How To Write a Financial Plan for Your Small Business

May 14, 2023

In this day and age, it is hard to imagine starting a business without a plan, but what about your financial strategy? Do you know how much money you'll need to start up? Do you know how much money your business makes and spends each month?

Whether you are bootstrapping, raising capital from investors, or both, having an experienced professional help develop your business's financial plan is crucial. In the sections below, I walk through some of the steps it involves, giving examples of how each step may apply to your situation.

This article explores the following topics:

  • Why entrepreneurs need a financial plan
  • How to begin a long-term financial plan for your business
  • Which financial statements you should keep an eye on
  • How a long-term financial plan can yield better stability
  • The importance of setting a budget and sticking to it
  • Why you need to know where every dime is going

1. Know Your Business Finances Inside and Out

The first step in creating a financial plan is defining what you want to accomplish. You may not have known your purpose when you started working as an entrepreneur; perhaps it was just paying the bills and surviving.

However, now that time has passed and you have established yourself as an authority in your field, you should know how much further you want to take things. You should also know at least some of your fiscal patterns, overhead, annual needs, and so on.

Now, you need to narrow it down to how much money is coming in, where it is going, and what financial risks you face. There are three main types of financial statements to keep an eye on your balance sheet, income statement, and cash flow statement.

These documents may look similar at first glance, but each has a unique purpose in helping you understand different aspects of your business' finances. For example, while some items are listed on both the balance sheet and income statement (like assets or expenses), there is no such thing as "cash" on either one.

This is why we must take into account all three when conducting a financial analysis for any given period in time. Especially if you are trying to determine whether or not something was profitable over time, it is vital.

Similarly, it helps pinpoint things like which departments under your roof have been most successful when compared against each other through various metrics like your ROI (Return On Investment). So, take the time to review each of the following:

  • Your bank accounts (including checking/savings accounts and any credit cards)
  • Your income statement (also known as a profit and loss statement)
  • Your balance sheet (also known as an assets and liabilities statement)

2. Set Realistic Goals for Your Business

You cannot achieve your financial goals if they are too lofty. They need to be SMART: specific, measurable, achievable, realistic, and time-based. In other words, avoid vague some-day-s, make sure that you can reach them, challenge yourself without straying into impossibilities, and set specific day-and-time deadlines.

For example: “I want to increase sales by 20% per year for the next three years.” This is a good goal because it is specific (increase sales), measurable (by 20%), realistic (you have a good idea of how much business you can do), and time-bound (three years).

3. Create a Budget and Stick to It

A budget can be very valuable in helping you keep track of your spending and save money. The caveat to this is that you have to stick to it. At best, saying, “I’ll get around to it,” is counter-productive because...

  • Establishing a budget helps you manage your finances (in ways you cannot otherwise).
  • If you don’t have a good idea where every penny is going, you cannot possibly know if any mistakes are being made.
  • Most people tend to spend more than they make (and not just by a little bit). This is simply human nature in most cases.

As much as 20% of small businesses fail within their first year. Poor budgeting is not always to blame, but why would you take that chance? There are rare exceptions, but overall, businesses that operate within a predetermined budget tend to earn greater profits than those that don't. Their cash flow is generally better, as well.

Ready To Get Serious About Planning Your Business’ Long-term Success? Let's Get Started.

4. Focus Your Plan for Long-Term Financial Stability

In addition to your cash flow plan, you need a long-term financial stability plan. This one, specifically, can help you set goals for how much money you want to make and how much profit you want to keep in the financial future.

It is important that your business grows over time, so setting these goals will help ensure that happens. Ask yourself:

  • What does long-term financial stability look like for my business?
  • How are we going to get there?

As an entrepreneur, it gets tempting to use up all the money in your personal account in order to grow your company. However, if you don't separate your personal and business finances properly, you may end up losing access to capital that would otherwise be available to help you grow; for the very thing you need.

So, having a thorough understanding of how your business impacts your personal finances (and vice versa) can help you to avoid overspending, which is a common cause of business failure. This allows for easier planning for the long term, as well.

For instance, assuming all goes well, you will need to fund expansions. It is typically much easier securing a nice office or operating space when you have a healthy down payment to start your lease with.

Meanwhile, when you evaluate potential investments such as retirement or college savings accounts, consider how much money is currently available and how much more you may eventually need.

In other words, find out if there will be enough time left in your career after starting a family or retiring from work altogether for those investments to grow (or at least not lose value) before they're needed again. This kind of forward-thinking is often key to maintaining financial stability over the long term.

The Sum Total

A solid financial plan can help you make better decisions about your business by defining your goals for the future and then outlining how much money will be needed to achieve your goals.

However, your hard-won success may depend on borrowed time unless you carefully strategize it. This is why a comprehensive financial plan maintained by a fiduciary financial advisor is essential to long-term success.

A quality advisor will help you set goals and then work to reach them by making sure that your most important (and advantageous) objectives are included in your budget. Similarly, they can help you ensure that your goals can be achieved within a reasonable time frame.

At the same time, a good planner will also help you identify where expenses can be reduced or eliminated altogether. This, in turn, can make more money available to invest and grow the business (or simply enjoy your life).

The kind of financial planning entrepreneurs need does not have to be an ordeal. Contact Ironclad Wealth Management today to start safeguarding your future.

MGO One Seven LLC ("MGO One Seven") is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). Registration with the SEC does not imply a certain level of skill or training. All titles listed for individuals associated with Ironclad Wealth Management represent the individual's role with Ironclad Wealth Management, and not their role with MGO One Seven. Services are provided under the name Ironclad Wealth Management, a DBA of MGO One Seven. Investment products are not FDIC insured, offer no bank guarantee, and may lose value. Please visit our website for important disclosures.

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