All startups do not become successful or profitable. The knowledge of “how to create a financial plan” is inevitable. You may think to hire a financial advisor. Taking financial service from a financial planner is costly. There is a series of the operational and financial strategy behind the success of as a business. The financial plan is an outline of a business’s financial activities to reach its goals. Financial planning is an integrated process of identifying the required fund and sources of fund, allocating funds in different projects and evaluating risk and return.
Business financial Plan is the core of any flourished business organization. Most of the business decisions are directly and indirectly rely on a financial plan. If anyone wishes to make an immediate move toward the successful business, a financial plan should be formatted and implemented wisely. A well-organized plan can elevate a startup to the desired place. It is very important to implement a better financial plan in a startup to run it with a competitive advantage.
Example of a financial plan:
Suppose the investor of a startup intends to draw market interest and increase the market size. He can collect funds at a lower rate. He should use resources that can contribute a lot and at the same time is economical. His strategy must be market-oriented. The operational cost of the business should be monitored and costly items must be replaced with less costly items. At the time of reaching customers with products, he should offer competitive as well as affordable price. For this, he can use the break-even-point strategy. He can also use a lower profit margin if he wants to penetrate the market. For this, he should make the best use of available fund collected from different sources. It is a financial plan example to assist you.
How to create financial plans?
Creation of a financial plan for a business requires several consecutive steps. There are some sequential steps to create a financial plan to make viable. These include-
Identifying present financial condition:
For creating a financial plan the financial manager has to keep track of the financial condition of the firm. Without having knowledge of the previous performance or financial stability, financial plans can’t be constructed. Financial statements such as income statement, cash flow statement, and balance sheet can provide required information about assets and liabilities of the business.
Set a realistic financial goal:
The financial goal should be realistic, relevant and specific. Illusory goals cannot be met with business plans. Moreover, these are malignant to the business. So the goal must be set according to the capacity of the business.
Unpredictable events occur at times. So the financial manager should consider possible losses and make an arrangement to reduce or recover the loss. The losses can cause downward profit margin. For this, he can use insurance products to minimize the loss.
Make a portfolio:
Investment can be segmented in several forms. This is called a portfolio of investment. This offers the entrepreneur to put his money in different investment items with specified risk and return. Financial risk should be diversified so that if a loss occurs its effect will be limited in specified areas. Suppose you have $200000 in hand. You want to make an investment with the entire amount. You can use the following combination of portfolio:
After implementing the financial plan financial manager should not remain idle. The business financial plans should be continuously checked up. He can use ratio analysis to determine a firm’s financial position. So that if any loop exists it can be solved within a short time.
How to write financial plan?
Suppose an investor wants to start a merchandise business. He has to write a financial plan for overall business activities or has recourse to a financial advisor. He will operate the business and do all of his financial activities or financial service following the plan. So, it is very important to make sure that the business plan to coincide the financial objectives. He should write the necessary steps and information which will help him to do business promptly.
It is essential to identify and include the probable expenditure and earnings to be a financial plan. A financial plan can be set up for different periods. One can make plan monthly, quarterly, semi-annually, annually or for several years. It depends on the type of business operations. The annual financial plan is appropriate for merchandise business. The financial plan for a start-up business can be written as follows:
i) Forecast sales: The manager should forecast total sales for a specified period of time. He can predict the amount of using previous data or market analysis. This projection will help him to get an idea about net income after taxes.
ii) Formulate budget of expenditures: Various fixed and variable expenses emerge at the time of conducting business functions such as fixed assets, merchandise purchasing costs, rent, commission, the salary of employees, depreciation etc. These items should be determined to create an expense budget.
iii) Cash flow Statement: Liquid money plays a significant role in business performance. An appropriate amount of cash in hand can reduce the additional cost of holding extra money. Cash flow statement is prepared to measure the total cash in hand at a specified point of time. Cash flow and outflow transactions should be included in the cash flow statement.
iv) Income prediction: Income is the soul of business. The performance of a business can be measured by the net income of the firm. In a merchandising business net income can be obtained by deducting all operational costs from total sales. Firm’s probable net income should be determined to identify the feasibility and adaptability of the financial plan.
v) Asset Projection: Assets are dedicated to achieving the goal of an organization. Managers have to predetermine the type of assets employed in the business and the amount of each asset before start a new enterprise.
vi) Liability and Equity Projection: Firm’s capital can be raised through owner’s capital, debt from banks or other financial intermediaries. These are liabilities of the business. An entrepreneur should identify the debt sources and the total amount of loan.
A financial plan is an integration of all those predictions that are related to running the financial activities of a business in order to achieve long-term objectives. This is why the knowledge of “how to create a financial plan” is important. Making a financial plan helps you achieving business goals. For a startup, it is necessary to formulate a well developed financial plan to gain ground in the competitive business world. You can take us as a financial advisor. A good financial planner can give you good financial service.