A financial plan for business is the blueprint for an organization, especially during the early years. As time moves on and as technology advances, your financial plan could have been altered to account for these types of changes. Launching a successful business requires a thorough financial plan. It can be used as a tool for raising start-up money to get your business off the ground and it is a tool that will guide you to help you maintain your focus within your business.
Know the Basics
There are three basic financial statements to understand as a first time entrepreneur that will help you get a handle on the health of your company. These include:
- The Balance Sheet – A balance sheet helps provide an estimate to the value of a company on a particular date. It is broken into three parts: assets, liabilities and ownership equity. Assets are typically listed first, followed by the liabilities. The difference between assets and liabilities is known as equity (or net net worth). Net worth is equal to assets minus liabilities.
- The Income Statement – An income statement shows the company's revenue and expenses. Comparing these determinates the net profit (or loss).
- Statement of Cash Flow – A cash flow statement completes the balance sheet and income statement. A cash flow statement is especially helpful to investors so that they can understand how healthy a company is. Knowing where money is coming from and how it is being spent is valuable.
Review and Adjust
Your financial plan is only a tool. If you do not use it, then it can not work for you. If your financial plan includes profit and loss projections, make sure you regularly review those projections and compare your projections to where your business actually stands. Having an understanding on this type of information will help you adjust and focus on areas that are most important. If revenues are lower than expected, you may consider increasing sales and marketing or simply increase your rates. If your overhead is too high, look for ways to cut back on some of your unnecessary expenses.
Know your "Break Even"
You should always know your break-even point. This is the level of operation when your total revenues equal total costs. If one is greater than the other you are either learning a profit or incurring a loss.
By understanding the tips listed above, a business owner or financial investor will know what changes may need to be made based on actual data. Consult with a tax professional or your accounting specialist about developing a financial plan.
