Tips for Creating Your Company’s Financial Plan

by Scott K. Schmidt, Chief Financial Officer, U.S. Money Reserve

You’ve probably read a lot about the benefits of creating a financial plan for your personal life, but there are some things you should know about creating one for your business.

As we all tiptoe into the new year, it’s time to start thinking about setting up a new business plan for your company. Whether you’re just starting out, simply entering into a new fiscal year, or looking to expand or change your business, a financial plan can help you see the path toward your goal.

While there are plenty of ways to create a financial plan, there are a few essential tips that can help set you up for success no matter what stage you’re in on the path to owning, running, or starting your own business. Here is information you need to know when you’re creating your company’s financial plan.

What Is a Financial Plan for a Business (and How Does it Differ From One You Create for Your Personal Finances?)

You’ve probably read considerably about the benefits of crafting a financial plan for your personal finances–and there are also plenty of benefits to doing the same for your business. The truth is that the two plans are rather similar in a lot of ways, but with some key differences between them.

A financial plan for your personal finances focuses on things like debt reduction, savings, and expenses much like a financial plan for your business, but some aspects of creating the two plans differ slightly. For one, it’s highly likely that you have a lot more information about your business readily available at your fingertips than you would for your personal finances. You’ll need to collect things like your income statement, expense analysis, and balance sheet for your business to get started. If you’ve been in business for a little while, you should have these items readily available. If you’re just starting your business, never fear. You, too, can create a financial plan for your business. Read below for how to proceed if you’re just starting a new business and want to create a financial plan.

In addition to having better access to specific information about the health of your business, you’ll also have different options for taking on debt or taking out loans than you would personally. The Small Business Administration, or SBA, offers much information and many opportunities to borrow money to help grow or expand your business. While most SBA loans have a higher bar for borrowing than personal loans (think more paperwork, and they generally take longer to get approved for), they’re also generally considered to be safer loans since they’re backed by the Small Business Administration and the government.

One additional difference between a personal financial plan and a business financial plan comes down to an emergency fund. It’s less vital for a business to have an emergency fund than for an individual. That’s not to say that a company can get away without having some form of emergency savings, but it’s simply less crucial than it is when you’re planning for your personal finances.

How to Create Your Company’s Financial Plan

Now that you know the difference between a personal financial plan and one for a business, it’s time to start figuring out how to create your company’s financial plan. If you’re starting a new business and creating a financial plan for the first time, jump to the “Just Starting Out” heading below. If, however, you’re making a financial plan for an existing business, keep reading.

  • Gather the needed reports.

The first thing to do is gather the reports you need. These include items like your balance sheet, income statement, expense analysis, and cash flow statement. These documents should be readily available whether you use accounting software to manage your business or have an entire accounting department.

  • Create a cash flow projection.

One fundamental way in which a company’s financial plan differs from a personal financial plan is the cash flow projection. This portion of a financial plan can be helpful if you need to go to the market to seek investment or if you’re looking to take out a loan to expand your business. This is where you get to dream a bit and look at other companies in the field to see what they have done.

A cash flow projection is an estimate of your business’s future cash disbursements and cash revenue. It’s really important to take into account factors like inventory shipment times and product seasonality. Seasonality refers to the way consumer behavior changes around the seasons. So, for example, if you have a company that sells Halloween costumes, you’ll need to account for the other 10–11 months of the year when customers are not buying Halloween costumes. Of course that means you should expect less cash flow during those months than you would around Halloween.

  • Consider your break-even point.

One of the critical aspects of a financial plan for your company is a break-even analysis. This element is another way in which a company’s financial plan differs significantly from a personal financial plan.

A break-even point is the number or amount of products or services you need to sell each period to break even on your total costs. It’s essentially where your operating costs meet your income. Figuring out your break-even point can help you see whether or not you’re pricing your products right, as well as how much you need to sell to make a sustainable profit, grow, or expand your business.

  • Include your financial analysis.

When you’re crafting a financial plan for your company, you should include a financial analysis. While that sounds intimidating, all it means is that you should note any outlying factors that may have caused your projections, break-even point, or your past records to vary from year to year.

Say, for example, we were looking at the financial reports for 2020 and 2021. These two years have been marked by the global pandemic, which required many companies to implement and invest in expensive technology that likely was above and beyond what they had originally planned for. It would be important to note these types of issues as outliers and special cases when working on your financial plan so that when you go to investors or to take out a loan, those assessing your plan have context for the figures they are looking at. This will also help you in the future when you look back at your financial plan and wonder why a certain estimated cost is so high one year or why you decided to invest the way you did. It can provide valuable information and lessons for how to manage your business well into the future.

Tips to Create Your Company’s Financial Plan When You’re Just Starting Out

If you’re just starting out, you may not know how to start forming a financial plan for your company. Not to worry! The first thing you should have in place is a business plan. Business plans help you get specific about your product or service and let you do deep market research before jumping into a particular space. Your business plan (which is different from a financial plan) should be completed before you start making your financial plan.

The best way to get a financial plan together for your business when you’re just starting out is to begin where you are. Figure out what your assets are — cash on hand, any equipment you already own, any business space that you plan to use, etc. Also, take a close look at your liabilities. What debts/outstanding payments do you have on any equipment or rental space you have? It’s important to consider any financing you have taken out to get your business started at this stage, too.

Next, consider where you would like to be at a certain period in the future. You can choose a year, a month, or even a week, depending on what your business is! This is the part where you can dream a little. What does your dream business look like, say 5 to 10 years down the road? Once you have the big goals in your sights, you can start to break them down into smaller goals. Using SMART goals as your stepping stones to your big goals is helpful. Make your business goals specific, measurable, attainable, realistic, and timely, so that you know where you are on your path to starting your own dream business.

Once you have figured out these details, it’s time to start thinking about creating a budget for your business based on the cash you have on hand and the liabilities you have. What can you afford to spend to get your business off the ground?

In addition to your budget, it’s important to create a cash flow projection. This is where you’ll need to do some market research and look at competitors in the space to figure out just what they pull in on a regular basis. Revenue is often based on how big a company’s marketing budget is, how large their customer base is, the specifics of their products or services, and what’s unique about their offerings. This is where your business plan comes into play. If you’ve done your research, you have all this information at your fingertips! Once you have an idea of what your cash flow might look like, you can take your financial plan to the market to get investors or take out loans.

How Often Should You Update a Company Financial Plan?

Most financial experts suggest that updating your financial plan once a year should be sufficient for many businesses. If your company works in a space that has faced tremendous upheaval because of the ongoing global pandemic, or if you are looking to change your line of business completely, you should revisit your company’s financial plan or go through the process more often.

The Bottom Line on Creating Your Company’s Financial Plan

While creating a company’s financial plan can seem like a daunting task, it’s one that will help you stay on track when it comes to managing the long-term health of your business. By gathering the right documents, doing your due diligence on the marketplace and demand, working on those cash flow projections, and focusing on your business goals, you can ensure that your business will last well into the future.



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