to look at your financial statements every month to see where you are at. Its great
information to help you succeed in Business.”

INCOME PROJECTIONS

Once you’ve put these pieces of the puzzle together, you can start making some income
projections. The idea here is to round up the numbers that you put together in the previous
categories. In a nutshell, this is the money that you think your company will make in one year.

It’s important for potential investors, lenders and your own plans as a small business
owner.
PROJECTED BALANCE SHEET

As you’ve probably guessed by now, putting together a good financial business plan is a
step-by-step process and it needs to include a projected balance sheet. This is another way that
you can cover all the different bases and take educated guesses at your money situation
looking forward.

You need to deal with assets and liabilities you haven’t already covered so you can come
up with a projected net worth at the end of your fiscal year.

These are all educated and researched guesses about what your money situations going
to look like for your small business. Putting a good financial business plan together gives you a
roadmap of the money trends that you can expect.

The idea is to be able to pin down a breakeven point as best as you can. That’s the
financial pinnacle where sales equal expenses. If you’re looking for a business loan, investors
will be very interested in how all these numbers come together.

Here’s a final piece of advice. Many small businesses put one of these financial plans
together and then leave it in a figurative drawer where it’s forgotten. It’s best used as a
financial tool and a reference point. In fact, filling in the numbers in some areas like the profit
and loss statement monthly and then comparing them to the income projections is a good idea.

FINANCIAL PLAN

The statements incorporate two rounds of venture capital investments of $2.6 million
total, plus access to additional $1.4 million for cash flow purposes. The statements do not include
any funds raised during the proposed IPO. Any revenues from advertising, affinity, consulting,
and partnership programs were omitted. Year-end is December 31.

10.1 PROJECTED CASH FLOW

The following chart shows monthly cash balance and cash flow. The table shows the
expected cash flow for the first twelve months of operation, with yearly estimates thereafter.
Capital expenditures include computer equipment and technology & software investment:

 Computer Equipment: represents 20% of the current fixed corporate costs. In 2000, it

represents $80,000 from the fixed corporate costs.

 Technology & Software Investment: represents 50% of the current fixed technology

costs. In 2000, it represents the $1.3 million of the fixed technology costs.
10.2 BREAK-EVEN ANALYSIS

The following table shows our estimated monthly break-even point to be

approximately $222,000