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Financial plan

It's good to know in advance whether your business is going to be profitable. A financial plan can help you make things clearer for yourself. Also when you applying for a loan, your bank or financier will want to see you financial plan.

The financial plan

A financial plan is a useful tool for determining whether your business idea is viable. It will demonstrate the costs and what is needed to finance them. And it is useful for convincing financiers to lend you money, and therefore forms the basis for your financial pitch.

Creating a financial plan does not have to be complicated. Base it on your business plan and keep it simple. Targeted market research and a sound marketing plan should be part of your business plan. These will help you create a solid basis for your figures.

It is important that you work out as much of your financial plan as possible yourself. Discussing it with an expert, such as your accountant, can also help you prepare for the next step – approaching financiers or investors for money.

What should a financial plan include?

A financial plan consists of five budgets that detail the minimum requirements for starting your business, the investments you will need to make and how you plan to finance them. This allows you to determine whether your business idea is viable. What turnover do you expect to generate? And will your business be profitable, or not? It also forces you to examine cash flow and whether you will have enough money each month. Answering all these questions in your business plan is the key to your success.

Investment budget

Your investment budget should include a list of the investments you will need to start your business and those that can wait until a later stage. This is an indicator of the minimum amount of money you will need to get started.

Financial budget

Your financial budget should detail how you intend to finance your investment budget. Options include personal capital (equity capital) or loans, e.g. from a bank (borrowed capital), or even a combination of the two.

Operating budget

Your operating budget should show that your business is profitable. This will allow you to estimate your turnover. You can then analyse the costs to keep your business running. Combining these, you can determine whether you will make a profit or a loss.

Cash flow budget

Income and expenditure can fluctuate greatly over a year. Your cash flow forecast should include all income and expenditure over a given period, e.g. per month or per quarter. This will highlight when you will have surplus cash and when you will need extra funds.

Personal expense budget

One option is to determine how much personal capital you have and then base your financial plan on your personal situation. This involves calculating how much money you will need for you and your family, how much you will have to pay in tax and what your operational costs will be. This allows you to work out your minimum turnover to make ends meet.

SME financing institution Qredits has free tools , including templates for a business plan and financial plan.

What do financiers look for?

Financiers look at both 'hard' and 'soft' factors when they analyse a credit application. Hard factors relate directly to your business and the basis upon which you plan to build it. Soft factors relate to you and your qualities as a business owner.

Prepare a good presentation that demonstrates you've familiarised yourself with the financier's use of language and information requirements. Financiers will examine your application based on the following points:

  • Business owner assessment. Who is the credit applicant?
  • Business owner's qualities and experience
  • Quality of the business plan and its financial basis
  • Company history, e.g. turnover, gross profit, cash flow, etc.
  • Industry or sector. What trends and developments exist within this sector or industry?
  • Type of loan. Loan size and duration
  • Purpose. What will the lended money be used for?
  • Strict budget and financial obligations. Do you have a clear picture of the revenues required to meet both your financial obligations – business and personal alike?
  • Cost structure. Do you have a clear picture of your business's costs?
  • Repayment capacity. Will you be able to meet your repayment obligations without jeopardising your business?
  • Return potential. Do you have a clear picture for your business's future growth?
  • Financial structure
  • Personal expenditure
  • Market analysis by an independent body
  • Market research and industry information
  • Security. What security can you offer to ensure that you'll be able to repay your financier?

How to write a financial plan

When using the financial plan to convince investors to finance your company, this is where you make your first impression. Prepare a good presentation that demonstrates you have familiarised yourself with the financier's use of language and information requirements. Start with an intro, use tables and visuals and also think of the graphic design.

  • Use your own equity to finance the business as well, if you can, as this will help convince financiers and other parties.
  • Negotiate the terms and conditions of your financing package. Repayment terms can be just as important as the financing package itself.
  • Improve your chances of success by supporting your application with a pitch.
  • Determine what financing options exist.

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What is Financial planning in a business plan

Finance plan example

If one is new to the field of business and entrepreneurship, then Finance is unquestionably the vital section of the business plan. Even if your ideas and innovations are important what matters the most at the end of the day is the marketing strategies and how much your vision can help in making an earning. Hence it is vital to explain your start-up with good figures which are done with the help of accurate numbers included in the business plans and briefing about it in such a way that genuinely makes your business more attractive and profitable to the investors.

What is a business plan? 

In simple words, it is a guide for the company to achieve its goal. It is a written document that describes in detail how a business, especially a start-up , what are its objectives or how it is about to achieve its goal. This can be considered as a roadmap to success with detailed plans and budgets saying how they will be achieved. It lays a road map from marketing, financial and operating point of view as well.

Business plans are documents which are vital papers used to attract investors even before the company has shown a proven record. They do this by giving a vision to the investor and trying to convince them that their business idea is worth investing for.  From that, there comes a firm assurance and hence the business idea is sound and has every chance of success. For any newcomer, preparing a business plan is an important first step. It is this rigid milestone that will help the entry towards the path of success.

When you are about to begin a new venture, a business plan gives you a clear idea which in turn can determine whether your business idea is viable or not; that is, there is no point in business if there aren’t any chances of earning. A business plan is also a good way for companies to maintain a regular track.

We can also describe the business plan as a living document that you can use to prove two sources as it shows that one’s dreams are no longer just a dream but can be made into a viable reality. In the majority of cases, the main barrier in commencing a business is the fact that they don’t have enough money to be in the business or to start the business they wish to begin. In the case of start-ups, a ready business plan is essential to show potential investors how the proposed business can bring profit.

What is Financial Plan ?

In the world of start-ups, the importance of perfect business planning is beyond explanation. Plan length of business is different for different businesses. As mentioned no two businesses have the same sort of plans but they all have the same elements from which financial planning can be considered as a vital key in the making of a business plan.

A financial plan is a document containing the current money situation and long term goals of an individual as well as the strategies for achieving the goals. A financial plan can be done independently or with the help of a specialist who is a certified financial  planner where he will have a deep evaluation of the person’s current financial state and ,future goals and expectations.

It gives you a clear picture of current finances and how it can be utilised to achieve your goals. This is also a process which will reduce the amount of stress about money and help you to set a long term goal. It is very important as it shows how to make use of your assets in an orderly manner.

The main purpose of financial planning is that it helps you to make strong business decisions about what are the resources that the company requires and what are the strategies that the company needs to be successful. It helps to obtain necessary financing, thus helping it grow.

Financial Planning can be explained with six steps:-

1. Setting up of Financial Goals:-

 The secret of a successful business is setting up proper financial goals.

2. Track your Money:-

Since the financial plan is a guide for good business flow,  having an accurate idea about your savings or pay-downs is helpful to develop medium and long term plans.

3. Emergency expenses:-

Collecting cash for emergency expenses is the bedrock of the financial plan. 

4. Investing your savings:-

 Investing isn’t always meant for the rich alone. Building credit is another way to shock proof of your budget.

  5. Have a check of high-interest debt:-

Sometimes it happens that the interest rates most of the time, we end up repaying 2 or 3 times what we have actually borrowed. Paying down the ‘toxic’ high-interest debt like title loans,rent-to-own payment, credit card balances etc. are the crucial steps in any financial plan.

6. Setting up of a moat:-

It is essential to build a moat to protect you and your family from financial setbacks.  Financial moats can be improved by:-

  • Retirement accounts should be increased
  • Padding your emergency fund until you earn a constant profit.
  • By using insurance so that a sudden illness or accident can alter you thus, ensuring financial stability.

Financial planning is at the heart of all successful business ventures. As mentioned earlier, it consists of details of statement and financial projections, forming the overall core of your business plan. Financial planning is supposed to be completed within a year and revised monthly for better results. In addition to impressing  your investors that you are serious and knowledgeable with the business the financial  planning allows them to evaluate :

•The short and long term prospects 

• Profit potential 

•Your company’s  weakness as well as strengths

•Opportunities and challenges 

•What type of financing  can make your business successful  

For a strong financial plan,  there should be careful calculations and reliable numbers. If you are starting a new business then your financial plan should consist of:- 

• Start-up costs

•Cash flow projection 

•Projected Balance sheet 

•Balance and income statement (if it isn’t a new business)

•Break-even analysis

Start-up Costs

If you are about to start a business, first you are supposed to determine start-up costs. They are the first time expenditures that you have to spend before opening your business. It includes all costs such as furniture, supplies, equipment, renovations, license permits and incorporation fees; if necessary.

Cash flow projections  

All the business activities, large or small depends on cash. Cash flow projections show the expected amount of money that you can earn in a business along with what will be spent on expenses It is the cash that you expect from sales.

Projection of cash flow projections

The first is to calculate how much revenue you expect to generate from the sales every month. For that:

  • consider the best and worst.
  • reach to the clients who can  repay loan on a regular-schedule basis 
  • set a credit policy .
  • which bills should be delayed and what to be paid. The projections must be completed on an ongoing basis.

Income statements 

It shows your actual business expenses and revenues, the difference between the net profit over some time it sometimes often referred to as profit and loss statement or an operating statement.

From a regular check-in, the projected income statement (at least every three months) can help you identify an emerging problem in your business.

Balance Sheets

It is a snapshot record which contains all the details of what your business assets (owns) are or on as well as its liabilities (owes). Assets can be money, property,  vehicle, inventory etc. The projected balance sheet is what predicts the net worth of your business over a specific period in future. It should be from at least one year to three years into the future

Break-even Analysis

It is a useful tool which calculates at what point your company will be able to make a profit . This is where the total costs equal total revenues. It is based on three factors:- Selling price, fixed cost and variable cost.

  Methods Of Financing for Businesses

After you have completed financial statement, projections and calculations, you will have a clear idea on how to finance your business.

The two main financings are:- 

  • Equity Financing

The financing in which you and your partner put the money or raise from the investor’s for the business.

Equity financing is not a debt or loan, but the investors just share the profits or losses.

2. Debt  Financing 

With your equity capital, you are now in a position to approach lenders for a business loan.  It is the money you borrow for business. Unlike equity financing, it should be repaid with interest over a specific period. The lenders won’t be getting the profit however, they must be repaid-with interest no matter whether the business is in profit or loss. The potential lenders include banks, credit unions , private investors, trust companies etc.

In the end, financial planning is a crucial step in mapping out a company’s financial future. In that sense, it is financial planning which gives clarity to your business plan and thus to one’s life!

A detailed guide to writing a successful business pitch

How to create a balance sheet in excel, 3 thoughts on “ what is financial planning in a business plan ”.

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it is interesting and essential I know but we need sample of financial plan of one business plan

Budgeting is the backbone ([Link deleted]of any successful business strategy. It’s not just about numbers; it’s about making informed decisions that drive growth and stability.

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Present Your Business Idea to Potential Lenders

1. why you need to present your business idea to potential lenders, 2. what you should include in your presentation, 3. how to create a strong and compelling presentation, 4. the importance of knowing your audience, 5. tips for delivering your presentation, 6. how to handle questions from the audience, 7. what to do after your presentation, 8. the benefits of presenting your business idea to potential lenders, 9. the risks of not presenting your business idea to potential lenders.

When you're trying to get a business loan , one of the first things potential lenders will ask for is a business plan . This document spells out your company's purpose, its goals, and how you intend to achieve them.

A well-crafted business plan can help convince potential lenders that your business is worth their investment . Heres a look at some of the key reasons why you need to present your business idea to potential lenders.

1. It Shows You're Serious About Your Business

When you take the time to write a business plan , it shows that you're serious about your business and that you've put in the work to research and understand your industry and target market. This can give lenders confidence that you're more likely to succeed than someone who hasnt taken the time to create a plan.

2. It Helps You Define Your Business Goals

creating a business plan forces you to think about your business goals and how you plan to achieve them. This can be helpful not only for potential lenders but also for yourself and your team. Having a clear understanding of your goals can help everyone stay focused on what's important and make better decisions along the way.

3. It Can Help You Get Better Loan Terms

If you have a strong business plan, you may be able to negotiate better loan terms with potential lenders. That's becausethey will see that you have a detailed plan for how you intend to use the loan and how you expect to generate a return on their investment.

4. It Can Help You Get More Funding

In some cases, a business plan can help you secure additional funding from investors or other sources. For example, if you're seeking venture capital , investors will want to see a detailed business plan before they commit any money to your business.

5. It Can Help You avoid Costly mistakes

Putting together a business plan can help you avoid making costly mistakes early on in your business. That's because the planning process requires you to think through all aspects of your business, from your target market to your competitors to your financial projections.

If you take the time to create a comprehensive and well-thought-out business plan, it will pay off when you start seeking financing for your business. Potential lenders will see that you're serious about your business and that you have a solid plan for success. And, in some cases, a strong business plan can help you secure better loan terms and even additional funding from investors.

Why you need to present your business idea to potential lenders - Present Your Business Idea to Potential Lenders

When you're ready to take your business idea to potential lenders, you'll need to have a well-crafted presentation that outlines your business plan and shows why your business is a good investment . Here's what you should include in your presentation:

1. An overview of your business.

Start by giving the lender a brief overview of your business, including what it is, what it does, and what market it serves. This will help the lender understand your business and get a sense of what it's all about.

2. Your business goals and objectives.

Next, you'll want to share your business goals and objectives with the lender. What are you hoping to achieve with your business? What are your long-term goals? This will give the lender a better idea of your plans for the business and how you expect it to grow.

3. Your target market.

It's also important to share who your target market is with the lender. Who will be buying your products or services? What needs does your target market have that your business can address? This information will help the lender understand the potential for your business.

4. Your competitive landscape.

You'll also want to share with the lender who your competition is and how you plan to compete in the market. Who are your closest competitors? What makes your business unique? How will you be able to attract customers away from your competitors? This information will help the lender understand your competitive advantage.

5. Your marketing strategy.

Your marketing strategy is another important piece of information to share with the lender. How do you plan to market your business? What channels will you use to reach your target market ? What are your marketing budget and timelines? This information will help the lender understand how you plan to generate demand for your products or services.

6. Your financial projections.

Last but not least, you'll want to share your financial projections with the lender. What are your expected sales, expenses, and profits for the next year or two? How much money do you need to get started? What are your repayment terms? This information will help the lender understand the financial viability of your business.

When you're ready to present your business idea to potential lenders, be sure to include all of this information in your presentation. With a well-crafted presentation, you'll be able to show lenders why your business is a good investment and increase the chances of getting the funding you need.

What you should include in your presentation - Present Your Business Idea to Potential Lenders

Giving a presentation can be a daunting task, especially if you're not used to public speaking. But with a little bit of preparation and practice, you can deliver a strong and compelling presentation that will engage your audience and get your message across.

1. Know your audience

Before you start preparing your presentation, it's important to think about who your audience is and what they want to hear. This will help you to focus your content and ensure that you're delivering a presentation that's relevant and interesting to them.

2. Keep it simple

When it comes to creating a presentation, less is definitely more. Don't try to cram too much information into your slides instead, focus on delivering a few key points that will resonate with your audience.

3. Make it visually appealing

Humans are visual creatures, so it's important to make your presentation visually appealing. Use high-quality images and graphics, and keep your slides clean and uncluttered.

4. Engage your audience

A presentation is not a one-way street it's an opportunity to engage with your audience and get them involved in what you're saying. Use questions, polls, and other interactive elements to encourage participation from your audience.

5. Practice, practice, practice

There's no substitute for practice when it comes to delivering a great presentation. Before you step up to the podium, make sure you've rehearsed your presentation several times so that you feel confident and comfortable with the material.

How to create a strong and compelling presentation - Present Your Business Idea to Potential Lenders

As a small business owner , you may be looking for ways to secure funding to grow your business. One option is to present your business idea to potential lenders. However, before you do so, it's important to understand the importance of knowing your audience.

Your audience will likely be made up of individuals who are interested in investing in your business. They will want to know what your business does, how it makes money, and what the risks and rewards are. They will also want to know how you plan to use the funding you're seeking.

It's important to be clear and concise when presenting your business idea to potential lenders. You'll want to make sure you answer all of their questions and concerns. You should also be prepared to provide financial projections and other supporting materials.

By understanding the importance of knowing your audience, you can increase your chances of success when presenting your business idea to potential lenders. By being clear, concise, and prepared, you can give yourself the best chance of securing the funding you need to grow your business.

When it comes to presenting your business idea to potential lenders, there are a few things you should keep in mind. First and foremost, you need to remember that your presentation is an opportunity to not only sell your idea, but also yourself. As such, you need to be confident, enthusiastic and have a clear understanding of your business concept.

Here are a few tips to help you deliver an impressive presentation:

1. Start with a strong opening

You only have a few minutes to make a good first impression, so make sure you start strong. Grab the attention of your audience from the get-go with an interesting story or statistic.

Don't try to cram too much information into your presentation. Focus on the key points of your business idea and avoid going into too much detail. Remember, you want to leave your audience wanting more.

3. Use visuals

People are more likely to remember information that is presented visually. Use charts, graphs and images to help illustrate your points.

4. Be prepared for questions

At the end of your presentation, be prepared to answer any questions that your audience may have. This is your chance to further sell your idea and address any concerns that the potential lender may have.

Before delivering your presentation, make sure you practice it several times. This will help you feel more confident and ensure that you don't stumble over your words on the day of the big meeting.

Tips for delivering your presentation - Present Your Business Idea to Potential Lenders

If you're seeking funding for your business idea, you'll need to be prepared to present your idea to potential lenders. This can be a daunting task, but if you're well-prepared, you'll be able to confidently answer any questions that come up.

Here are a few tips on how to handle questions from the audience when presenting your business idea:

1. Anticipate questions in advance.

Before you even step into the room to present your idea, take some time to anticipate questions that the audience might have. This will help you be better prepared to answer them confidently.

2. Keep your answers brief and to the point.

When you're answering questions from the audience, it's important to keep your answers brief and to the point. No one wants to hear a long-winded explanation. Be concise and clear in your responses.

3. Don't be afraid to take a moment to think about your answer.

If you're unsure of how to answer a question, it's perfectly fine to take a moment to think about your response. It's better to take a few seconds to gather your thoughts than to blurt out an incorrect or unclear answer.

4. Be prepared to back up your claims with data.

If you make any claims during your presentation, be prepared to back them up with data. The audience will likely want to see proof that what you're saying is true.

5. Be confident in your delivery.

Even if you're feeling nervous, it's important to project confidence when answering questions from the audience. If you come across as uncertain or unsure of yourself, it will make the audience less likely to believe in your business idea.

How to handle questions from the audience - Present Your Business Idea to Potential Lenders

You've done it! You've put together an amazing presentation that is sure to wow potential lenders and get them on board with your business idea . But what comes next? Once you've delivered your presentation, there are a few key things you can do to further solidify your relationships with these potential lenders.

First, be sure to thank each lender for their time and attention. This will help to create a positive impression and ensure that they remember you and your business idea favorably.

Next, be available to answer any questions that the lenders may have about your presentation. This is your chance to further explain your idea and give the lenders a better understanding of what you're proposing.

Finally, follow up with the lenders after your meeting. Send them a thank-you note or email, and keep them updated on your progress. By staying in touch, you'll show that you're serious about your business and that you value their input and support.

By following these simple steps, you can turn potential lenders into valuable partners in your business venture. So get out there and start pitching your idea!

When you're starting a business, one of the first things you need to do is develop a strong business plan . This document will outline your business goals, strategies, and how you plan on achieving them. It will also be vital when it comes time to present your business idea to potential lenders.

Lenders want to see that you have a well-thought-out plan for your business.they are looking for indicators that you have a good chance of success. A well-crafted business plan will show lenders that you know your industry and your customers, and that you have a realistic approach to growing your business.

There are a few key things that lenders will be looking for in your business plan:

1. A clear description of your business and what it does

2. Detailed information about your target market and customers

3. Your financial projections, including your income statement, balance sheet, and cash flow statement

4. Your marketing and sales strategy

5. An overview of your management team and their qualifications

6. A description of the risks and challenges associated with your business

7. Your plans for dealing with these risks and challenges

8. Your exit strategy (how you plan on repay the loan and/or how you will sell the business)

A well-written business plan will give lenders confidence in your ability to successfully grow your business. It will also help them understand the potential risks and challenges associated with your business, and how you plan on dealing with them.

If you're looking for funding for your business, start by putting together a strong business plan. This document will give you the best chance of convincing potential lenders that your business is worth investing in.

The benefits of presenting your business idea to potential lenders - Present Your Business Idea to Potential Lenders

As an entrepreneur, you may have the best business idea in the world. But, if you don't present your idea to potential lenders, you'll never get the funding you need to make your business a reality.

There are a number of risks associated with not presenting your business idea to potential lenders. First, you may never get the funding you need to start your business . Second, even if you do get funding, it may not be enough to cover all of your start-up costs. Third, you may not be able to get a loan from a traditional lender, such as a bank, if you don't have a well-developed business plan.

Fourth, if you're not able to get funding from a traditional lender, you may have to turn to alternative sources of financing , such as venture capitalists or angel investors . These investors may be more expensive than traditional lenders and they may also require a greater equity stake in your company.

Fifth, if you don't have a well-developed business plan, it will be difficult to convince potential investors that your business is a good investment. Sixth, if you're not able to get funding from traditional lenders or investors, you may have to rely on personal savings or credit cards to finance your business.

Seventh, if you're not able to get funding, you may have to delay the launch of your business or scale back your plans. Eighth, if you don't have a well-developed business plan, it will be difficult to track your progress and make adjustments as needed.

Ninth, if you're not able to get funding, you may miss out on important opportunities to grow your business. Tenth, if you don't have a well-developed business plan, it will be difficult to attract and retain top talent .

As you can see, there are a number of risks associated with not presenting your business idea to potential lenders. However, these risks can be mitigated by developing a well-thought-out business plan and by building relationships with potential lenders and investors.

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4 Steps to Creating a Financial Plan for Your Small Business

Rami Ali

When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan. It helps you pitch investors, anticipate growth and weather cash flow shortages. To get started, you need to learn some of the key elements to financial planning.

What is a Financial Plan?

A financial plan helps determine if an idea is sustainable, and then keeps you on track to financial health as your business matures. It’s an integral part to an overall business plan and is made up of three financial statements—cash flow statement, income statement and balance sheet. In your plan, each of these will include a brief explanation or analysis.

Key Takeaways

  • A financial plan helps you know where your business stands and lets you make better informed decisions about resource allocation.
  • A financial plan has three major components: a cash flow projection , income statement and balance sheet.
  • Your financial plan answers essential questions to set and track progress toward goals.
  • Using financial management software gives you the tools to make strategic decisions efficiently.

Why is a Financial Plan Important to Your Small Business?

A well-put-together financial plan can help you achieve greater confidence in your business while generating a better understanding of how to allocate resources. It shows your business is committed to spending wisely and its ability to meet financial obligations. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.

It’s also an important tool when asking investors to consider your business. Your financial plan shows how your organization manages expenses and generates revenue. It shows where your business stands and how much it needs from sales and investors to meet important financial benchmarks.

Components of a Small Business Financial Plan

Whether you’re modifying your plan or starting from scratch, a financial plan should include:

Income statement: This shows how your business experienced profit or loss over a specific period—usually over three months. Also known as a profit-and-loss statement (P&L) or pro forma income statement, it lists the following:

  • Cost of sale or cost of goods (how much does it costs to produce your goods or services?)
  • Operating expenses like rent and utilities
  • Revenue streams, usually in the form of sales
  • Amount of total net profit or loss, also known as a gross margin

Balance sheet: Rather than looking backward or peering into the future, the balance sheet helps you see where you stand right now. What do you own and what do you owe? To figure it out, you’ll need to consider the following:

  • Assets: How much cash, goods and resources do you have available?
  • Liabilities: What do you owe to suppliers, personnel, landlords, creditors, etc.?

Shareholder equity (the amount of money generated by your business): Use this formula to calculate it:

Shareholder Equity = Assets – Liability

Now that you have these three items, you’re ready to create your balance sheet. And just as the name implies, when complete, you’ll want this to balance out to zero. On one side, list your assets, such as cash on hand. And on the other side list your liabilities and equity (or how much money is generated by the business). The balance sheet is used along the other financial statements in order to calculate business financial ratios, discussed further below.

Balance Sheet

Why have a balance sheet? It can provide insight into your business and show important measures like how much cash you have, what your obligations are and what kind of profit you’re making all at a glance.

Personnel plan: You need the right people to meet goals and retain a healthy cash flow. A personnel plan looks at existing positions and helps you see when it’s time to bring on more team members, and whether they should be full-time, part-time, or work on a contractual basis. It looks at compensations levels, including benefits, and forecasts those costs. By looking at growth and costs you can see if the potential benefits that come with a new employee justify the expense.

Business ratios: Sometimes you need to look at more than just the big picture. You need to drill down to specific aspects of your business and keep an eye on how individual areas are doing. Business ratios are a way to see things like your net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets. Numbers used to calculate these ratios come from your P&L statement, balance sheet and cash flow statement and are often used to help request funding from a bank or investors.

Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.

Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.

Income projections: How much money will your company make in a given period, usually a year. Take that and then subtract the anticipated expenses and you’ll have the income projections . In some cases, these are rolled into profit and loss statements.

Assets and liabilities: Both of these elements are part of your balance sheet. Assets are what your company owns, including current and long-term assets. Current assets can be converted into cash within a year. Think of things such as stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use like furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are divided into current and long-term categories. Examples of current liabilities in a financial plan are accrued payroll, taxes payable, short-term loans and other obligations due within a year. Long-term liabilities include shareholder loans or bank debt that matures more than a year later.

Break-even analysis: Your break-even point—how much you need to sell to cover all your expenses—will guide your sales revenue and volume goals. Start by calculating your contribution margin by subtracting the costs of a good or service from the amount you pay. In the case of a bicycle store, the sale price of a new bike minus what you paid for it and the salary of your bike salesperson, your rent, etc. By understanding your fixed costs, you can then begin to understand how much you’ll need to markup goods and services and what sales and revenue goals to set in order to stay afloat or turn a profit.

Video: How to Build a Financial Plan

Create a strategic plan: Starting with a strategic plan helps you think about what you want your company to accomplish. Before looking at the numbers, think about what you’ll need to achieve these goals. Will you need to buy more equipment or hire more staff? Is there a chance of new goals affecting your cash flow? What other resources will you need?

Determine the impact on your company’s finances and create a list of existing expenses and assets to help with your next steps.

Create financial projections: This should be based on anticipated expenses and sales forecasts . Look at your goals and plug in the costs needed to achieve them. Include different scenarios. Create a range that is optimistic, pessimistic and most likely to happen, so you can anticipate the impact each one will have. If you’re working with an accountant, go over the plan together to understand how to explain it when seeking funding from investors and lenders.

Plan for contingencies: Look at your cash flow statement and assets, and create a plan for when there’s no money coming in or your business has taken an unexpected turn. Consider having cash reserves or a substantial line of credit if you need cash fast. You may also need to plot ways to sell off assets to help break even.

Monitor and compare goals: Look at the actual results in your cash flow statement, income projections and even business ratios as necessary throughout the year to see if you need to modify your plan or if you’re right on target. Regularly checking in helps you spot potential problems before they get worse.

Three Questions Your Financial Plan Should Answer

Once you’ve created your plan, you should have answers to the following questions:

  • How will your business make money?
  • What does your business need to get off of the ground?
  • What is the operating budget ?

Financial plans that can’t answer these questions need more tweaking. Otherwise, you risk starting a new venture without a clear path and leave behind valuable insight.

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Using spreadsheets can get the job done when you’re just getting started. However, it’s easy to get overwhelmed, especially if you’re collaborating with others in your organization.

Financial management software is worth the expense because it offers automated capabilities such as analysis, reporting and forecasting. Plus, using cloud-based financial planning tools like NetSuite can help you automatically consolidate data and improve efficiency. Everyone across your organization can access and analyze up-to-date information, which leads to better informed decisions.

Whether you’re looking to secure outside funding or just monitor your business growth, understanding and creating a financial plan is crucial. Once you have an overview of your business’ finances, you can make strategic decisions to ensure its longevity.

Financial Management

small business financial plan

Small Business Financial Management: Tips, Importance and Challenges

It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.

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  • 7 | The Financial Plan

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Chapter 7 The Financial Plan

Go to The Financial Plan Overview Video

Overview Video | The Financial Plan

Click the image above to play the "Financial Plan Overview Video"

Introducing the Financial Plan

Introduction, break-even analysis, sales forecast, the income statement, balance sheet.

Laptop covered with paperwork and receipts

The financial plan shows how much money you will spend and how much money you hope to make in your new business. It helps you make sure you have enough money to run your business, and that you have thought about how you will cover your costs. Lenders and investors use the financial plan to help them decide if they want to give you a loan or invest in your business. It also helps you plan your business activities such as stocking supplies, purchasing equipment, and how much to charge for your service or product.

Financial Plan Sections

The financial plan includes several sections, which are covered in this chapter:

  • Up-front cash needs
  • Break-even analysis and pricing
  • Sales forecast
  • Cash flow statement 
  • Income statement
  • Balance sheet

These sections build on one another, so if something in one section changes, you might have to go back and change other sections too.

Stack of cash

Using the Financial Plan

A good financial plan will help your business succeed. It helps you evaluate how your business is doing. If there are differences between what you planned and what actually happens, you can use that information to make changes in terms of pricing, sales, or costs.

This chapter will help you complete the Financial Plan section on the Business Plan Outline you downloaded in Chapter 4.

Up-Front Cash Needs

To get started, you need to figure out your up-front cash needs. Up-front cash is the money needed to get a new business up and running. This includes the money you need to set up the business before it can open, and the money you need to run the business and cover expenses until your business earns a profit. It can often take several months to a year for a new business to build a strong customer base and become profitable.

Up-front cash needs are estimated for two types of costs:

  • Pre-opening costs
  • Post-opening costs

Person holding money

Pre-Opening Costs

Pre-opening costs are things you pay for while you’re getting your business set up and ready to open. These are the costs you estimated in the Start-up Costs Worksheet from Chapter 3: Business Feasibility. They include:

  • Materials and supplies to make your product or provide your service
  • Inventory – finished products to sell (yours or someone else’s)
  • Capital equipment – major equipment or other Items that typically last one year or longer
  • General supplies – things you use in day-to-day business operations, but are not direct inputs for making your product
  • Furniture, displays, or shelving
  • Remodeling costs - changing or getting your workspace ready for business
  • Rent or mortgage payments for business set up and first month
  • Utilities for business set up and first month
  • Creating marketing materials, such as logos, website, etc.
  • Advertisements or promotions for grand opening
  • Business license, registrations, and permits
  • Legal and accounting fees to set up your business

Update your Start-up Costs Worksheet from Chapter 3: Business Feasibility to estimate your pre-opening expenses.

Post-Opening Costs

Post-opening costs are things you pay for once your business is open. These are costs for things to run your business. They include:

  • Inventory and ongoing production costs
  • Rent and utilities
  • Capital equipment replacement or repair
  • On-going advertising or marketing
  • Ongoing expenses such as accounting services and insurance
  • Other costs, such as taxes

Post-opening costs are often estimated on a monthly, quarterly, or yearly basis. For instance, wages, rent, and utilities are paid monthly, while insurance and taxes are often paid quarterly or two times per year. You will estimate post-opening costs in detail when developing a cash flow statement , which is described in a later section.

Woman making a purchase at a coffee stand

When you have enough money to pay for your pre- and post-opening expenses, with some money set aside for emergencies, your business is considered capitalized . This will allow your business to stay open until you start making a profit.

It can be hard to figure out how much up-front cash you need, but it is important to develop a good estimate. You need to know how much money you will have to use from your own savings, and how much money you’ll need to get from other funding sources. This estimate gets easier to figure out once you complete a cash flow statement , which you will do later in this chapter.

Sources of Cash

You can get funds to start your business from different places, such as:

  • Personal savings
  • Loans – bank loans, bank lines of credit, and loans from friends or family
  • Investors – angel investors, venture capitalists, Vocational Rehabilitation, friends, or family
  • Grants – small business incubators and other private or government grant programs
  • Gifts – crowdfunding, friends, and family

Sources of cash are covered in greater detail in the Chapter 8: Resources section of this website. You may seek guidance from a small business development advisor for additional ideas.

Piggy bank

Trade or Barter

One way to lower expenses is to trade or barter with other business owners or people. Think about what things other people could help you with, and what skills or talents you could offer in exchange. These could be professional skills related to your business, or other things that you’re good at but aren’t necessarily related to your business.

For example, you could exchange some home-cooked meals or babysitting for help with transporting and setting up your shelving units. Or, you could trade music lessons for bookkeeping assistance for your business. These types of trades will lower the amount of cash you have to come up with to pay your bills.

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A break-even analysis helps you figure out when your business will become profitable.

  • First, it helps you figure out how much product or service you have to sell to cover your variable operating costs and fixed costs to break-even.
  • Second, it helps you figure out how much more you need to sell to make a profit, not just cover your costs.

The break-even analysis is similar to the cost-evaluation exercise you completed in Chapter 3: Business Feasibility, but it is more detailed. This section will cover how to do a break-even analysis.

Numbers on a calculator

The first step in conducting a break-even analysis is to consider the price you will charge for your product(s) or service(s). You will need to consider how much other businesses charge and how much customers are willing to pay.

How you price your product or service will affect how much you sell. When you charge more, you often sell less. Research about your industry can help you figure out how much customers typically pay.

Check out How to Price Your Small-Business Products and Services from the Small Business Association and How to Price Your Products from Inc.com to get some ideas.

Price Points

It is a good idea to consider how different prices will affect both sales and profits. When thinking about your pricing, identify a low, medium, and high price for your product. Once you start your business, you will have more information about how much customers will pay. Understanding how different prices affect sales will help you develop sales targets, or the amount you have to sell each month to cover costs.

Hanging canvas bag with a plant in it with a $39 price tag

Pricing a Service

Figuring out how to price a service is not always as easy as pricing a product. For example, it might be hard to calculate how much you spend on materials, labor, and fixed costs for a lawn care business. Instead, you can calculate a price for a unit of time, such as by the hour or by the project. To do this, research your industry for:

  • Rates for comparable services
  • Methods of billing ─ per hour or per project
  • Who pays for materials – the customer or the business owner

Check out 5 Tips for Pricing Your Services When You’re Self-Employed from theselfemployed.com and What is Your Time Worth? How to Figure Out Your Hourly Rate from Handyman Startup for more tips on how to price a service.

Conducting a Break-Even Analysis

Once you settle on a price, or a few price options, you can conduct a break-even analysis . There are several steps to figure out how much you need to sell to cover your costs and earn a profit:

  • Step 1: Estimate your variable and fixed operating costs
  • Step 2: Estimate your gross profit for each unit of product or service sold
  • Step 3: Determine your break-even point (units to make and sell to cover your operating and fixed costs)
  • Step 4: Estimate additional units you need to sell to reach your profit goal

These steps are described below. Then, you can use a break-even analysis worksheet linked at the end of this section to help you figure out your own break-even point for three different prices.

Banking calculator

Step 1: Variable and Fixed Operating Costs

The first step in a break-even analysis is to figure out your per unit variable costs and monthly fixed operating costs.

  • Variable costs are how much it costs to produce your product or service, such as the materials, labor, and delivery costs to sell a unit of your product or service.
  • Fixed operating costs are costs you always pay, even if you don’t sell anything. They are generally recurring costs, such as rent, utilities, or insurance.

You already estimated these costs in Chapter 6: The Operations Plan.

Step 2: Gross Profit Per Unit

To figure out your gross profit per unit , you need to determine the price you will charge for a unit of your product or service and subtract your variable costs for producing it.

price per unit – variable costs per unit = gross profit per unit

For example, if you sell a product for $20 and the cost to produce it is $12, your gross profit per unit is $8.

$20 (price per unit) - $12 (variable costs per unit) = $8 (gross profit per unit)

Coffee shop menu with prices listed

Step 3: Determining your Break-Even Point

When you sell enough units of your product or service to exactly cover your variable and fixed operating costs, this is called your break-even point . To figure out your break-even point, divide your fixed costs by your gross profit per unit.

fixed costs ÷ gross profit per unit = break-even point

Your business will break-even when the gross profit you bring in from sales exactly covers your fixed operating costs.

For example, if your fixed operating costs are $800 per month, and your gross profit per unit is $8, you would need to make and sell approximately 100 units of your product or service to break even.

$800 (monthly fixed costs) ÷ $8 (gross profit per unit) = 100 units sold (break-even point)

If you sell more than the break-even number (for example, if you sell 110 units), you will make a profit. If you sell less than the break-even point (for example, if you sell 90 units), you will lose money.

Step 4: Profit Sales Goals

If you want your business to grow, you can’t just break-even each month. You need to think about personal and long-term business goals, like earning money or expanding your business. A profit sales goal is the number of additional units of a product or service you need to sell to make a particular level of profit.

profit goal ÷ gross profit per unit = profit sales goal

For example, if you want to make $160 a month in profit (your profit goal), and your gross profit is $8, you would need to make and sell an additional 20 units of your product or service to reach your profit goal. Your profit goal is a dollar amount, and your profit sales goal is the number of extra units you need to sell to reach that goal.

$160 (profit goal) ÷ $8 (gross profit per unit) = 20 additional units sold (profit sales goal)

The following example shows all these steps for Jean’s Jewelry.

Woman smiling behind point of sale system

Example: Jean’s Jewelry

Jean is starting a jewelry-making business. She is starting with earrings, since they are relatively easy to make and sell. She does the following break-even analysis.

Step 1: Jean’s Variable and Fixed Operating Costs

Variable costs : Jean made a variable cost table to estimate her per unit variable costs to produce one pair of earrings in Table 1. She included per unit labor, materials, packaging, and shipping costs. She added these costs together and found that it will cost approximately $13.50 to make and sell one pair of earrings.

Fixed monthly operating costs . Next, Jean estimated her fixed monthly operating costs in Table 2. These include her rent, utilities, insurance, taxes, and other costs that she has to pay each month even if she doesn’t sell any of her earrings. Jean estimated her fixed monthly costs at $885. Note: Jean’s fixed costs include an owner’s draw, or an amount to help her cover some of her personal expenses.

Packaged gift with a pinecone and greenery

Step 2: Jean’s Gross Profit per Unit

Jean’s variable costs per pair of earrings is $13.50. In order to earn gross profit, she will need to charge more for a pair of earrings than it costs to make a pair. Jean did some market research about competitive jewelry prices at craft fairs. Based on this information, she estimated her gross profit per unit for three different price points ($20, $25, and $30 per pair of earrings) in Table 3 using this formula:

As the calculations show, charging a higher price increases the gross profit per unit sold. At a price of $20 per pair of earrings, gross profit per unit is $6.50. At $25 per pair of earrings, gross profit per unit is $11.50. And at $30 per pair of earrings, gross profit per unit is $16.50.

Step 3: Jean’s Break-even Point

Jean’s break-even point is how many pairs of earrings she must sell per month to cover both her variable and fixed costs. Depending on the price she charges and the gross profit she earns, Jean will have to make and sell different numbers of earrings to cover her monthly fixed costs.

She uses this calculation to figure out the break-even point for her low, medium, and high price points in Table 4:

If Jean charges $20 per pair, she will need to make and sell 136 pairs of earrings to cover her fixed costs. If she charges $25 per pair, she will need to make and sell 77 pairs of earrings. If she charges $30 per pair, she will need to make and sell 54 pairs.

Keep in mind, although Jean may have to sell fewer pairs of earrings if she charges $30, she may also have fewer customers willing to pay that much.

Note : The number of units to sell are rounded to the nearest whole number, since it doesn’t make sense to sell 136.15 pairs of earrings.

Jewelry supplies and pliers

Step 4: Jean’s Profit Sales Goals

Jean also wants to earn $150 in profit per month to pay down a loan and upgrade her equipment. She uses this calculation to figure out how many additional pairs of earrings she must sell to make a profit in Table 5:

If Jean sells her earrings at $20/pair, she will have to sell a total of 159 pairs of earrings each month (136 to break even and 23 to meet her profit goal).

If Jean sells her earrings at $25/pair, she will have to sell a total of 90 pairs of earrings each month (77 to break even and 13 to meet her profit goal).

If Jean sells her earrings at $30/pair, she will have to sell a total of 63 pairs of earrings each month (54 to break even and 9 to meet her profit goal).

Multiple Products

The example above assumes that Jean is only selling one product – earrings. The calculations can get a little more complicated when selling multiple products or services at different price points. For example, Jean may sell different types of jewelry, such as earrings, bracelets, and necklaces. In these situations, she would need to figure out gross profit per unit for each type of product or service, and determine the share of monthly fixed costs that would likely be covered by sales for each type of item.

Necklace pendants

Putting it all Together

We have included two break-even analysis worksheets (one for a single product with different price points, and one for making calculations for multiple products) for you to download, save, and use . Each worksheet is provided in two different formats – one for Microsoft Excel and one for Google Sheets.

  • If you don’t have Microsoft Office Excel software, you can access a free version of Google Sheets spreadsheet software from Google Drive . 
  • If you use a screen reader, we suggest downloading a free version of NVDA screen reader software, which does a better job navigating the tables.
  • We have also included examples of each worksheet for Jean’s Jewelry, that you can use to follow along with when completing your own break-even analysis.

Break-Even Analysis Worksheets (one product or service with low, medium and high price points):

  • Break-even Analysis Worksheet (Excel)
  • Break-even Analysis Worksheet (Google Sheets)
  • Example: Jean’s Break-even Analysis (Excel)
  • Example: Jean’s Break-even Analysis (Google Sheets)

Break-Even Analysis Worksheet – Multiple Products:

  • Break-even Analysis with Multiple Products Worksheet (Excel)
  • Break-even Analysis with Multiple Products Worksheet (Google Sheets)
  • Example: Jean’s Break-even Analysis with Multiple Products (Excel)
  • Example: Jean’s Break-even Analysis with Multiple Products (Google Sheets)

The break-even analysis helps you set prices and sales goals. The sales forecast , on the other hand, describes what you think you will sell over a given period of time (typically 1 to 3 years). The numbers you plug into a sales forecast are based on information about other similar businesses, and are your best estimates. They are not your actual sales, because you have not been in business yet!

Graph with coins stacks on top of it

Developing a Sales Forecast

You can figure out your sales forecast in several different ways:

  • Average sales: You can use average sales for similar businesses in similar locations to give you a ballpark idea about how much you might expect to sell. 
  • Market share: You can figure out your market share, or how many customers will come to your business as compared to other similar businesses.
  • Sales breakdown: You can break down sales into months and account for differences in sales during business start-up or due to seasonal fluctuations.

If you can, use more than one of these ways to come up with your best estimate of future sales. The more information you gather to estimate sales, the better!

Once your business is up and running, your sales forecast will become more accurate because it will be based on your past year’s actual sales.

Average Sales

When you start a new business, you may not have a clear idea of what kind of sales to expect. Use average sales for similar businesses in similar locations to estimate your expected sales. However, don’t assume you will have average sales right away. Your sales will probably start out low and then increase over time as more customers learn about your business.

Check out this University of Minnesota Extension fact sheet: “ How can I assess demand for a proposed business in my community? ” for more information and instructions on how to use the Economic Census to estimate your potential sales.

Man looking at graph on computer screen

Market Share

Market share for a business is the portion of the total sales, units, or customers that go to your business instead of other similar businesses. One way to figure out market share is to divide the total sales for all businesses in your area by how many sales your business made for the same time period.

Market share is hard to calculate when you are starting a new business, and it is unlikely that you will do it for your initial business plan. It is a better measure once your business has been operating for a time.

There are three ways to figure out your business’s market share.

  • Your business’s share of unit sales
  • Your business’s share of customers
  • Your business’s share of sales in dollars

Which measure to use will depend on what product or service your business offers and what information you can find out about similar businesses in your area.

See How to Calculate Market Share for Your Business Marketing Plan and Calculate Your Small Business Market Share from dummies.com for more information on how to figure out your business’s market share.

Sales Breakdown

It is useful to break down sales by month for your first year of business so that your estimates are more accurate. This allows you to adjust your sales while you are building your business and customer base. It also allows you to show how sales might vary across different seasons or months. For instance, a small craft business that makes mittens out of old sweaters will have much higher sales in winter months and before Christmas than in the spring and summer months.

You can also break down sales by specific products or services to get estimates of each.

Yarn and knitting supplies

Example: Carl’s Lawn and Grounds Services

Carl is starting a lawn and grounds keeping business. He plans to offer lawn mowing, snow removal, raking/grounds clean-up, and fertilizing services. He researched other lawn and grounds keeping businesses in his area to come up with an average price for each of these services.

  • Lawn mowing - $40 per job
  • Snow removal - $25 per job
  • Raking/ grounds clean-up - $90 per job
  • Fertilizing - $75 per job

He expects that demand for his different services will change based on the season. He also expects that his number of customers will increase over time as his business begins to grow.

Snow Removal – 1st quarter

Carl plans to start his business in November. The only service he expects to provide during the first three months is snow removal. He has 10 steady customers lined up for November, but expects to have more customers in December and January. Based on discussions with other snow removal businesses in the area, he estimates 3 snow removal jobs per customer in November and 5 per customer in December and January.

Table 1 shows his sales forecast for snow removal services in November, December, and January.

Notice that:

  • Monthly sales = price × number of customers × units sold to each customer per month. 
  • The number of customers increases over time, reflecting business growth.
  • The units sold vary across months to adjust for changes in expected snowfall.

Snowplow driving down snowy street

Carl’s 12-month Sales Forecast

Carl completed sales estimates for all his services for each month of the year using a sales forecast spreadsheet.

First, Carl created a spreadsheet that included rows for each of the services he offers and columns for each month of business. For each service and month, he entered the price for each service, number of customers, expected units sold per customer, and monthly sales.

  • Carl included estimates for each service he offered including lawn mowing, snow removal, grounds clean-up, and fertilizing. Some of these services overlapped across months, and some services weren’t offered in a specific month.
  • The sales forecast included expected sales by month and for the year.
  • Carl added the monthly sales totals to arrive at his total sales estimate of $29,580 for the year.

Sales Forecast Spreadsheet

We have included a sales forecast spreadsheet for you to use. The spreadsheet is provided in two different formats – one for Microsoft Excel and one for Google Sheets.

  • If you don’t have Microsoft Office Excel software, you can access a free version of Google Sheets spreadsheet software from Google Drive .
  • We have also included a sample spreadsheet for Carl, that you can use as a guide.

Sales Forecast Spreadsheets:

  • Sales Forecast Worksheet (Excel)
  • Sales Forecast Worksheet (Google Sheets)
  • Example: Carl’s 12-month Sales Forecast (Excel)
  • Example: Carl’s 12-month Sales Forecast (Google Sheets)

Screenshot of Sales Forecast Worksheet

Getting Started

Once you have downloaded the sales forecast spreadsheet, you can begin to fill it in. For each of your products or services:

  • Enter your sales price
  • Estimate the number of customers you expect to have each month
  • Estimate the number of units you expect to sell to each customer each month (this will often be 1)
  • price × number of customers × units sold per month = monthly sales

If you are selling more than one product or service, the worksheet will calculate the monthly sales for each product or service you enter and show you the total monthly sales at the bottom.

Available cash is vital to business operations. Although your business may be profitable when sales are combined over several months, that doesn’t mean you made a profit every month. For instance, if you make most of your sales leading up to a specific holiday like the 4th of July, you may have higher rates of profit in some months (i.e. May, June, and July) and losses in other months. This is important to know because you need to cover your bills and other fixed costs when they are due each month.

Crumpled dollar bills

Cash Flow Statement

The cash flow statement is a monthly record of your receipts (cash coming in) and disbursements (cash going out). It usually covers a one-year time period and shows when your business will receive cash (receipts) and when you need cash to pay bills (disbursements).

Each month you start with a cash reserve, or the money you have right now (also called cash-on-hand). During the month, your cash reserve increases by adding payments from customers. Your cash reserve decreases when you pay your fixed and variable operating costs. The money you have at the end of the month is your cash balance. This amount is also your cash reserve for the next month.

Cash reserve to ending cash balance graphic

There are several parts of a cash flow statement:

Cash Reserve

The starting point for a cash flow statement is the cash reserve . It is important to have a large cash reserve when you first start your business. Not only will you use your cash reserve to cover start-up costs, but you will also use it to cover your fixed and variable costs until your business breaks-even.

If your cash reserve at the end of the month is below zero, this means you have used up your cash on hand, and your business will not be able to pay the current bills.

Person counting money

Receipts (Money In)

Receipts are money your business receives from sales or other sources such as gifts, grants, or short-term operating loans.

You might not always get paid right away when you sell a product or service. For example, businesses that invoice (or send bills) for sales and services usually get paid the following month. If this is the case, you need to account for it in your cash flow statement. It can get complicated to figure out across multiple months.

Here’s an example of receipts coming in across months.

Receipts Calculations – Green Grass Sprinkler

Table 1 uses the following information to calculate receipts for a sprinkler installation business for May, June, and July.

  • Sales for the first three months are $5,000 for May, $6,000 for June, and $7,000 for July.
  • Based on estimates from owners of similar businesses, 50% or half of the customers pay bills in the same month and 50% pay bills the following month. This means each month of sales will be received over two months.

Sprinkler shooting water

Disbursements (Money-Out)

Disbursements are made up of three types of costs:

  • Variable operating costs , or the costs of goods sold, which are the materials and labor required to produce your product or service.
  • Fixed operating costs , or costs paid each month whether or not you sell any product or service. They are things like rent, utilities, and insurance.
  • Other expenses or costs related to loan repayments, capital expenditures, owners draw, and taxes, which are not variable or fixed operating costs.

The cash flow statement should show when you actually pay these costs. Some of these costs are paid every month, such as rent and utilities, and others may be only once or twice a year, such as insurance and license fees.

Ending Cash Balance

Your ending cash balance is the amount of money you have left at the end of the month. To figure out the ending cash balance, use this formula:

cash reserve + receipts – total disbursements = ending cash balance

Remember that the ending cash balance for one month becomes the starting cash reserve for the following month.

Having a positive ending cash balance does not mean that your business is profitable. For example, if your cash reserve is $300 in January, $250 in February, and $100 in March, you still have enough cash-on-hand to cover bills, but your cash reserve is decreasing over time.

Hands flipping through bills

Surplus or Deficit

To determine if your business is profitable for the month, use the following formula. If your answer is negative, it is a deficit and you are losing money. If your answer is positive, it is a surplus and you are making money.

receipts – total disbursements = surplus (+) or deficit (-)

  • If you are operating at a surplus, this means that you are bringing in more money than you are spending each month—your receipts are more than your disbursements. You are making a profit.
  • If your business is operating at a deficit, this means you are spending more money than you are bringing in—your disbursements are more than your receipts for that month. You are losing money.
  • You can have a surplus in one month, but be operating at a loss for the year, if other months are operating at a deficit.

Ending Cash

Your ending cash for the month is the cash reserve for the month plus the surplus or deficit for the month.

Ending cash = cash reserve + surplus/deficit

If you have a surplus in the month, your ending cash will be greater than your cash reserve for that month. If you are operating at a deficit in the month, your ending cash will be less than your cash reserve for that month.

Your ending cash is the next month’s cash reserve.

Bills spread out

Cash Flow Spreadsheet

We have included a cash flow spreadsheet for you to use. The spreadsheet is provided in two different formats – one for Microsoft Excel and one for Google Sheets.

  • If you don’t have Microsoft Office Excel software, you can access a free version of Google Sheets spreadsheet software from Google Drive. 
  • We have also included a sample spreadsheet for Gary’s Gutter, that you can use as a guide.

Cash Flow Spreadsheets:

  • Cash Flow Spreadsheet (Excel)
  • Cash Flow Spreadsheet (Google Sheets)
  • Example: Gary’s Gutter Cash Flow Spreadsheet (Excel)
  • Example: Gary’s Gutter Cash Flow Spreadsheet (Google Sheets)

Spreadsheet Tips

Here are some things to keep in mind as you put together your own cash flow statement:

  • Ending cash is carried forward to the next month as cash reserve.
  • Make sure to account for seasonal fluctuations and business growth in your sales and variable costs (costs of goods sold), because they impact your monthly receipts.
  • If you invoice customers, sometimes receipts are delayed.
  • Likewise, if you are invoiced for materials, you may not pay the invoice until a later date, like the following month.
  • Call utility providers to get installation prices, monthly fees, and projected expenses.
  • Call suppliers for prices and credit procedures.
  • Interview owners of similar businesses to estimate sales volume and collection delays.
  • When in doubt, it is best to overestimate disbursements and underestimate income or receipts.

To get an idea of how to fill in a cash flow statement, follow along with the example below.

Person going through a reciept with a pencil and calculator

Example: Gary’s Gutter

Gary has a new rain gutter installation business. Download and print Gary’s Cash Flow – January to April to follow along with Gary’s cash flow estimates for January, February, and March.

Gary’s Gutter - January

Gary started his gutter installation business in January.

  • His beginning cash reserve was $10,000.
  • Although his sales for the month were $5,000, he will not be paid for these jobs until February (50% of January sales, which equals $2,500) and March (50% of January sales, $2,500).
  • His costs of goods sold (or variable operating costs) for January are $2,225.
  • His fixed operating costs for January are $1,735.
  • His other expenses for January are $4,909.
  • Added together, his total disbursements for January equal $8,869. He found this number by adding together his costs of goods sold ($2,225), fixed operating costs ($1,735), and other expenses ($4,909).
  • $0 (receipts) - $8,869 (total disbursements) = - $8,869 (deficit, because his total payments are more than his receipts).
  • If he subtracts this deficit from his starting cash ($10,000 - $8,869) that leaves $1,131 left in cash reserve to start the next month, February.

Gutters with icicles hanging over the edge

Gary’s Gutter – February

With the first month under his belt, Gary does these same calculations for February.

  • His beginning cash reserve for February is $1,131 (this was his ending cash balance from January).
  • He receives $2,500 in February from jobs he completed in January.
  • His February sales of $5,000 will not be paid until March (50% of February sales) and April (50% of February sales).
  • His costs of goods sold (or variable operating costs) for February are $2,225.
  • His fixed operating costs for December are $365.
  • His other expenses for December are $659.
  • Adding up his February costs of goods sold, fixed operating costs, and other expenses, his total disbursements are $3,249. 
  • To figure out if he is operating at a surplus or deficit, he takes his receipts and subtracts his total disbursements ($2,500 - $3,249 = -$749). He is operating at a deficit this month, because his total disbursements are more than his receipts.
  • $1,131 (cash reserve) + $2,500 (receipts) – $3,249 (total disbursements) = $382 (ending cash balance)
  • From this, Gary determines he has $382 in cash reserve to start the next month, March.

Gary’s Gutter – March

Here is one more month.

  • Gary’s beginning cash reserve for March is $382 (his ending cash balance for February).
  • He receives $2,500 in March from jobs he completed in January.
  • He receives $2,500 in March from jobs he completed in February.
  • His March sales of $5,000 will not be paid until April (50% of March sales) and May (50% of March sales).
  • His costs of goods sold (or variable operating costs) for March are $2,225.
  • His fixed operating costs for March are $365.
  • His other expenses for March are $2,159 (this was higher than the last month because he had a quarterly tax payment due).
  • Adding March costs, his total disbursements are $4,749. 
  • To figure out if he is operating at a surplus or deficit, he takes his receipts and subtracts his total disbursements ($5,000 - $4,749 = $251). He is operating at a surplus this month, because his total disbursements are less than his receipts.
  • $382 (cash reserve) + $5,000 (receipts) – $4,749 (total disbursements) = $633 (ending cash balance)
  • Gary calculates he has $633 in cash reserve to start the next month, April.

Man working on roof

The income statement shows a business’s financial activity over a specific period of time, usually one year. It shows:

  • Total sales
  • Costs of goods sold
  • Gross profit
  • Fixed operating and other expenses

These estimates will be very similar to the yearly totals generated on the cash flow statement. However, the income statement is different from the cash flow statement because it is not estimated month-by-month. Instead, it shows your receipts and disbursements for the entire year. The income statement helps you figure out if your business made or lost money in that year. 

Before your business opens, the income statement shows your best estimates of receipts and disbursements. Once your business is up and running, the income statement uses real numbers to determine your business profit or loss. Often, an accountant will help you develop your income statement and calculate your taxes based on the numbers.

View the Sample Income Statement for Gary’s Gutter to follow along with the following descriptions of the income statement parts. Notice the sample statement covers a specific time period measuring income from January 1, 2019 to December 31, 2019 (one year).

Laptop screen showing revenue

Parts of the Income Statement

The income statement includes several estimates including total sales, costs of goods sold, gross profit or loss, total fixed operating costs and other expenses, and net profit. These are described in more detail below.

Total Sales

Most financial planning begins with predicting sales over a specific period of time. To predict sales, you should do some market research, such as:

  • Surveying similar businesses in other locations about their average sales
  • Reviewing industry publications for average sales of similar sized businesses
  • Searching Small Business Administration (SBA) publications

This information was covered in the Break-Even Analysis and Sales Forecast sections earlier in this chapter.

Total Sales for Gary’s Gutter was estimated at $68,125. He used the information from his cash flow statement to make this estimate (see Gary’s Gutter Cash Flow Spreadsheet - Excel ).

Person using smartphone card reader to make a payment

Costs of Goods Sold

Variable operating costs or costs of goods sold are the direct costs to produce your product(s) or service(s). You can use figures from your cash flow statement to estimate your total costs of goods sold for the year. Here are some examples of costs of goods sold for retail, manufacturing, and service businesses.

  • Retail business: the difference between the cost of the beginning and ending inventory, costs for shipping and packaging, and costs of labor directly related to sales.
  • Manufacturing business: the costs of raw materials, parts, and labor to manufacture one item, multiplied by the number of units sold.
  • Service business: expenses for providing the service, such as direct labor costs and any supplies. For instance, a lawn mowing business might include labor, gas, and lawn waste disposal costs.

The sample income statement for Gary’s Gutter shows total costs of goods sold as $35,580 which included labor and materials to complete Gary’s gutter installation jobs for the year.

Gross Profit or Loss

Gross profit is the difference between total sales and costs of goods sold. To figure out your gross profit, subtract the cost of goods sold from the total sales you made.

total sales – costs of goods sold = gross profit or loss

If sales are more than costs, there is a gross profit. If costs are more than sales, the business is operating at a loss.

Notice that the sample income statement for Gary’s Gutter reports $32,545 in gross profit. This was calculated by taking the total sales of $68,125 and subtracting the total costs of goods sold of $35,580.

Calculator on top of a graph

Total Fixed Operating Costs and Other Expenses

Fixed operating costs are the costs of running a business that are not directly linked to the production of your product or service. These are things like rent, utilities, salaries, payroll taxes, advertising, insurance, office supplies, repairs and maintenance, and depreciation.

Other expenses are not part of operating the business or creating the good or service. These are things like interest payments on loans, capital equipment purchases, or owner’s draw.

You can use estimates from your cash flow statement to estimate your fixed operating costs and other expenses. For Gary, these were $7,764 for fixed operating costs and $19,733 for other expenses, which total $27,497.

Net Profit or Loss

If your business makes more money than it spends, you are operating at a net profit, which means your business is profitable. If your business spends more money than it makes, you are operating at a net loss, and your business is not profitable.

To figure out if your business is operating at a net profit or loss, subtract your total fixed operating costs and other expenses from your total gross profit.

Total gross profit – total fixed operating cost and other expenses = net profit (or loss)

Gary estimated his net profit as $5,048 for the year.

Hand drawn line chart showing improvment

Future Income Statements

Once your business is up and running, your income statements will be based on actual receipts and disbursements, rather than estimates. These will help you evaluate how your business is performing over time.

It is good to work with an accountant to make sure you are doing all your business financials correctly and are paying appropriate local, state, and federal taxes.

The balance sheet shows how much your business is worth at a specific point in time. It shows your total assets, total liabilities and the difference between the two, called equity. Equity is important for securing business loans because it serves as an incentive for you to pay back the loan. It is a bit like a down payment on a house.

Screenshot of Sample Balance Sheet

Parts of the Balance Sheet

Download the Sample Balance Sheet for Locker Room Jerseys to see how the balance sheet is set up. To learn more, check out Balance Sheet Definition and Example from thebalance.com .

Total Assets

Total assets are all the things your business owns that have a cash value or could be sold for cash. Total assets are broken into two categories – current assets and fixed assets.

current assets + fixed assets = total assets

  • Current assets include things that have a cash value such as savings, inventory, accounts receivable (payments owed to you), and prepaid expenses (like insurance – that would be refunded).
  • Fixed assets include things that have a cash value but would need to be sold such as land, buildings, and equipment. When assessing the value of equipment or vehicles, you need to account for depreciation (or the reduction in value due to wear and tear or because it is becoming obsolete). To learn more, check out What is Depreciation ? From profitbooks.net .

Locker Room Jerseys has $8,400 in current assets and $4,500 in fixed assets. Total assets for the business are $13,900.

Boxes stacked in storage unit

Total Liabilities

Total liabilities are money your business owes to other businesses or companies. Total liabilities are divided into current liabilities and long-term liabilities.

current liabilities + long-term liabilities = total liabilities

  • Current liabilities and the payments that are due immediately, such as what you owe to suppliers.
  • Long-term liabilities are payments that need to be paid over time, such as long-term loans or a mortgage.

Locker Room Jerseys has $2,375 in current liabilities and $3,500 in long-term liabilities. Total liabilities for the business are $5,875.

Equity is the difference between a business’s total assets and total liabilities. Equity is how much your business is worth. You can figure out your business’s equity by subtracting your total liabilities (or how much you owe) from your total assets (or how much money you have).

total assets – total liabilities = equity

Locker Room Jerseys has $13,900 in total assets and $5,875 in total liabilities. That leaves $7,025 in equity.

Generally, a new business will develop a balance sheet every year in order to compare balance sheets over time to see if equity is growing, falling, or staying the same.

Excel spreadsheet with different colors on certain columns

The Financial Plan is an overview of your anticipated receipts (cash coming in) and disbursements (cash going out). It shows your best prediction of how the business will grow over time and become profitable. It includes several sections:

  • Up-front cash needs – cash needed to start-up the business and cover costs until the business starts earning a profit
  • Break-even analysis – the amount of product or services that must be sold to cover variable and fixed operating costs
  • Sales forecast – a prediction of sales over time
  • Cash flow statement – a monthly accounting of receipts and disbursements to make sure you can cover your bills each month
  • Income statement – a statement that shows your anticipated profit or loss for an entire year
  • Balance sheet – a statement that shows the business’s worth or value at a given point in time.

Developing your financial plan is one of the harder parts of writing your business plan. But if you’ve made it this far, you have some good tools for getting started. There are also business development resources to help you develop a financial plan, which are included in the final chapter of this website, Chapter 8: Resources.

Calculator and checkbook register

First, take a deep breath—developing your financial plan can seem scary, but with some research and planning, you can do it!

  • Use the Business Plan Outline to keep track of your progress.
  • Refer to some of the business development resources listed in the Resources chapter to help you.
  • Think about working with a bookkeeper or accountant to help you figure out your financials, or invest in bookkeeping software like Quickbooks .

Start developing your financial plan by figuring out your up-front cash needs. How much money will you need to start your business and keep it going until you make a profit?

Then, make a list of different sources of funds, such as personal savings, potential loans, or grants to cover these costs. To get most types of loans, you will probably need a full business plan, so keep working through all the sections in this chapter.

Calculator on messy desk

Break-Even Point and Beyond

Next, figure out your break-even point. How much will it cost to produce your product or service, and how much do you have to sell in order to cover these costs? Don’t forget to include both your variable and fixed operating costs in this calculation. Use the worksheets contained in the Break-Even tab to help you.

Also, consider pricing, and how different prices affect your break-even point. Figure out your gross profit for a few different price points and be sure to consider how much customers are willing to pay.

Finally, continue using the worksheets included in the various sections of this chapter to develop your best estimates of sales, cash flow, and income. 

If you have made it this far through the website, you have probably put a lot of time and effort into your business idea. This is something that will serve you well if you decide to pursue self-employment. Planning is a very important part of business success!

But don’t get discouraged if you have had trouble working through this material. Business planning is complicated! That is why it is so important to use available resources to help you, such as Small Business Development Centers, business incubators, business mentors, and other people you know. Also, check out the final Resources chapter for additional ideas.

Calculator on graph paper

Circling Back to the Executive Summary

Remember, after you finish developing your business description, marketing plan, operations plan, and financial plan, you need to go back to the executive summary section (see Chapter 4: The Business Plan) to write an overview of your full business plan.

When it is finished, the business plan provides a guide for getting your business up and running. It is also a document to share with potential funders.

Most business owners use the business plan beyond the start-up phase to track progress and adjust their business operations. A thorough and complete business plan is worth the time and effort.

Click on the “VR Counselor Review” button for a short review of information for VR counselors from this chapter.

Presentation | VR Counselor Review

Check your understanding, checking the financial plan, break-even analysis scenario, cash flow statement scenario.

Woman working on laptop

To review your understanding of this chapter’s material, go through the following questions, and then a break-even scenario in Tab 2 and a cash-flow scenario in Tab 3.

Financial Plan Questions

Write down answers to the following questions. Then, check your answers in the REVIEW YOUR ANSWERS button.

Up-front Cash

What is up-front cash and what does it cover?

What does a break-even analysis help you figure out?

What are some things you should think about when you are putting together your sales forecast?

Cash Flow vs. Income Statement

How is the cash flow statement different than the income statement?

Tracking Cash Flow

Why is cash flow important to keep track of throughout the year?

Presentation | Review Your Answers

Parker’s tasty dog treats.

Parker is starting a business making gourmet dog treats. He plans to sell them in local pet shops and directly to individual pet owners at craft fairs and online. He wants to know how many bags of treats he will need to sell in order to cover all of his expenses, and how many to sell to make a profit.

You will need the following information to answer the questions:

  • The variable costs for producing one bag of dog treats are $5, which includes labor and materials.
  • Fixed costs per month are $600, which include use of a commercial rental space, insurance, advertising, taxes, and an owner’s draw.  
  • Parker is planning to sell his dog treats for $10 per bag.
  • Parker’s profit goal per month is $100.

Dog biting down on dog treat

Gross Profit

Using the following gross profit calculation, what is Parker’s gross profit per bag of dog treats?

Break-Even Point

Using the following break-even point calculation, how many bags of dog treats does Parker need to sell to break-even?

fixed costs ÷ gross profit per unit = break-even point (number of units to sell each month)

Profit Sales Goals

Using the following profit sales goal calculation, how many additional bags of treats Parker needs to sell to reach his $100 profit goal?

profit goal ÷ gross profit per unit = profit sales goal (additional units to sell)

How many total bags of dog treats does Parker need to sell to break-even and reach his profit goal?

Click on PARKER’S BREAK-EVEN ANALYSIS to check your answers.

Presentation | Parker’s Break-Even Analysis

Parker developed a cash flow statement for the first six months of his business.

  • Parker began his business in May with a $3,600 loan.
  • He has to begin repaying this loan at a rate of $150/month after three months.
  • Parker is going to sell his dog treats to pet stores for $10 per bag. As he starts out, Parker is asking for payment upon delivery – so there are no delays in receipts.
  • He plans to take a $100 owner’s draw every month.

Dog sitting with packages of dog treats

Download and print Parker’s Cash Flow Statement to answer the questions. Click on CASH FLOW ANSWERS to check your answers.

Parker’s receipts are increasing over time. What does this show?

In what months does Parker earn a surplus (where total receipts are greater than total disbursements)

How much cash reserve will Parker have in November?

6-month Profit or Loss

What is Parker’s profit or loss during the first six months?

Presentation | Cash Flow Answers

Previous chapter.

Chapter 6: The Operations Plan

Next Chapter

Chapter 8: Business Development Resources

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How to Write a Successful Business Plan for a Loan

Lisa Anthony

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Table of Contents

What does a loan business plan include?

What lenders look for in a business plan, business plan for loan examples, resources for writing a business plan.

A comprehensive and well-written business plan can be used to persuade lenders that your business is worth investing in and hopefully, improve your chances of getting approved for a small-business loan . Many lenders will ask that you include a business plan along with other documents as part of your loan application.

When writing a business plan for a loan, you’ll want to highlight your abilities, justify your need for capital and prove your ability to repay the debt. 

Here’s everything you need to know to get started.

How Much Do You Need?

A successful business plan for a loan describes your financial goals and how you’ll achieve them. Although business plan components can vary from company to company, there are a few sections that are typically included in most plans.

These sections will help provide lenders with an overview of your business and explain why they should approve you for a loan.  

Executive summary

The executive summary is used to spark interest in your business. It may include high-level information about you, your products and services, your management team, employees, business location and financial details. Your mission statement can be added here as well.

To help build a lender’s confidence in your business, you can also include a concise overview of your growth plans in this section.

Company overview

The company overview is an area to describe the strengths of your business. If you didn’t explain what problems your business will solve in the executive summary, do it here. 

Highlight any experts on your team and what gives you a competitive advantage. You can also include specific details about your business such as when it was founded, your business entity type and history.

Products and services

Use this section to demonstrate the need for what you’re offering. Describe your products and services and explain how customers will benefit from having them. 

Detail any equipment or materials that you need to provide your goods and services — this may be particularly helpful if you’re looking for equipment or inventory financing . You’ll also want to disclose any patents or copyrights in this section.

Market analysis

Here you can demonstrate that you’ve done your homework and showcase your understanding of your industry, current outlook, trends, target market and competitors.

You can add details about your target market that include where you’ll find customers, ways you plan to market to them and how your products and services will be delivered to them.

» MORE: How to write a market analysis for a business plan

Marketing and sales plan

Your marketing and sales plan provides details on how you intend to attract your customers and build a client base. You can also explain the steps involved in the sale and delivery of your product or service.

At a high level, this section should identify your sales goals and how you plan to achieve them — showing a lender how you’re going to make money to repay potential debt.

Operational plan

The operational plan section covers the physical requirements of operating your business on a day-to-day basis. Depending on your type of business, this may include location, facility requirements, equipment, vehicles, inventory needs and supplies. Production goals, timelines, quality control and customer service details may also be included.

Management team

This section illustrates how your business will be organized. You can list the management team, owners, board of directors and consultants with details about their experience and the role they will play at your company. This is also a good place to include an organizational chart .

From this section, a lender should understand why you and your team are qualified to run a business and why they should feel confident lending you money — even if you’re a startup.

Funding request

In this section, you’ll explain the amount of money you’re requesting from the lender and why you need it. You’ll describe how the funds will be used and how you intend to repay the loan.

You may also discuss any funding requirements you anticipate over the next five years and your strategic financial plans for the future.

» Need help writing? Learn about the best business plan software .

Financial statements

When you’re writing a business plan for a loan, this is one of the most important sections. The goal is to use your financial statements to prove to a lender that your business is stable and will be able to repay any potential debt. 

In this section, you’ll want to include three to five years of income statements, cash flow statements and balance sheets. It can also be helpful to include an expense analysis, break-even analysis, capital expenditure budgets, projected income statements and projected cash flow statements. If you have collateral that you could put up to secure a loan, you should list it in this section as well.

If you’re a startup that doesn’t have much historical data to provide, you’ll want to include estimated costs, revenue and any other future projections you may have. Graphs and charts can be useful visual aids here.

In general, the more data you can use to show a lender your financial security, the better.

Finally, if necessary, supporting information and documents can be added in an appendix section. This may include credit histories, resumes, letters of reference, product pictures, licenses, permits, contracts and other legal documents.

Lenders will typically evaluate your loan application based on the five C’s — or characteristics — of credit : character, capacity, capital, conditions and collateral. Although your business plan won't contain everything a lender needs to complete its assessment, the document can highlight your strengths in each of these areas.

A lender will assess your character by reviewing your education, business experience and credit history. This assessment may also be extended to board members and your management team. Highlights of your strengths can be worked into the following sections of your business plan:

Executive summary.

Company overview.

Management team.

Capacity centers on your ability to repay the loan. Lenders will be looking at the revenue you plan to generate, your expenses, cash flow and your loan payment plan. This information can be included in the following sections:

Funding request.

Financial statements.

Capital is the amount of money you have invested in your business. Lenders can use it to judge your financial commitment to the business. You can use any of the following sections to highlight your financial commitment:

Operational plan.

Conditions refers to the purpose and market for your products and services. Lenders will be looking for information such as product demand, competition and industry trends. Information for this can be included in the following sections:

Market analysis.

Products and services.

Marketing and sales plan.

Collateral is an asset pledged to a lender to guarantee the repayment of a loan. This can be equipment, inventory, vehicles or something else of value. Use the following sections to include information on assets:

» MORE: How to get a business loan

Writing a business plan for a loan application can be intimidating, especially when you’re just getting started. It may be helpful to use a business plan template or refer to an existing sample as you’re going through the draft process.

Here are a few examples that you may find useful:

Business Plan Outline — Colorado Small Business Development Center

Business Plan Template — Iowa Small Business Development Center

Writing a Business Plan — Maine Small Business Development Center

Business Plan Workbook — Capital One

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U.S. Small Business Administration. The SBA offers a free self-paced course on writing a business plan. The course includes several videos, objectives for you to accomplish, as well as worksheets you can complete.

SCORE. SCORE, a nonprofit organization and resource partner of the SBA, offers free assistance that includes a step-by-step downloadable template to help startups create a business plan, and mentors who can review and refine your plan virtually or in person.

Small Business Development Centers. Similarly, your local SBDC can provide assistance with business planning and finding access to capital. These organizations also have virtual and in-person training courses, as well as opportunities to consult with business experts.

Business plan software. Although many business plan software platforms require a subscription, these tools can be useful if you want a templated approach that can break the process down for you step-by-step. Many of these services include a range of examples and templates, instruction videos and guides, and financial dashboards, among other features. You may also be able to use a free trial before committing to one of these software options.

A loan business plan outlines your business’s objectives, products or services, funding needs and finances. The goal of this document is to convince lenders that they should approve you for a business loan.

Not all lenders will require a business plan, but you’ll likely need one for bank and SBA loans. Even if it isn’t required, however, a lean business plan can be used to bolster your loan application.

Lenders ask for a business plan because they want to know that your business is and will continue to be financially stable. They want to know how you make money, spend money and plan to achieve your financial goals. All of this information allows them to assess whether you’ll be able to repay a loan and decide if they should approve your application.

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

the financial plan aspect of a business plan to a potential lender

A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.

Key Takeaways

  • A business plan is a document describing a company's business activities and how it plans to achieve its goals.
  • Startup companies use business plans to get off the ground and attract outside investors.
  • For established companies, a business plan can help keep the executive team focused on and working toward the company's short- and long-term objectives.
  • There is no single format that a business plan must follow, but there are certain key elements that most companies will want to include.

Investopedia / Ryan Oakley

Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.

Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."

Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.

Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.

While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.

These are some of the most common elements in many business plans:

  • Executive summary: This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
  • Products and services: Here, the company should describe the products and services it offers or plans to introduce. That might include details on pricing, product lifespan, and unique benefits to the consumer. Other factors that could go into this section include production and manufacturing processes, any relevant patents the company may have, as well as proprietary technology . Information about research and development (R&D) can also be included here.
  • Market analysis: A company needs to have a good handle on the current state of its industry and the existing competition. This section should explain where the company fits in, what types of customers it plans to target, and how easy or difficult it may be to take market share from incumbents.
  • Marketing strategy: This section can describe how the company plans to attract and keep customers, including any anticipated advertising and marketing campaigns. It should also describe the distribution channel or channels it will use to get its products or services to consumers.
  • Financial plans and projections: Established businesses can include financial statements, balance sheets, and other relevant financial information. New businesses can provide financial targets and estimates for the first few years. Your plan might also include any funding requests you're making.

The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.

2 Types of Business Plans

Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

  • Traditional business plans : These plans tend to be much longer than lean startup plans and contain considerably more detail. As a result they require more work on the part of the business, but they can also be more persuasive (and reassuring) to potential investors.
  • Lean startup business plans : These use an abbreviated structure that highlights key elements. These business plans are short—as short as one page—and provide only the most basic detail. If a company wants to use this kind of plan, it should be prepared to provide more detail if an investor or a lender requests it.

Why Do Business Plans Fail?

A business plan is not a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections to begin with. Markets and the overall economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All of this calls for building some flexibility into your plan, so you can pivot to a new course if needed.

How frequently a business plan needs to be revised will depend on the nature of the business. A well-established business might want to review its plan once a year and make changes if necessary. A new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.

Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.

A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

U.S. Small Business Administration. " Write Your Business Plan ."

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