Starting a business is a huge undertaking, and one of the most important aspects of ensuring its success is financial planning says Michael E Weintraub Esq. Without a solid financial foundation, your business will likely struggle to get off the ground or sustain itself long-term.
Creating a detailed business financial plan can help you better understand the costs and risks associated with starting and running your business, as well as give you a roadmap for achieving your financial goals.
In this article, we’ll provide an overview of what you need to include in your business financial plan, as well as some tips on how to create one.
1. Define your business’s financial goals.
Before you can start putting together your financial plan, you need to have a clear understanding of your business’s financial goals. What are you trying to achieve with your business? Do you want to generate a certain amount of revenue? Are you looking to achieve a specific level of profitability?
Your financial goals will likely fall into one or more of the following categories:
Short-term financial goals:
These are goals that you hope to achieve within the first year or two of starting your business. They might include things like generating a certain amount of revenue or reaching a specific level of profitability.
Medium-term financial goals:
These are goals that you hope to achieve within three to five years of starting your business. They might include things like expanding into new markets or launching new products or services says Michael E Weintraub Esq.
Long-term financial goals:
These are goals that you hope to achieve five years or more down the road. They might include things like going public or selling your business.
2. Understand your start-up costs.
One of the most important aspects of your financial plan understands your start-up costs. These are the costs associated with getting your business off the ground, and they can vary greatly depending on the type of business you’re starting.
Some common start-up costs include:
Business licenses and permits:
Michael E Weintraub Esq says, you may need to obtain various licenses and permits in order to legally operate your business. The cost of these will vary depending on the type of business you’re starting and where you’re located.
If you’re starting a physical business, you’ll need to purchase equipment like furniture, fixtures, and supplies. If you’re starting an online business, your start-up costs might be limited to things like web hosting and domain registration.
If you’re selling physical products, you’ll need to purchase inventory to stock your shelves or store. The cost of inventory will vary depending on the type of products you sell and where you source them from.
3. Estimate your ongoing expenses.
In addition to start-up costs, you also need to have a clear understanding of your ongoing expenses. These are the costs associated with running your business on a day-to-day basis, and they can include things like:
Rent or mortgage payments:
If you have a physical business, you’ll need to make rent or mortgage payments on your commercial space.
You’ll need to pay for things like electricity, gas, and water for your business.
You’ll need to purchase liability insurance to protect your business from potential lawsuits explains Michael E Weintraub Esq.
If you have employees, you’ll need to pay their salaries and benefits.
Marketing and advertising:
You’ll need to budget for things like marketing and advertising expenses.
4. Create a sales forecast.
In order to create a realistic financial plan, you need to have a good understanding of how much revenue your business is likely to generate. This can be tricky to estimate, especially if you’re just starting out, but there are a few things you can do to get a general idea.
One way to create a sales forecast is to look at similar businesses in your industry and see how much revenue they generate. You can also speak with industry experts and ask them for their opinion on how much revenue your business is likely to generate.
Another way to create a sales forecast is to use market analysis tools like market research reports or online surveys. These tools can help you understand what potential customers are willing to pay for your products or services.
Creating a financial plan for your business is a critical step in ensuring its long-term success says Michael E Weintraub Esq. By understanding your start-up costs, estimating your ongoing expenses, and forecasting your sales, you can make sure that your business is on track to reach its financial goals.