How to Make a Financial Plan for Your Business
Preparing a financial plan for your business is important if you plan to pursue business finance options such as loans, according to Inc. Business finance companies look at the short-term viability as well as the long-term potential of a business before lending to make sure they’ll be repaid.
The Difference Between a Financial Plan and Accounting
Financial plans may include some accounting information, but a plan differs from accounting in the direction it looks. Accounting deals with records of things that have already happened. A financial plan, on the other hand, looks to the future. While you do use some accounting records when creating a financial plan, the accounting records are foundational. With solid information about the existing state of your company’s activities, it’s easier to show projections based on facts. In addition to information this provides to potential lenders, it helps you have a clear understanding of where your business is in terms of finances, and you can create a realistic plan for it instead of guessing.
List the different categories where you plan to do business. Then calculate the overall market for your product or service in the area you serve, and estimate how much of the market share you are likely to capture. For the purpose of getting a loan, this should go at least three years into the future. Putting this information in a spreadsheet makes it easy for lenders to review. To help with the process of calculating profitability, include data on the cost of goods sold. This will be deducted from the money coming in, so bankers — and you — are able to see when the company is likely to break even and when it is expected to begin making a profit.
Generate a detailed list of expenses. Include major expenses such as rent, utilities and labor costs. Also add less obvious expenses such as the cost of advertising, shipping costs and the cost of cleaning and maintaining your facility.
Include Information About Personnel
List the people you will need to keep your business operating smoothly. Add information about planned pay levels and the cost of any benefits you plan to offer. If you already know your key people, list their skills to help paint a picture of how they’ll benefit your company.
Using a Business Financing Calculator
A business finance calculator, or business loan calculator, is used to determine how much your monthly payments will be if you borrow money for your business. To use one of these calculators, enter the amount you need to borrow to meet your business goals. Enter the term you would like to get the loan for in either years or months, then add your desired interest rate. To use the resulting information in your financial plan, enter the details and explain why your business will be able to repay the loan at the given monthly payment. The lending institution may come back with a counter offer, but showing you researched it and have a plan to repay is important information from a banker’s perspective.