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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.  

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.  

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses. 

Why it matters 

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers. 

Through the financial section, you can:

• Forecast your business’s future finances
• Budget for expenses (e.g., startup costs)
• Get financing from lenders or investors
• Grow your business

• Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
• Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section. 

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup. 

Your financial section should detail:

• Business expenses 

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses. 

Take a look at some common business expenses you may need to include in the financial section of business plan:

• Licenses and permits
• Cost of goods sold 
• Rent or mortgage payments
• Payroll costs (e.g., salaries and taxes)
• Utilities 
• Equipment 
• Supplies 
• Advertising 

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs). 

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes). 

How much do you anticipate earning from sales each month? 

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance. 

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period. 

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions. 

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements. 

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses. 

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover. 

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment). 

Back up your funding request by emphasizing your financial projections. 

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc. 

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it. 

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!

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Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
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Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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Crafting Your Business Plan Financials: A Step-by-Step Guide

This guide is my way of taking you by the hand (figuratively, of course) and walking you through the process of building your business plan financials. Whether you’re scribbling your first ever business plan on a napkin or revisiting an existing one to adapt to the ever-evolving market landscape, this guide is for you.

We’ll dive into the nitty-gritty of financial statements without drowning in complexity, break down projections into bite-sized, manageable pieces, and maybe, just maybe, have a bit of fun along the way.

So, if you’re ready to tackle this beast with a blend of expertise, relatability, and a dash of humor, let’s get started. Together, we’ll demystify the world of business plan financials and empower you to take the reins of your financial future with confidence.

Key Takeaways

• Building business plan financials involves forecasting the three financial statements : income statement , balance sheet, and cash flow statement.
• Financial projections should be based on market research and industry trends, as well as your unique business model and goals.
• Business plan financials are essential in securing funding, guiding decision-making, setting benchmarks, managing cash flow , and identifying risks and opportunities.

Understanding the Basics of Business Plan Financials

Diving into the world of business plan financials can feel a bit like stepping onto a dance floor for the first time. You know you need to move, but figuring out how to not step on your own feet (or anyone else’s) is the real challenge.

So, let’s break down the dance floor, shall we? Picture your business plan’s financial section as a trio of critical financial statements performing the most pivotal routine of the night, consisting of the Income Statement, the Balance Sheet, and the Cash Flow Statement.

• The Income Statement : Also known as the profit and loss statement , this is your financial performance’s highlight reel over a specific period. It tells you whether your business is hitting the high notes or if it’s time to change the tune. By tracking revenues, costs, and expenses, the Income Statement gives you a clear picture of your net profit or loss. Think of it as your business’s scorecard, showing you if you’re leading the dance or stepping on toes.
• The Balance Sheet : Imagine this as a snapshot capturing a moment in your business’s dance routine. It’s all about balance (hence the name). On one side, you have your assets—everything your business owns. On the other, liabilities and equity—everything your business owes plus the ownership interest. The Balance Sheet tells you exactly where you stand at any given moment, making sure you’re poised and ready for the next move.
• The Cash Flow Statement : If the Income Statement is about the performance and the Balance Sheet is about the pose, then the Cash Flow Statement is all about the movement. It tracks the cash coming in and going out of your business. This statement is your choreography, showing you if you’ve got the liquidity to keep dancing or if you’re about to trip over a lack of cash.

Why Do You Need Business Plan Financials?

Let’s dive into the different uses for those business plan financials, shall we?

Securing Funding : This one’s pretty straightforward. When you’re pitching to investors or applying for a loan, your financials are the proof in the pudding. They show that you’re not just all talk—you’ve got a plan that’s expected to bring in real money.

Guiding Decision-Making : Your financials are a compass in the wild terrain of business decisions. Want to know if you can afford to increase operating expenses, launch a new product, or expand into a new market? Your financials hold the answers.

Setting Benchmarks : Without benchmarks, how do you measure success? Your financials set clear goals for revenue, profit margins, and growth trajectories.

Cash Flow Management : Ah, cash flow projection —the lifeblood of any business. Your financials help you predict when money will be coming in and going out, ensuring you have enough cash on hand to keep the lights on.

Identifying Risks and Opportunities : By analyzing your financials, you can spot potential risks and opportunities before they become glaring issues or missed chances.

Step 1: Laying the Groundwork with Market Research

Understanding your market is akin to understanding the latest viral dance craze. You need to know who’s dancing, why they’re dancing, and what moves are most popular. In business terms, this means getting to grips with who your customers are, what needs or desires they have, and how your product or service fits into that picture. This is where market research comes into play.

How to Gather Data for Market Research:

• Start with Secondary Research : This is like the pre-party research before you hit the dance floor. Look into existing studies, industry reports, and market analysis that give you a bird’s-eye view of your sector. It’s cheaper (often free), quicker, and a great way to start outlining your market landscape. Websites like Statista and Pew Research are a great resource for secondary research.
• Dive into Primary Research : Now, it’s time to mingle at the party yourself. Surveys, interviews, and focus groups with potential customers will give you insights straight from the horse’s mouth. Yes, it’s more time-consuming and can be costlier, but the firsthand data you gather is worth its weight in gold.
• Analyze Your Competitors : Think of this as knowing who else is on the dance floor with you. Understanding their moves can help you find your unique rhythm. Look at their offerings, pricing strategies, and customer feedback. What are they doing well? Where are they stumbling? This insight is invaluable.

My Experience With Market Research

Let me take you back to the early days of my own business venture, when the concept of “market research” was as foreign to me as quantum physics. My team and I were launching a new financial tool designed to simplify budgeting for freelancers—a noble cause, but we were shooting in the dark with our sales forecast .

So, we hit the books (and the streets) for some hardcore market research. We surveyed freelancers about their budgeting woes, dove into forums where they vented their frustrations, and analyzed competitors who were only partially addressing these pain points. What we found was a goldmine of information that not only validated our product idea but also helped us pinpoint exactly how to position our tool in the market.

Armed with this data, we crafted our revenue projections not on wishful thinking but on solid, research-backed insights. And guess what? Our initial sales outperformed our projections by 20%. It was a clear testament to the power of laying the groundwork with thorough market research.

Step 2: Crafting Your Income Statement

Crafting your profit and loss statement is akin to writing the script for the blockbuster movie of your business’s financial performance. It’s where the rubber meets the road of financial statements, blending the drama of revenue streams with the gritty realism of expenses, all leading up to that climactic figure: your net income.

Breaking Down Revenue Streams

Let’s start our financial projections by casting our stars: the revenue streams. Identifying and projecting these is like mapping out the plot points of our story. For my own venture, it was a mix of predictable box office hits (fixed revenue from long-term contracts) and surprise indie darlings (variable sales from new markets).

The key here is diversity; relying on a single revenue stream is like betting your entire budget on a rookie director. Exciting, sure, but risky. By understanding and forecasting different sources of income, you’re setting the stage for a financial narrative that holds up against unexpected twists.

Fixed vs. Variable Expenses: The Supporting Cast

Next up, we have our supporting characters: fixed and variable costs. Fixed expenses are those steadfast sidekicks that stick with you through thick and thin—rent, salaries, and subscriptions.

They’re your base crew, essential but predictable. Variable expenses, on the other hand, are like those special effects in big action sequences—they fluctuate depending on the production’s scale (or, in our case, the business operations). Materials cost, commission fees, and shipping charges can vary, adding dynamism and a bit of unpredictability to our financial plot.

EBITDA, and Why It’s Your Friend

Now, let’s talk about a concept that might sound like the latest tech gadget but is actually one of your best allies: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Imagine EBITDA as that veteran actor who brings depth and credibility to your movie.

It shows you how well your business is performing without getting bogged down by tax structures, financing decisions, or how much you’ve spent on those fancy ergonomic office chairs.

It is also a critical part of break even analysis. Break even analysis is like the climax of our financial story—it shows the point where your revenue and expenses are equal. It helps you determine how much you need to sell or how to adjust your costs to reach profitability.

Step 3: Building Your Balance Sheet

Think of your balance sheet as the ultimate snapshot of your business’s financial stability at any given moment. It’s like taking a selfie with your assets, liabilities, and equity—everything has to look just right.

Assets, Liabilities, and Equity: What Goes Where?

Imagine your business’s finances as a giant storage unit (stay with me here). On one side, you’ve got your assets—everything you own that has value. This includes cash in the bank, inventory, equipment, and even amounts owed to you by customers (receivables). These are like the treasures you’ve stored away, everything from the antique lamp (cash) to the boxes of unsold novels you swear will be collector’s items one day (inventory).

On the opposite side are your liabilities. Think of these as the IOUs taped to the door by your friends who’ve borrowed your stuff. These could be loans you need to pay back, money you owe to suppliers, or rent for the space your business occupies.

Balancing these two sides is your equity , which is essentially the net worth of your business. If you were to liquidate everything today—sell off all your treasures and pay back your friends—whatever cash you’re left holding is your equity. It’s what you truly “own” outright.

Maintaining a Healthy Balance Sheet Over Time

Here’s where things get personal. In the early days of my venture, our balance sheet was, to put it mildly, a bit of a fixer-upper. Our assets were like mismatched socks—present, but not exactly optimized. Meanwhile, our liabilities were like laundry piles—growing faster than we could manage. The turning point came when we started treating our balance sheet like our business’s health checkup, regularly reviewing and adjusting our financial strategies to ensure everything remained in healthy proportion.

We focused on bolstering our assets, not just by increasing sales but also by managing our receivables more effectively and making smart choices about what equipment to purchase or lease. Simultaneously, we worked on trimming down our liabilities, negotiating better terms with suppliers, and restructuring debt to more manageable levels.

Step 4: Forecasting Cash Flow

Forecasting cash flow—it’s like checking the weather before you head out on a road trip. You wouldn’t want to get caught in a storm without an umbrella, right? Similarly, in the world of finance and accounting, especially for us millennials hustling through our careers, understanding the ins and outs of cash flow is crucial for navigating the unpredictable journey of business operations without getting soaked.

Why Cash Flow is Your Business’s Weather Forecast

Cash flow is essentially the heartbeat of your business’s financial health—tracking the inflow and outflow of money. It’s what keeps the lights on, from paying your awesome team to ensuring the coffee machine (aka the real MVP) is always running. Without a keen eye on cash flow, even the most profitable business can find itself in a pinch when bills come due. It’s about timing, and just like you can’t download more time, you can’t magically create cash when you need it—unless you’ve planned ahead.

Step-by-Step Method for Creating a Cash Flow Forecast

• Start with the Basics : Gather data on all your cash inflows, like sales or accounts receivable , and outflows, including expenses, payroll, and loan payments. Think of it as setting up your playlist before the trip begins.
• Choose Your Time Frame : Decide if you’re mapping out the next month, quarter, or year. This is like deciding whether you’re road-tripping to the next town over or cross-country.
• Use Historical Data : Look back at past months or years to guide your predictions. It’s like knowing there’s always traffic at rush hour and planning your departure time accordingly.
• Factor in Seasonality : Just like packing an extra sweater for a chilly evening, remember that some months may have higher expenses or lower sales. Plan for these fluctuations.
• Keep It Updated : Your cash flow forecast isn’t a set-it-and-forget-it road map. Update it regularly with actual figures to stay on course. This is like checking your GPS for traffic updates in real-time.

My Great Cash Flow Mishap

Early in my career, I experienced what I affectionately call “The Great Cash Flow Mishap.” We were flying high, sales were up, and in my mind, we were invincible. I overlooked the importance of forecasting cash flow because, hey, money was coming in, right? Wrong. Sales being up didn’t mean cash in hand, thanks to generous payment terms we’d extended. When a large expense bill came due, we found ourselves in a financial thunderstorm without an umbrella.

It was a wake-up call. We scrambled, made it through, but learned a valuable lesson in the process: cash flow forecasting isn’t just a nice-to-have; it’s essential. It’s the difference between sailing smoothly and getting caught in a downpour. Since then, I’ve treated cash flow forecasting like my financial weather app, always checking it to ensure we’re prepared for whatever financial weather lies ahead.

Step 5: Bringing It All Together for Financial Analysis

So, you’ve danced through the steps of laying down your financial groundwork, from market research all the way to cash flow forecasting. Now, it’s time for what I like to call the “big reveal” in our financial saga—financial analysis. Think of it as the season finale where all the plotlines converge, and you finally get to see the full picture of your business’s financial health. Exciting, right?

How to Use Your Financials to Calculate Key Ratios

Financial ratios might sound like something out of a high school math class you’d rather forget, but they’re actually pretty cool once you get to know them. They’re like the secret codes that unlock the mysteries of your business’s financial narrative. Here are a few key players:

• Profit Margin : Sales are great, but what’s left after expenses? This ratio tells you exactly that. It’s like checking how much gas is left in the tank after a long trip.
• Current Ratio : This one measures whether you have enough assets to cover your liabilities. Imagine you’re planning a big party (i.e., a major business move). Do you have enough snacks (assets) for all the guests (liabilities)?
• Debt to Equity Ratio : It shows the balance between the money you’ve borrowed and the money you’ve personally invested in your business. Think of it as the ratio between the contributions to the potluck from you and those from your friends.

Innovative Tools and Techniques for Financial Analysis

Gone are the days of poring over spreadsheets until your eyes cross. Today, we have an arsenal of innovative tools at our disposal that make financial analysis not just bearable but actually kind of fun:

• Cloud-Based Accounting Software : These platforms are like having a financial wizard by your side, automating many of the tedious tasks involved in financial analysis.
• Data Visualization Tools : Imagine turning your financial data into a vibrant art gallery. These tools help you visualize trends, patterns, and anomalies in your data, making complex information digestible at a glance.
• AI and Machine Learning : The new kids on the block, these technologies offer predictive insights based on your financial data, helping you make informed decisions about the future.

Step 6: Planning for the Future: Scenarios and Projections

Planning for the future in the fast-paced world of finance and accounting is a bit like trying to pack for a vacation without knowing the destination. Will it be sunny beaches or snowy mountains? In business, just as in travel, the key to being well-prepared lies in anticipating a range of scenarios. This approach doesn’t just cushion you against the unexpected; it equips you to navigate the twists and turns of the market with confidence and agility.

The Importance of Creating Financial Scenarios

Imagine you’re at a crossroads, each path leading to a different outcome for your business. One might lead to rapid growth if a new product takes off, another to steady progress as you expand your customer base, and yet another to a challenging period if the market takes a downturn. Creating financial scenarios is like mapping out each of these paths in advance, complete with signposts (financial indicators) that help you recognize which path you’re on and what you need to do to stay on course—or change direction if necessary.

This practice isn’t about predicting the future with crystal ball accuracy; it’s about being prepared for whatever comes your way. By considering various “what ifs” and planning for them, you transform uncertainty from a source of anxiety into a strategic advantage.

Practical Advice on Long-Term Financial Planning

• Start with a Solid Foundation : Your current financial statements are the launching pad for any long-term planning. Ensure they’re accurate and up-to-date.
• Identify Key Drivers : Understand what factors most significantly impact your business’s financial health—be it sales volume, pricing strategies, or cost controls—and model your scenarios around these drivers.
• Embrace Technology : Leverage financial planning software that allows you to create and compare different scenarios with ease. These tools can provide invaluable insights and save you a heap of time.
• Regular Reviews : The only constant in business is change. Regularly review and adjust your scenarios and projections to reflect new information and market conditions.

How “Planning for the Worst” Saved My Business

There was a time when my business faced what I fondly refer to as “the perfect storm”—a combination of market downturn, rising costs, and a major client backing out last minute. It was every entrepreneur’s nightmare. But here’s the twist: we weathered the storm, not by luck, but by preparation.

During sunnier days, we’d developed a “worst-case scenario” plan . It felt a bit like rehearsing for a play we never wanted to perform, but when the storm hit, that script became our survival guide. We knew exactly which costs to cut, how to streamline operations, and where we could find alternative revenue streams. It wasn’t easy, but that plan gave us the clarity and confidence to make tough decisions quickly.

That experience taught me a valuable lesson: optimism is a fantastic quality, but it’s preparation that truly makes us resilient. Planning for the worst doesn’t mean expecting it to happen; it means ensuring that no matter what comes your way, you’re ready to face it head-on.

Have any questions? Are there other topics you would like us to cover? Leave a comment below and let us know! Also, remember to subscribe to our Newsletter to receive exclusive financial news in your inbox. Thanks for reading, and happy learning!

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FP&A Leader | Digital Finance Advocate | Small Business Founder

Mike Dion brings a wealth of knowledge in business finance to his writing, drawing on his background as a Senior FP&A Leader. Over more than a decade of finance experience, Mike has added tens of millions of dollars to businesses from the Fortune 100 to startups and from Entertainment to Telecom. Mike received his Bachelor of Science in Finance and a Master of International Business from the University of Florida, laying a solid foundation for his career in finance and accounting. His work, featured in leading finance publications such as Seeking Alpha, serves as a resource for industry professionals seeking to navigate the complexities of corporate finance, small business finance, and finance software with ease.

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How to Write a Financial Plan for a Business Plan

Noah Parsons

4 min. read

Updated July 11, 2024

Creating a financial plan for a business plan is often the most intimidating part for small business owners.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your business plan’s financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan in business plans

A sound financial plan for a business plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, you’ll need to include a few additional pieces of information as part of your business plan’s financial plan example.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your financial plan for a business plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan’s financial plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

Brought to you by

Create a professional business plan

Using ai and step-by-step instructions.

Secure funding

Validate ideas

Build a strategy

• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

Download Template

Accurate and easy financial forecasting

Get a full financial picture of your business with LivePlan's simple financial management tools.

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Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• What to include for funding

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Accounting Firm Business Plan

Used 4,942 times

Use this Accounting Firm Business Plan to achieve your goals. Accounting firms are comparable to other industries and need the Business Plan to help their development.

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Created by:

​ [Owner.FirstName] [Owner.LastName] ​

​ [Owner.Company] ​

EXECUTIVE SUMMARY

​ [Owner.Company] is a new accounting firm located in [Owner.City] , [Owner.State] and will serve the surrounding area. The firm will be owned and operated by [Owner.FirstName] [Owner.LastName] , who has (insert number) years of experience in the accounting industry. The firm will offer a range of services, including bookkeeping, tax preparation, financial planning, and consulting to small and medium-sized businesses, as well as individual clients. The firm will also offer online and virtual services for clients who prefer remote assistance.

COMPANY DESCRIPTION

​ [Owner.Company] will be registered as a(n) (LLC/Corporation) and will have (insert number) employees at the start, including the owner. The firm will maintain a well-equipped office with a variety of software and tools to ensure that projects can be completed efficiently. [Owner.Company] will differentiate itself from competitors by offering a personalized and comprehensive approach to accounting services, as well as a commitment to customer satisfaction.

MARKET ANALYSIS

The accounting industry is expected to continue to grow as businesses and individuals seek professional help with their financial matters. [Owner.City] is home to several small and medium-sized businesses and a growing population of individuals who may require accounting services. The local market is competitive, with several well-established accounting firms serving the area. However, [Owner.Company] is confident it can differentiate itself through its personalized approach and commitment to customer satisfaction.

MARKETING STRATEGY

​ [Owner.Company] will use a combination of traditional and digital marketing techniques to reach potential clients. This will include advertising in local newspapers and industry publications, as well as utilizing social media platforms and email marketing to promote services and specials. The firm will also rely on word-of-mouth referrals from satisfied clients. In addition, [Owner.Company] will offer free initial consultations and discounted rates for new clients to attract business and establish relationships.

​ [Owner.Company] will have a team of skilled accountants who will be responsible for providing accurate and timely services to clients. The firm will have a manager overseeing all projects and ensuring they are completed to the highest standards. The firm will have policies and procedures in place to ensure compliance with industry regulations and standards.

FINANCIAL PLAN

​ [Owner.Company] will generate revenue through the sale of accounting services to businesses and individuals. The firm will also generate revenue through the sale of financial planning and consulting services. The firm will have operating expenses, including payroll, rent, utilities, and insurance. The firm expects to generate (Amount) i n revenue in the first year, with a projected growth rate of (Percentage) per year. [Owner.Company] will also seek funding through loans or investors in order to cover start-up costs and support growth.

​ [Owner.Company] is well-positioned to take advantage of the growing demand for accounting services in the [Owner.City] area. With a team of experienced accountants, a focus on personalized and comprehensive services, and a commitment to customer satisfaction, the firm is confident that it will be successful in the competitive accounting market.

​ [Recipient.FirstName] [Recipient.LastName] ​

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How to Write the Financial Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Taking Stock of Expenses

The income statement, the cash flow projection, the balance sheet.

The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:

• Business registration fees
• Business licensing and permits
• Starting inventory
• Rent deposits
• Down payments on a property
• Down payments on equipment
• Utility setup fees

Your own list will expand as soon as you start to itemize them.

Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:

• Salaries (including your own)
• Rent or mortgage payments
• Telecommunication expenses
• Raw materials
• Distribution
• Loan payments
• Office supplies
• Maintenance

Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business plan starting with the income statement.

The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.

While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.

Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.

If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.

The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how  much capital investment  your business idea needs.

For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a  short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.

Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.

There are three parts to the cash flow projection:

• Cash revenues: Enter your estimated sales figures for each month. Only enter the sales that are collectible in cash during each month you are detailing.
• Cash disbursements: Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay for each month.
• Reconciliation of cash revenues to cash disbursements: This section shows an opening balance, which is the carryover from the previous month's operations. The current month's revenues are added to this balance, the current month's disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month.

The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:

• Assets :  Tangible objects of financial value that are owned by the company.
• Liabilities: Debt owed to a creditor of the company.
• Equity: The net difference when the  total liabilities  are subtracted from the total assets.

The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .

For your  business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.

Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.

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6 Elements of a Successful Financial Plan for a Small Business

Improve your chances of growth by covering these bases in your plan.

Table of Contents

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

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Accounting and finance: why is it important to your business.

The key to your business lies within the accounting, finance and understanding of the numbers of your company.

Accounting and finance refer to the recording and analyzing of business activities . Understanding where your incoming and outcoming cashflow will help you make better decisions moving forward to avoid failure.

This article will cover: What Is the Purpose of Accounting and Finances in Business? Why Is Accounting so Important to a Business? What Is the Role of Accounting in Business?

What Is the Purpose of Accounting and Finance in Business?

Accounting and finance management is so important when navigating your business.

If you don’t know where your money is going and coming from, there is a very good chance you could lose control of your business. When businesses manage their income and expenses there is a stronger potential for growth. Plus, there’s better access to strategies that can help companies survive unexpected financial downturns.

Here’s how accounting and finances impact your business management.

1) Keep Financial Records

Accounting is essentially a record of a company’s financial activities.

A company’s ledger is where accountants and small business owners can track the income and expenses of a business’ daily operations. An accurate record of a company’s finances can help a business manage their financial future and understand the cash flow .

2) Avoid Legal Problems

Keeping an accurate financial record helps follow important business laws. Overlooking a minor detail could have major implications on your tax management.

Financial managers need to understand what expenses to deduct, how much taxes to pay and when to pay those taxes. Poor financial recording could lead to your company being audited and could land you in unnecessary legal trouble.

Additionally, an oversight in finances improvements to your facility could mean that you’re not following the regulation of safety laws.

3) Make a Budget

Using your financial records and understanding your cash flow can help you create a budget and budget is what keeps your business on track. A budget gives you a current view of your financial standing and helps you navigate your business towards future growth and development.

When creating a budget net income, expenses, goals and anticipating unexpected adjustments must be considered. Staying on top of these numbers is essential to managing your business, so it is important to continually keep checking in on your initial plan and adjust as you go. Good accounting sets up a blueprint for the management of your business and offers a solid foundation for stability and success.

4) Analyzing Performance

Successful business owners are always checking in to see how their business is doing.

A company can assess their financial position by looking at their historical and current records of liabilities and assets and other financial records. A business owner can use this information to gauge how the company is doing.

These records are an opportunity to learn from past mistakes and make more informed decisions about planning for a more lucrative future. Knowing your current financial standing can also help you identify new areas of growth that help you achieve your bottom line.

5) External Communication

The communication of financial information is important when dealing with external parties.

Clear accounting and finance management can be useful when getting a loan from a bank or attracting potential investors .

Good financial management makes it easier for you to provide financial statements to external stakeholders. External users will assess these reports to decide how to proceed with their involvement with your business.

6) Internal Communication

Financial reporting can also help business owners communicate information to internal stakeholders.

This information might be relevant to employees who are interested in profit-sharing and stock-based compensation. This records also allow owners to communicate the strengths and weakness of their business with their teams.

Allowing your team to know your financial standing can tie with a bonus structure that can be used as a productivity incentive.

7) Developing Strategy

Good accounting and finance management inevitably leads to a good strategy. Once you’ve developed a budget and thoroughly analyzed your data, it should be easier to have a better understanding to develop a strategy to achieve your bottom line.

After reviewing your financial records, you will be more empowered to make informed financial decisions on everything from staffing to supply management. Your budget is your map to your strategy and strategy is your key to profitability.

Why Is Accounting so Important to a Business?

Accounting is an important function of a small business and often is referred to as the “Language of Business”.

The financial recording, summarizing, analyzing and recording of financial transactions help owners, managers and investors evaluate a company’s financial health. Knowing this information helps inform more strategic business decisions.

What Is the Role of Accounting in Business?

Accounting is essential to keep track of a business’ activities.

Allocating the business costs to goods or services, creating a budget for business functions and preparing financial reporting for business decisions are all aspects of accounting. Reports can be tailored to inform specific financial management strategies for individual sectors of your business.

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Accounting Company Business Plan [Sample Template]

By: Author Tony Martins Ajaero

Home » Business ideas » Financial Service Industry » Accounting, Bookkeeping and Tax Preparation

Are you about starting an accounting firm? If YES, here is a complete sample accounting firm business plan template & feasibility report you can use for FREE .

Okay, so we have considered all the requirements for starting an accounting firm. We also took it further by analyzing and drafting a sample accounting firm marketing plan template backed up by actionable guerrilla marketing ideas for accounting firms. So let’s proceed to the business planning section.

Have you ever dreamt of becoming your own boss? Did you by chance study Accountancy and are finding it difficult to get your ideal job? You don’t need to worry because your dream of becoming your own boss and still work as an accountant can be fulfilled with little or no start-up capital.

In case you didn’t know, there are loads of small businesses, mom and pop businesses, amongst a few without the faintest idea of any accounting skills. These businesses struggle with their books and accounting concerns a lot.

Research shows that one of the reasons why many small businesses remain small and sometimes close shop is not because they don’t have clients or capital to run the business but because they fail to keep their books properly. If you are an accountant, then you can leverage on this read to start your own accounting services firm.

You can be rest assured that your services would always be in demand not only by small businesses that can’t afford to hire a full-time accountant but also medium scale and big corporation especially for auditing purpose and other accounting consulting services.

They know that it would save them cost and the good thing is that you can handle up to 20 clients per time depending on how organized and hardworking you are.

Just like most business, the accounting services industry is pretty open for as many people that are interested in the industry as long as you have what it takes to run an accounting services firm.

Even if you don’t have the finance and other requirements for starting a standard accounting services firm, you can come into the industry by starting – out as a small accounting firm servicing mom and pop businesses in your neighborhood.

If you have decided to start an accounting services firm, then you must make sure that you carry out thorough feasibility studies and also market survey.

This will enable you properly locate the business in a community or city with the right demography; a location that can readily accept your products. Business plan is yet another very important business document that you should not take for granted in the bid to launching your own business.

Below is a sample accounting services firm business plan template that will help you successfully launch your own business;

A Sample Accounting Firm Business Plan Template

1. industry overview.

Firms in the Accounting Services industry are certified to audit the accounting records of public and private organizations and to demonstrate compliance to generally accept accounting best practices in the united states and perhaps in the world.

Certified public accountants (CPAs), included in this industry, provide a variety of accounting services, including auditing accounting records, designing accounting systems, preparing financial statements, developing budgets and providing advice on matters related to accounting.

Accounting services firms are known to offer a wide array of services, which includes audit and assurance services, tax preparation and compliance work, consulting assistance, restructuring and other accounting-related services.

Over the last half – a – decade, the Accounting Services industry has recovered from a post – recessionary decline in demand caused by a falling number of businesses in the United States, weak private investment and shrinking corporate budgets amongst others.

Nevertheless, the revenue generated in this industry has been on the rise since 2012, sustained by economic growth, rising equity markets and of course a growing number of new businesses. The Accounting Services industry has loads of small business operators servicing a wide range of clients ranging from start – ups to well established businesses.

The Accounting Services industry is indeed in a mature stage of its growth. The industry is characterized by growth in line with the overall outlook of the economy, consolidation from the largest players in the industry and wholehearted market acceptance of industry products and services.

The accounting services line of business will continue to be in high demand by business establishment in the United States, most especially as the number of businesses and employees increases. Corporate organizations are also expected to continue to outsource their auditing functions so as to focus their attention on their core area of operations.

The Accounting Services industry is indeed a large industry and pretty much active in countries such as United States of America, United Kingdom, France, Italy, Nigeria, South Africa Japan, China, Germany, and Canada et al.

Statistics has it that in the United States of America alone, there are about 92,777 registered and licensed ( big, medium scale and small ) Accounting Services firm scattered all across the United States responsible for employing about 523,330 people and the industry rakes in a whooping sum of $97 billion annually.

The industry is projected to enjoy 4.4 percent annual growth within 2011 and 2016. The establishments with the lion share of the available market in this industry are DTT, EY, KPMG and PWC. These brands are known all over the world.

A recent report released by IBISWORLD shows that the geographic distribution of establishments in the Accounting Services industry is highly correlated with the overall population distribution in the United States. The report further stated that accounting service providers are predominantly small businesses that focus on serving local and regional markets.

Therefore, an increase in the number of individuals that require personal accounting services and businesses that need audit and tax services boosts the need for industry operators.

One thing is certain about starting an accounting services business -if you are able to conduct your market research and feasibility studies, you are more likely not going to struggle to secure clients because there are always mom and pop shops, start – ups and even corporate organization who would want to hire your services.

Lastly, with accounting services business, you can afford to partner with other smaller firms that are into financial related services. You can partner with tax consulting firm, you can partner with auditing firms and you can partner with human resource consulting firms et al.

The bottom line is that if you have a robust network and you are well positioned, you can indeed maximize profits with your accounting services firm.

2. Executive Summary

Rowland Pence& Co® Financial Consulting, LLC is a registered and licensed financial consulting firm with biased in accounting services and will be based in New York City – New York.

The company will handle all aspect of accounting related services; services such as auditing accounting records, designing accounting systems, preparing financial statements, developing budgets, tax preparation and compliance work, consulting assistance, restructuring and providing advice on matters related to accounting.

We are aware that to run an all – round and standard accounting services firm can be demanding which is why we are well trained, certified and equipped to perform excellently well.

Rowland Pence & Co® Financial Consulting, LLC is a client – focused and result driven accounting services firm that provides broad- based services at an affordable fee that won’t in any way put a hole in the pocket of our clients.  We will offer a standard and professional accounting services to all to our individual clients, and corporate clients at local, state, national, and international level.

We will ensure that we work hard to meet and surpass our clients’ expectations whenever they hire our services. At Rowland Pence & Co® Financial Consulting, LLC, our client’s best interest would always come first, and everything we do is guided by our values and professional ethics.

We will ensure that we hire professionals who are well experienced in the financial consulting services industry with bias in accounting, taxation, bookkeeping and payroll administration.

Rowland Pence & Co® Financial Consulting, LLC will at all times demonstrate her commitment to sustainability, both individually and as a firm, by actively participating in our communities and integrating sustainable business practices wherever possible.

We will ensure that we hold ourselves accountable to the highest standards by meeting our client’s needs precisely and completely. We will cultivate a working environment that provides a human, sustainable approach to earning a living, and living in our world, for our partners, employees and for our clients.

Our plan is to position the business to become one of the leading brands in the accounting services industry in the whole of New York City, and also to be amongst the top 20 accounting services firms in the United States of America within the first 10 years of operations.

This might look too tall a dream but we are optimistic that this will surely be realized because we have done our research and feasibility studies and we are enthusiastic and confident that New York City is the right place to launch our accounting services business before sourcing for clients from other cities in the United States of America.

Rowland Pence & Co® Financial Consulting, LLC is founded by Rowland Pence and Stanford Darlington, his business partner for many years. The organization will be managed by both of them since they have adequate working experience to manage such business.

Rowland Pence has well over 10 years of experience working at various capacities within the financial consulting services industry in the United States of America.

He graduated from both University of California – Berkley with a Degree in Accounting, and University of Harvard (MSc.) and he is a chartered account. Stanford Darlington has ample experience in the area of tax consulting and financial auditing.

3. Our Products and Services

Rowland Pence & Co® Financial Consulting, LLC is going to offer varieties of services within the scope of the financial consulting services industry in the United States of America. Our intention of starting our accounting services firm is to work with both smaller organizations (start – ups and mom and pop shops) and also well – established corporate organizations who would want to outsource the accounting concerns.

We are well prepared to make profits from the industry and we will do all that is permitted by the law in the United States to achieve our business goals, aim and ambition. Our business offerings are listed below;

• Providing accounting advice to corporate clients
• Providing accounting advice to individuals and small businesses
• Accounts preparation
• Financial auditing services
• Financial statement review services
• Providing other financial assurance services
• General accounting services
• Tax planning and consulting services
• Individual tax preparation and representative services
• Corporate tax preparation and representative services
• Providing other financial consulting and advisory related services such as designing accounting systems, preparing financial statements, developing budgets, tax preparation and compliance work, consulting assistance, restructuring and providing advice on matters related to accounting.

4. Our Mission and Vision Statement

• Our vision is to build an accounting service firm brand that will become the number one choice for both smaller businesses and corporate clients in the whole of New York City – New York. Our vision reflects our values: integrity, service, excellence and teamwork.
• Our mission is to provide professional, reliable and trusted accounting services that assist start – ups, corporate organization and non-profit organizations in handling their accounting cum financial related concern. We will position the business to become one of the leading brands in the accounting services line of business in the whole of New York City, and also to be amongst the top 20 accounting services firms in the United States of America within the first 10 years of operations.

Our Business Structure

Normally we would have settled for two or three staff members, but as part of our plan to build a standard accounting services firm in New York City – New York, we have perfected plans to get it right from the beginning which is why we are going the extra mile to ensure that we have competent, honest and hardworking employees to occupy all the available positions in our firm.

The picture of the kind of accounting services firm we intend building and the business goals we want to achieve is what informed the amount we are ready to pay for the best hands available in and around New York City – New York.

We will ensure that we only hire people that are qualified, honest, hardworking, customer centric and are ready to work to help us build a prosperous business that will benefit all the stake holders (the owners, workforce, and customers).

As a matter of fact, profit-sharing arrangement will be made available to all our senior management staff and it will be based on their performance for a period of five years or more depending how fast we meet our set target. In view of that, we have decided to hire qualified and competent hands to occupy the following positions;

• Chief Executive Officer

Accounting and Tax Consultants

Admin and HR Manager

Marketing and Sales Executive

• Customer Care Executive / Front Desk Officer

5. Job Roles and Responsibilities

Chief Executive Office:

• Increases management’s effectiveness by recruiting, selecting, orienting, training, coaching, counseling, and disciplining managers; communicating values, strategies, and objectives; assigning accountabilities; planning, monitoring, and appraising job results; developing incentives; developing a climate for offering information and opinions; providing educational opportunities.
• Creates, communicates, and implements the organization’s vision, mission, and overall direction – i.e. leading the development and implementation of the overall organization’s strategy.
• Responsible for fixing prices and signing business deals
• Responsible for providing direction for the business
• Responsible for signing checks and documents on behalf of the company
• Evaluates the success of the organization
• Responsible for providing accounting advice to corporate clients
• Provides accounting advice to individuals and small businesses
• Responsible for handling accounts preparation
• Responsible for handling financial auditing services
• Responsible for handling financial statement review services
• Handles other financial assurance services and general accounting services
• Responsible for handling tax planning and consulting services, individual tax preparation and representative services and corporate tax preparation and representative services
• Other services
• Responsible for handling other financial consulting and advisory related services such as designing accounting systems, preparing financial statements, developing budgets, tax preparation and compliance work, consulting assistance, restructuring and providing advice on matters related to accounting.
• Responsible for overseeing the smooth running of HR and administrative tasks for the organization
• Designs job descriptions with KPI to drive performance management for clients
• Regularly hold meetings with key stakeholders to review the effectiveness of HR Policies, Procedures and Processes
• Maintains office supplies by checking stocks; placing and expediting orders; evaluating new products.
• Ensures operation of equipment by completing preventive maintenance requirements; calling for repairs.
• Defines job positions for recruitment and managing interviewing process
• Carries out staff induction for new team members
• Responsible for training, evaluation and assessment of employees
• Responsible for arranging travel, meetings and appointments
• Updates job knowledge by participating in educational opportunities; reading professional publications; maintaining personal networks; participating in professional organizations.
• Oversees the smooth running of the daily office activities.
• Identifies, prioritizes, and reaches out to new partners, and business opportunities et al
• Identifies development opportunities; follows up on development leads and contacts; participates in the structuring and financing of projects; assures the completion of relevant projects.
• Writes winning proposal documents, negotiate fees and rates in line with company policy
• Responsible for handling business research, marker surveys and feasibility studies for clients
• Responsible for supervising implementation, advocate for the customer’s needs, and communicate with clients
• Develops, executes and evaluates new plans for expanding increase sales
• Documents all customer contact and information
• Represents the company in strategic meetings
• Helps to increase sales and growth for the company
• Responsible for preparing financial reports, budgets, and financial statements for the organization
• creates reports from the information concerning the financial transactions recorded by the bookkeeper
• Prepares the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
• Provides managements with financial analyses, development budgets, and accounting reports; analyzes financial feasibility for the most complex proposed projects; conducts market research to forecast trends and business conditions.
• Responsible for financial forecasting and risks analysis.
• Performs cash management, general ledger accounting, and financial reporting for one or more properties.
• Responsible for developing and managing financial systems and policies
• Responsible for administering payrolls
• Ensures compliance with taxation legislation
• Handles all financial transactions for the firm
• Serves as internal auditor for the firm

Client Service Executive / Front Desk Officer

• Welcomes guests and clients by greeting them in person or on the telephone; answering or directing inquiries.
• Ensures that all contacts with clients (e-mail, walk-In center, SMS or phone) provides the client with a personalized customer service experience of the highest level
• Through interaction with clients on the phone, uses every opportunity to build client’s interest in the company’s products and services
• Manages administrative duties assigned by the manager in an effective and timely manner
• Consistently stays abreast of any new information on the company’s products, promotional campaigns etc. to ensure accurate and helpful information is supplied to clients
• Receives parcels / documents for the company
• Distributes mails in the organization
• Handles any other duties as assigned

6. SWOT Analysis

Rowland Pence & Co® Financial Consulting, LLC engaged the services of a core professional in the area of business consulting and structuring to assist the firm in building a well – structured accounting services firm that can favorably compete in the highly competitive financial consulting services industry.

Part of what the team of business consultant did was to work with the management of our organization in conducting a SWOT analysis for Rowland Pence & Co® Financial Consulting, LLC. Here is a summary from the result of the SWOT analysis that was conducted on behalf of Rowland Pence & Co® Financial Consulting, LLC;

Our core strength lies in the power of our team; our workforce. We have a team that can go all the way to give our clients value for their money; a team that are trained and equipped to pay attention to details and to deliver excellent jobs. We are well positioned and we know we will attract loads of clients from the first day we open our door for business.

As a new accounting services firm, it might take some time for our organization to break into the market and gain acceptance especially from corporate clients in the already saturated financial consulting services industry; that is perhaps our major weakness. So also, we may not have the required cash to give our business the kind of publicity we would have loved to.

• Opportunities:

The opportunities in the financial consulting services industry is massive considering the number of mom and pop businesses, start – ups and of course corporate organizations who can’t afford to do without the services of accounting service providers. As a standard and well – positioned accounting service provider, we are ready to take advantage of any opportunity that comes our way.

Some of the threats that we are likely going to face as an accounting service firm operating in the United States are unfavorable government policies, the arrival of a competitor within our location of operations and global economic downturn which usually affects purchasing / spending power. There is hardly anything we can do as regards these threats other than to be optimistic that things will continue to work for our good.

7. MARKET ANALYSIS

• Market Trends

The financial consulting services industry is indeed a very large industry and of course it is one industry that works for businesses across different industries. If you are conversant with the trend in the financial consulting services industry, you will agree that loads of mom and pops, businesses, and start – up ventures that do not have the capacity to hire chattered accountants to handle their accounting tax concerns would naturally hire the services of accounting services providers who would usually charge them service charge.

Relatively, it is cheaper and less stressful to hire the services of accounting service providers as against employing a qualified accountant especially when you run a small business.

The truth is that, it is common to find even bigger firms contracting their accounting, tax and auditing concerns to competent financial / auditing firms because it is cost effective to do so. Another notable trend in the financial consulting services industry is that in the last five years, the industry has performed impressively as a large reduction in unemployment boosted the revenue generated in the industry.

So also, the financial consulting services industry has benefited from the advancement of online and computer payroll and accounting services, with new cloud-based offerings providing a new revenue stream for operators, and attracting new customers. Going forward, increasing product penetration and of course an expanding customer base is expected to drive growth in the industry.

8. Our Target Market

The demographic and psychographics composition of those who need the services of accounting services providers cuts across both small businesses and large corporations.

Rowland Pence & Co® Financial Consulting, LLC will initially serve small to medium sized business, from new ventures to well established businesses and individual clients, but that does not in any way stop us from growing to be able to compete with the leading accounting service firms in the United States.

As a standard and licensed accounting service firm, Rowland Pence & Co® Financial Consulting, LLC offers a wide range of financial consulting services hence we are well trained and equipped to services a wide range of clientele base.

Our target market cuts across businesses of different sizes and industries. We are coming into the industry with a business concept that will enable us work with the small businesses and bigger corporations in and around New York City – New York and other cities in the United States of America.

Below is a list of the businesses and organizations that we have specifically design our products and services for;

• Mom and Pop Businesses
• Blue Chips Companies
• Corporate Organizations
• Religious Organizations (Pilgrimage journeys et al)
• Political Parties / Politicians
• Hotels and Restaurants
• The Government (Public Sector)
• Schools (High Schools, Colleges and Universities)
• Sport Organizations
• Entrepreneurs and Start – Ups

Our competitive advantage

The level of competitions in the financial consulting services industry depends largely on the location of the business and of course the niche of your financial consulting services. If you can successfully create a unique brand identity for your accounting services firm or carve out a unique market, you are likely going to experience less competition.

For instance, if you are one of the few accounting services firms in your locations that also offer tax consulting and bookkeeping and payroll services you are likely going to have a competitive advantage over your competitors.

Although the competition in the accounting services industry is not just within same service providers but also other financial consulting related service providers in the financial consulting services industry. For example, it is now easier for a tax consulting firm to also handle accounting services and bookkeeping and payroll services for its clients.

We are quite aware that to be highly competitive in the financial consulting services industry means that we should be able to deliver consistent quality service, our clients should be able to experience remarkable difference cum improvement and we should be able to meet the expectations of clients.

Rowland Pence & Co® Financial Consulting, LLC might be a new entrant into the financial consulting services industry in the United States of America, but the management staffs and owners of the business are considered gurus. They are people who are core professionals and licensed and highly qualified and chattered accountants in the United States. These are part of what will count as a competitive advantage for us.

Lastly, our employees will be well taken care of, and their welfare package will be among the best within our category (start – ups accounting service firms) in the industry meaning that they will be more than willing to build the business with us and help deliver our set goals and achieve all our aims and objectives.

9. SALES AND MARKETING STRATEGY

• Sources of Income

Rowland Pence & Co® Financial Consulting, LLC is established with the aim of maximizing profits in the financial consulting industry and we are going to go all the way to ensure that we do all it takes to attract clients on a regular basis and sign ‘retainer – ship’ with most of our clients.

Rowland Pence & Co® Financial Consulting, LLC will generate income by offering the following financial consulting services for start – ups, NGOs and for corporate organizations;

10. Sales Forecast

One thing is certain, there would always be mom and pop shops, start – ups, NGOs and corporate organizations who would need the services of professional accounting services firms.

We are well positioned to take on the available market in New York City and other key cities in the United States of America and we are quite optimistic that we will meet our set target of generating enough income / profits from the first six month of operations and grow the business and our clientele base beyond New York City to other cities in Nevada and other states in the U.S.

We have been able to critically examine the financial consulting market and we have analyzed our chances in the industry and we have been able to come up with the following sales forecast. The sales projections are based on information gathered on the field and some assumptions that are peculiar to startups in New York City – New York.

Below are the sales projections for Rowland Pence & Co® Financial Consulting, LLC, it is based on the location of our business and the wide range of financial consulting services that we will be offering;

• First Fiscal Year-: $250,000
• Second Fiscal Year-: $450,000
• Third Fiscal Year-: $950,000

N.B : This projection is done based on what is obtainable in the industry and with the assumption that there won’t be any major economic meltdown and natural disasters within the period stated above. There won’t be any major competitor offering same additional services as we do within same location. Please note that the above projection might be lower and at the same time it might be higher.

• Marketing Strategy and Sales Strategy

We are mindful of the fact that there are stiffer competitions amongst accounting service firms and other related financial consulting service providers in the United States of America; hence we have been able to hire some of the best business developer to handle our sales and marketing.

Our sales and marketing team will be recruited base on their vast experience in the industry and they will be trained on a regular basis so as to be well equipped to meet their targets and the overall goal of the organization. We will also ensure that our excellent job deliveries speak for us in the market place; we want to build a standard accounting service firm that will leverage on word of mouth advertisement from satisfied clients (both individuals and corporate organizations).

Our goal is to grow our accounting consulting firm to become one of the top 20 accounting services firms in the United States of America which is why we have mapped out strategy that will help us take advantage of the available market and grow to become a major force to reckon with not only in the New York City but also in other cities in the United States of America.

Rowland Pence & Co® Financial Consulting, LLC is set to make use of the following marketing and sales strategies to attract clients;

• Introduce our business by sending introductory letters alongside our brochure to corporate organizations, schools, Businesses, Non-Profit Organizations and key stake holders in New York City and other cities in New York.
• Promptness in bidding for financial consulting contracts from the government, religious organizations and other cooperate organizations
• Advertise our business in relevant financial and business related magazines, newspapers, TV stations, and radio station.
• List our business on yellow pages’ ads (local directories)
• Attend relevant international and local finance and business expos, seminars, and business fairs et al
• Create different packages for different category of clients (start – ups and established corporate organizations) in order to work with their budgets and still deliver quality services to them
• Leverage on the internet to promote our business
• Engage direct marketing approach
• Encourage word of mouth marketing from loyal and satisfied clients
• Join local chambers of commerce and industry with the aim of networking and marketing our services.

11. Publicity and Advertising Strategy

We have been able to work with our brand and publicity consultants to help us map out publicity and advertising strategies that will help us walk our way into the heart of our target market. We are set to take the financial consulting services industry by storm which is why we have made provisions for effective publicity and advertisement of our accounting services firm.

Below are the platforms we intend to leverage on to promote and advertise Rowland Pence & Co® Financial Consulting, LLC;

• Place adverts on both print (community based newspapers and magazines) and electronic media platforms
• Sponsor relevant community based events / programs
• Leverage on the internet and social media platforms like; Instagram, Facebook, Twitter, YouTube, Google + et al to promote our brand
• Install our Bill Boards on strategic locations all around New York City – New York
• Engage in road show from time to time to create awareness of our business
• Distribute our fliers and handbills in target areas
• Ensure that all our workers wear our branded shirts and all our vehicles are well branded with our company’s logo et al.

12. Our Pricing Strategy

Hourly billing for financial consulting services is a long – time tradition in the industry.  However, for some types of financial consultancy services, flat fees make more sense because they allow clients to better predict consultancy costs.  As a result of this, Rowland Pence & Co® Financial Consulting, LLC will charge our clients a flat fee for many basic services such as accounting services and business advisory services and tax consulting et al.

At Rowland Pence & Co® Financial Consulting, LLC we will keep our fees below the average market rate for all of our clients by keeping our overhead low and by collecting payment in advance.  In addition, we will also offer special discounted rates to start – ups, nonprofits, cooperatives, and small social enterprises.

We are aware that there are some clients that would need regular access to financial consultancy and advisory services and assistance, we will offer flat rate for such services that will be tailored to take care of such clients’ needs.

• Payment Options

The payment policy adopted by Rowland Pence & Co® Financial Consulting, LLC is all inclusive because we are quite aware that different customers prefer different payment options as it suits them but at the same time, we will ensure that we abide by the financial rules and regulation of the United States of America.

Here are the payment options that Rowland Pence & Co® Financial Consulting, LLC will make available to her clients;

• Payment via bank transfer
• Payment with cash
• Payment via credit cards / Point of Sale Machines (POS Machines)
• Payment via online bank transfer
• Payment via check
• Payment via mobile money transfer
• Payment via bank draft

In view of the above, we have chosen banking platforms that will enable our client make payment for farm produces purchase without any stress on their part. Our bank account numbers will be made available on our website and promotional materials to clients who may want to deposit cash or make online transfer for services rendered.

13. Startup Expenditure (Budget)

Starting an accounting services firm can be cost effective; this is so because on the average, you are not expected to acquire expensive machines and equipment.

Basically, what you should be concerned about is the amount needed to secure a standard office facility in a good and busy business district, the amount needed to furniture and equip the office, the amount to purchase the required software applications, the amount needed to pay bills, promote the business and obtain the appropriate business license and certifications.

This is the financial projection and costing for starting Rowland Pence & Co® Financial Consulting, LLC;

• The total fee for incorporating the business in the United States of America – $750.
• The budget for basic insurance policy covers, permits and business license – $2,500
• The Amount needed to acquire a suitable Office facility in a business district 6 months (Re – Construction of the facility inclusive) – $40,000.
• The cost for equipping the office (computers, software applications, printers, fax machines, furniture, telephones, filing cabins, safety gadgets and electronics et al) – $5,000
• The cost for purchase of the required software applications (CRM software, Accounting and Bookkeeping software and Payroll software et al) – $10,500
• The Cost of Launching our official Website – $600
• Budget for paying at least three employees for 3 months plus utility bills – $10,000
• Additional Expenditure (Business cards, Signage, Adverts and Promotions et al) – $2,500
• Miscellaneous: $1,000

Going by the report from the market research and feasibility studies conducted, we will need over one hundred and fifty thousand ( 150,000 ) U.S. dollars to successfully set – up a medium scale but standard accounting services firm in the United States of America.

Generating Funds / Startup Capital for Rowland Pence & Co® Financial Consulting, LLC

Rowland Pence & Co® Financial Consulting, LLC is a business that will be owned and managed by Rowland Pence and his business partner Stanford Darlington. They are the sole financial of the firm, but may likely welcome partners later which is why they decided to restrict the sourcing of the start – up capital for the business to just three major sources.

These are the areas we intend generating our start – up capital;

• Generate part of the start – up capital from personal savings
• Source for soft loans from family members and friends
• Apply for loan from my Bank

N.B: We have been able to generate about $50,000 ( Personal savings $40,000 and soft loan from family members $10,000 ) and we are at the final stages of obtaining a loan facility of $100,000 from our bank. All the papers and document has been duly signed and submitted, the loan has been approved and any moment from now our account will be credited.

14. Sustainability and Expansion Strategy

The future of a business lies in the numbers of loyal customers that they have the capacity and competence of the employees, their investment strategy and the business structure. If all of these factors are missing from a business (company), then it won’t be too long before the business close shop.

One of our major goals of starting Rowland Pence & Co® Financial Consulting, LLC is to build a business that will survive off its own cash flow without the need for injecting finance from external sources once the business is officially running.

We know that one of the ways of gaining approval and winning customers over is to offer our financial consulting services a little bit cheaper than what is obtainable in the market and we are well prepared to survive on lower profit margin for a while.

Rowland Pence & Co® Financial Consulting, LLC will make sure that the right foundation, structures and processes are put in place to ensure that our staff welfare are well taken of. Our company’s corporate culture is designed to drive our business to greater heights and training and re – training of our workforce is at the top burner of our business strategy.

As a matter of fact, profit-sharing arrangement will be made available to all our management staff and it will be based on their performance for a period of three years or more as determined by the board of the organization. We know that if that is put in place, we will be able to successfully hire and retain the best hands we can get in the industry; they will be more committed to help us build the business of our dreams.

Check List / Milestone

• Business Name Availability Check: Completed
• Business Incorporation: Completed
• Opening of Corporate Bank Accounts various banks in the United States: Completed
• Opening Online Payment Platforms: Completed
• Application and Obtaining Tax Payer’s ID: In Progress
• Application for business license and permit: Completed
• Purchase of All form of Insurance for the Business: Completed
• Conducting Feasibility Studies: Completed
• Generating part of the start – up capital from the founders: Completed
• Applications for loan from our Bankers: In Progress
• Securing a standard office facility in a business district in New York City (Renovation inclusive): Completed
• Writing of Business Plan: Completed
• Drafting of Employee’s Handbook: Completed
• Drafting of Contract Documents: In Progress
• Design of The Company’s Logo: Completed
• Graphic Designs and Printing of Packaging Marketing / Promotional Materials: Completed
• Recruitment of employees: In Progress
• Purchase of the Needed software applications, furniture, office equipment, electronic appliances and facility facelift: In progress
• Creating Official Website for the Company: In Progress
• Creating Awareness for the business (Business PR): In Progress
• Health and Safety and Fire Safety Arrangement: In Progress
• Establishing business relationship with vendors and key players in the industry: In Progress

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• Creating a Small Business Financial Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

Are You Retirement Ready?

Table of contents, financial plan overview.

A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.

For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ensure sustainable growth.

The strength of a financial plan lies in its ability to offer a clear roadmap for businesses.

Especially for small businesses that may not have a vast reserve of resources, prioritizing financial goals and understanding where every dollar goes can be the difference between growth and stagnation.

It lends clarity, ensures informed decision-making, and sets the stage for profitability and success.

Understanding the Basics of Financial Planning for Small Businesses

Role of financial planning in business success.

Financial planning is the backbone of any successful business endeavor. It serves as a compass, guiding businesses toward profitability, stability, and growth.

With proper financial planning, businesses can anticipate potential cash shortfalls, make informed investment decisions, and ensure they have the capital needed to seize new opportunities.

For small businesses, in particular, tight financial planning can mean the difference between thriving and shuttering. Given the limited resources, it's vital to maximize every dollar and anticipate financial challenges.

Through diligent planning, small businesses can position themselves competitively, adapt to market changes, and drive consistent growth.

Core Components of a Financial Plan for Small Businesses

Every financial plan comprises several core components that, together, provide a holistic view of a business's financial health and direction. These include setting clear objectives, estimating costs , preparing financial statements , and considering sources of financing.

Each component plays a pivotal role in ensuring a thorough and actionable financial strategy .

For small businesses, these components often need a more granular approach. Given the scale of operations, even minor financial missteps can have significant repercussions.

As such, it's essential to tailor each component, ensuring they address specific challenges and opportunities that small businesses face, from initial startup costs to revenue forecasting and budgetary constraints.

Setting Clear Small Business Financial Objectives

Identifying business's short-term and long-term financial goals.

Every business venture starts with a vision. Translating this vision into actionable financial goals is the essence of effective planning.

Short-term goals could range from securing initial funding and achieving a set monthly revenue to covering startup costs. These targets, usually spanning a year or less, set the immediate direction for the business.

On the other hand, long-term financial goals delve into the broader horizon. They might encompass aspirations like expanding to new locations, diversifying product lines, or achieving a specific market share within a decade.

By segmenting goals into short-term and long-term, businesses can craft a step-by-step strategy, making the larger vision more attainable and manageable.

Understanding the Difference Between Profitability and Cash Flow

Profitability and cash flow, while closely linked, are distinct concepts in the financial realm. Profitability pertains to the ability of a business to generate a surplus after deducting all expenses.

It's a metric of success and indicates the viability of a business model . Simply put, it answers whether a business is making more than it spends.

In contrast, cash flow represents the inflow and outflow of cash within a business. A company might be profitable on paper yet struggle with cash flow if, for instance, clients delay payments or unexpected expenses arise.

For small businesses, maintaining positive cash flow is paramount. It ensures that they can cover operational costs, pay employees, and reinvest in growth, even if they're awaiting payments or navigating financial hiccups.

Estimating Small Business Startup Costs (for New Businesses)

Fixed vs variable costs.

When embarking on a new business venture, understanding costs is paramount. Fixed costs remain consistent regardless of production levels. They include expenses like rent, salaries, and insurance . These are predictable outlays that don't fluctuate with business performance.

Variable costs , conversely, change in direct proportion to production or business activity. Think of costs associated with materials for manufacturing or commission for sales .

For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.

One-Time Expenditures vs Ongoing Expenses

Startups often grapple with numerous upfront costs. From purchasing equipment and setting up a workspace to initial marketing campaigns, these one-time expenditures lay the foundation for business operations.

They differ from ongoing expenses like utility bills, raw materials, or employee wages that recur monthly or annually.

For a small business owner, distinguishing between these costs is critical. One-time expenditures often demand a larger chunk of initial capital, while ongoing expenses shape the monthly and annual budget.

By categorizing them separately, businesses can strategize funding needs more effectively, ensuring they're equipped to meet both immediate and recurrent financial obligations.

Funding Sources for Small Businesses

Personal savings.

This is often the most straightforward way to fund a startup. Entrepreneurs tap into their personal savings accounts to jumpstart their business.

While this method has the benefit of not incurring debt or diluting company ownership, it intertwines the individual's personal financial security with the business's fate.

The entrepreneur must be prepared for potential losses, and there's the evident psychological strain of putting one's hard-earned money on the line.

Loans can be sourced from various institutions, from traditional banks to credit unions . They offer a substantial sum of money that can be paid back over time, usually with interest .

The main advantage of taking a loan is that the entrepreneur retains full ownership and control of the business.

However, there's the obligation of monthly repayments, which can strain a business's cash flow, especially in its early days. Additionally, securing a loan often requires collateral and a sound credit history.

Investors, including angel investors and venture capitalists , offer capital in exchange for equity or a stake in the company.

Angel investors are typically high-net-worth individuals who provide funding in the initial stages, while venture capitalists come in when there's proven business potential, often injecting larger sums. The advantage is substantial funding without the immediate pressure of repayments.

However, in exchange for their investment, they often seek a say in business decisions, which might mean compromising on some aspects of the original business vision.

Grants are essentially 'free money' often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors.

The primary advantage of grants is that they don't need to be repaid, nor do they dilute company ownership. However, they can be highly competitive and might come with stipulations on how the funds should be used.

Moreover, the application process can be lengthy and requires showcasing the business's potential or alignment with the specific goals or missions of the granting institution.

Preparing Key Financial Statements for Small Businesses

Income statement (profit & loss).

An Income Statement , often termed as the Profit & Loss statement , showcases a business's financial performance over a specific time frame. It details revenues , expenses, and ultimately, profits or losses.

By analyzing this statement, business owners can pinpoint revenue drivers, identify exorbitant costs, and understand the net result of their operations.

For small businesses, this document is instrumental in making informed decisions. For instance, if a certain product line is consistently unprofitable, it might be prudent to discontinue it. Conversely, if another segment is thriving, it might warrant further investment.

The Income Statement, thus, serves as a financial mirror, reflecting the outcomes of business strategies and decisions.

Balance Sheet

The Balance Sheet offers a snapshot of a company's assets , liabilities , and equity at a specific point in time.

Assets include everything the business owns, from physical items like equipment to intangible assets like patents .

Liabilities, on the other hand, encompass what the company owes, be it bank loans or unpaid bills.

Equity represents the owner's stake in the business, calculated as assets minus liabilities.

This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise.

In contrast, mounting liabilities or dwindling assets could be red flags, signaling the need for intervention and strategy recalibration.

Cash Flow Statement

While the Income Statement reveals profitability, the Cash Flow Statement tracks the actual movement of money.

It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.

For small businesses, maintaining positive cash flow is often more vital than showcasing profitability.

After all, a business might be profitable on paper yet struggle if clients delay payments or unforeseen expenses emerge.

By regularly reviewing the Cash Flow Statement, small business owners can anticipate cash crunches and strategize accordingly, ensuring seamless operations irrespective of revenue cycles.

Small Business Budgeting and Expense Management

Importance of budgeting for a small business.

Budgeting is the financial blueprint for any business, detailing anticipated revenues and expenses for a forthcoming period. It's a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges.

For small businesses, a meticulous budget is often the linchpin of stability, ensuring they operate within their means and avoid financial pitfalls.

Having a well-defined budget also fosters discipline. It curtails frivolous spending, emphasizes cost-efficiency, and sets clear financial boundaries.

For small businesses, where every dollar counts, a stringent budget is the gateway to financial prudence, ensuring that funds are utilized judiciously, fostering growth, and minimizing wastage.

Strategies for Reducing Costs and Optimizing Expenses

Bulk purchasing.

When businesses buy supplies in large quantities, they often benefit from discounts due to economies of scale . This can significantly reduce per-unit costs.

However, while bulk purchasing leads to immediate savings, businesses must ensure they have adequate storage and that the products won't expire or become obsolete before they're used.

Renegotiating Vendor Contracts

Regularly reviewing and renegotiating contracts with suppliers or service providers can lead to better terms and lower costs. This might involve exploring volume discounts, longer payment terms, or even bartering services.

Building strong relationships with vendors often paves the way for such negotiations.

Adopting Energy-Saving Measures

Simple changes, like switching to LED lighting or investing in energy-efficient appliances, can lead to long-term savings in utility bills. Moreover, energy conservation not only reduces costs but also minimizes the environmental footprint, which can enhance the business's reputation.

Embracing Technology

Modern software and technology can streamline business processes. Automation tools can handle repetitive tasks, reducing labor costs.

Meanwhile, data analytics tools can provide insights into customer preferences and behavior, ensuring that marketing budgets are used effectively and target the right audience.

Streamlining Operations

Regularly reviewing and refining business processes can eliminate redundancies and improve efficiency. This might mean merging roles, cutting down on unnecessary meetings, or simplifying supply chains. A leaner operation often translates to reduced expenses.

Outsourcing Non-core Tasks

Instead of maintaining an in-house team for every function, businesses can outsource tasks that aren't central to their operations.

For instance, functions like accounting , IT support, or digital marketing can be outsourced to specialized agencies, often leading to cost savings and access to expert skills.

Cultivating a Culture of Frugality

Encouraging employees to adopt a cost-conscious mindset can lead to collective savings. This can be fostered through incentives, regular training, or even simple practices like recycling and reusing office supplies.

When everyone in the organization is attuned to the importance of cost savings, the cumulative effect can be substantial.

Forecasting Small Business Revenue and Cash Flow

Techniques for predicting future sales in a small business, past sales data analysis.

Historical sales data is a foundational element in any forecasting effort. By reviewing previous sales figures, businesses can identify patterns, understand seasonal fluctuations, and recognize the effects of past initiatives.

This information offers a baseline upon which to build future projections, accounting for known recurring variables in the business cycle .

Market Research

Understanding the larger market dynamics is crucial for accurate forecasting. This involves tracking industry trends, monitoring shifts in consumer behavior, and being aware of potential market disruptions.

For instance, a sudden technological advancement can change consumer preferences or regulatory changes might impact an industry.

Local Trend Analysis

For small businesses, localized insights can be especially impactful. Observing local competitors, understanding regional consumer preferences, or noting shifts in the local economy can offer precise data points.

These granular details, when integrated into a larger forecasting model, can enhance prediction accuracy.

Customer Feedback

Direct feedback from customers is an invaluable source of insights. Surveys, focus groups, or even informal chats can reveal customer sentiments, preferences, and potential future purchasing behavior.

For instance, if a majority of loyal customers express interest in a new product or service, it can be indicative of future sales potential.

Moving Averages

This technique involves analyzing a series of data points (like monthly sales) by creating averages from different subsets of the full data set.

For yearly forecasting, a 12-month moving average can be used to smooth out short-term fluctuations and highlight longer-term trends or cycles.

Regression Analysis

Regression analysis is a statistical tool used to identify relationships between variables. In sales forecasting, it can help understand how different factors (like marketing spend, seasonal variations, or competitor actions) relate to sales figures.

Once these relationships are understood, businesses can predict future sales based on planned actions or expected external events.

Understanding the Cash Cycle of Business

The cash cycle encompasses the time it takes for a business to convert resource investments, often in the form of inventory, back into cash.

This involves the processes of purchasing inventory, selling it, and subsequently collecting payment. A shorter cycle implies quicker cash turnarounds, which are vital for liquidity.

For small businesses, a firm grasp of the cash cycle can aid in managing cash flow more effectively.

By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking.

Ultimately, understanding and optimizing the cash cycle ensures that a business remains liquid and agile.

Preparing for Seasonality and Unexpected Changes

Seasonality affects many businesses, from the ice cream vendor witnessing summer surges to the retailer bracing for holiday shopping frenzies.

By analyzing historical data and market trends, businesses can prepare for these cyclical shifts, ensuring they stock up, staff appropriately, and market effectively.

Small businesses, often operating on tighter margins , need to be especially vigilant. Beyond seasonality, they must also brace for unexpected changes – a local construction project obstructing store access, a sudden competitor emergence, or unforeseen regulatory changes.

Building a financial buffer, diversifying product or service lines, and maintaining flexible operational strategies can equip small businesses to weather these unforeseen challenges with resilience.

Securing Small Business Financing and Capital

Role of debt and equity financing.

When businesses seek external funding, they often grapple with the debt vs. equity conundrum. Debt financing involves borrowing money, typically via loans. While it doesn't dilute ownership, it necessitates regular interest payments, potentially impacting cash flow.

Equity financing, on the other hand, entails selling a stake in the business to investors. It might not demand regular repayments, but it dilutes ownership and might influence business decisions.

Small businesses must weigh these options carefully. While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch.

Equity financing, although relinquishing some control, might bring aboard strategic partners, offering expertise and networks in addition to funds.

The optimal choice hinges on the business's financial health, growth aspirations, and the founder's comfort with sharing control.

Choosing Between Different Types of Loans

A staple in the lending arena, term loans offer businesses a fixed amount of capital that is paid back over a specified period with interest. They're often used for significant one-time expenses, such as purchasing machinery, real estate , or even business expansion.

With predictable monthly payments, businesses can plan their budgets accordingly. However, they might require collateral and a robust credit history for approval.

Lines of Credit

Unlike term loans that provide funds in a lump sum, a line of credit grants businesses access to a pool of funds up to a certain limit.

Businesses can draw from this line as needed, only paying interest on the amount they use. This makes it a versatile tool, especially for managing cash flow fluctuations or unexpected expenses. It serves as a financial safety net, ready for use whenever required.

As the name suggests, microloans are smaller loans designed to cater to businesses that might not need substantial amounts of capital. They're particularly beneficial for startups, businesses with limited credit histories, or those in need of a quick, small financial boost.

Since they are of a smaller denomination, the approval process might be more lenient than traditional loans.

Peer-To-Peer Lending

A contemporary twist to the traditional lending model, peer-to-peer (P2P) platforms connect borrowers directly with individual lenders or investor groups.

This direct model often translates to quicker approvals and competitive interest rates as the overheads of traditional banking structures are removed. With technology at its core, P2P lending can offer a more user-friendly, streamlined process.

However, creditworthiness still plays a pivotal role in determining interest rates and loan amounts.

Crowdfunding and Alternative Financing Options

In an increasingly digital age, crowdfunding platforms like Kickstarter or Indiegogo have emerged as viable financing avenues.

These platforms enable businesses to raise small amounts from a large number of people, often in exchange for product discounts, early access, or other perks. This not only secures funds but also validates the business idea and fosters a community of supporters.

Other alternatives include invoice financing, where businesses get an advance on pending invoices, or merchant cash advances tailored for businesses with significant credit card sales.

Each financing mode offers unique advantages and constraints. Small businesses must meticulously evaluate their financial landscape, growth trajectories, and risk appetite to harness the most suitable option.

Small Business Tax Planning and Management

Basic tax obligations for small businesses.

Navigating the maze of taxation can be daunting, especially for small businesses. Yet, understanding and fulfilling tax obligations is crucial.

Depending on the business structure—whether sole proprietorship , partnership , LLC , or corporation—different tax rules apply. For instance, while corporations are taxed on their earnings, sole proprietors report business income and expenses on their personal tax returns.

In addition to income taxes, small businesses may also be responsible for employment taxes if they have employees. This covers Social Security , Medicare , federal unemployment, and sometimes state-specific taxes.

There might also be sales taxes, property taxes, or special state-specific levies to consider.

Consistently maintaining accurate financial records, being aware of filing deadlines, and setting aside funds for tax obligations are essential practices to avoid penalties and ensure compliance.

Advantages of Tax Planning and Potential Deductions

Tax planning is the strategic approach to minimizing tax liability through the best use of available allowances, deductions, exclusions, and breaks.

For small businesses, effective tax planning can lead to significant savings.

This might involve strategies like deferring income to a later tax year, choosing the optimal time to purchase equipment, or taking advantage of specific credits available to businesses in certain sectors or regions.

Several potential deductions can reduce taxable income for small businesses. These include expenses like rent, utilities, business travel, employee wages, and even certain meals.

By keeping abreast of tax law changes and actively seeking out eligible deductions, small businesses can optimize their financial landscape, ensuring they're not paying more in taxes than necessary.

Importance of Hiring a Tax Professional or Accountant

While it's feasible for small business owners to manage their taxes, the intricate nuances of tax laws make it beneficial to consult professionals.

An experienced accountant or tax consultant can not only ensure compliance but can proactively recommend strategies to reduce tax liability.

They can guide businesses on issues like whether to classify someone as an employee or a contractor, how to structure the business for optimal taxation, or when to make certain capital investments.

Beyond just annual tax filing, these professionals offer year-round counsel, helping businesses maintain clean financial records, stay updated on tax law changes, and plan for future financial moves.

The investment in professional advice often pays dividends , saving businesses from costly mistakes, penalties, or missed financial opportunities.

Regularly Reviewing and Adjusting the Small Business Financial Plan

Setting checkpoints and milestones.

Like any strategic blueprint, a financial plan isn't static. It serves as a guiding framework but should be flexible enough to adapt to evolving business realities.

Setting regular checkpoints— quarterly , half-yearly, or annually—can help businesses assess whether they're on track to meet their financial objectives.

Milestones, such as reaching a specific sales target, launching a new product, or expanding into a new market, offer tangible markers of progress. Celebrating these victories can bolster morale, while any shortfalls can serve as lessons, prompting strategy tweaks. F

or small businesses, where agility is an asset, regularly revisiting the financial plan ensures that the business remains aligned with its overarching financial goals while being responsive to the dynamic marketplace.

Using Financial Ratios to Monitor Business Health

Financial ratios offer a distilled snapshot of a business's health. Ratios like the current ratio ( current assets divided by current liabilities ) can shed light on liquidity, indicating whether a business can meet short-term obligations.

The debt-to-equity ratio , contrasting borrowed funds with owner's equity, offers insights into the business's leverage and potential financial risk.

Profit margin , depicting profitability relative to sales, can highlight operational efficiency. By consistently monitoring these and other pertinent ratios, small businesses can glean actionable insights, understanding their financial strengths and areas needing attention.

In a realm where early intervention can stave off major financial setbacks, these ratios serve as vital diagnostic tools, guiding informed decision-making.

Pivoting Strategies Based on Financial Performance

In the ever-evolving world of business, flexibility is paramount. If financial reviews indicate that certain strategies aren't yielding anticipated results, it might be time to pivot.

This could involve tweaking product offerings, revising pricing strategies, targeting a different customer segment, or even overhauling the business model.

For small businesses, the ability to pivot can be a lifeline. It allows them to respond swiftly to market changes, customer feedback, or internal challenges.

A robust financial plan, while offering direction, should also be pliable, accommodating shifts in strategy based on real-world performance. After all, in the business arena, adaptability often spells the difference between stagnation and growth.

Bottom Line

Financial foresight is integral for the stability and growth of small businesses. Effective revenue and cash flow forecasting, anchored by historical sales data and enhanced by market research, local trends, and customer feedback, ensures businesses are prepared for future demands.

With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.

As businesses contemplate external financing, the decision between debt and equity and the myriad of loan types, should be made judiciously, keeping in mind the business's health, growth aspirations, and risk appetite.

Furthermore, diligent tax planning, with professional guidance, can lead to significant financial benefits. Regular reviews using financial ratios allow businesses to gauge their performance, adapt strategies, and pivot when necessary.

Ultimately, the agility to adapt, guided by a well-structured financial plan, is pivotal for businesses to thrive in a dynamic marketplace.

Creating a Small Business Financial Plan FAQs

What is the importance of a financial plan for small businesses.

A financial plan offers a structured roadmap, guiding businesses in making informed decisions, ensuring growth, and navigating financial challenges.

How do forecasting revenue and understanding cash cycles aid in financial planning?

Forecasting provides insights into expected income, aiding in budget allocation, while understanding cash cycles ensures effective liquidity management.

What are the core components of a financial plan for small businesses?

Core components include setting objectives, estimating startup costs, preparing financial statements, budgeting, forecasting, securing financing, and tax management.

Why is tax planning vital for small businesses?

Tax planning ensures compliance, optimizes tax liabilities through available deductions, and helps businesses save money and avoid penalties.

How often should a small business review its financial plan?

Regular reviews, ideally quarterly or half-yearly, ensure alignment with business goals and allow for strategy adjustments based on real-world performance.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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The Difference Between Accounting and Finance in Business: The Basics

November 5, 2021 • ROARK

Function: Finance and Accounting • Business

Do you know the difference between finance and accounting? While they are part of the same field, business owners need to be aware of these two terms. Accounting is all about numbers and financial statements, while finance focuses on how money flows through a company.  

The truth is that many entrepreneurs don’t have much time to think about this distinction because their focus has been elsewhere– like getting their businesses off the ground or just trying to stay afloat. In order to help your business grow, you can understand these concepts and make sure that you’re making good decisions for the future of success.  

Let’s take a look at some fundamental differences between accounting and finance and what each means for business owners today.  

What is accounting, and what does it do for a company?  

Accounting is a business function focused on keeping track of the company’s financial information.  

Accounting will prepare any necessary reports for internal and external communications, such as annual tax returns or reporting to shareholders.  

The accounting department also handles all banking transactions within a company: deposits, withdrawals, transfers between accounts, etc.  

What is finance, and what does it do for your company?  

Finance is a large part of a company’s operations. Finance includes activities such as acquiring and managing capital, which can consist of both the money that is invested into your company by shareholders or loans from other entities like banks.  

The finance department also manages cash flow, preparing budgets for management to review and decide how much should be spent in specific departments per month.  

What’s the difference between accounting and finance then?  

Accounting is the recording of business transactions to track and balance out income, expenses, inventory, assets and liabilities. It can also be used for tax purposes.  

Finance includes cash management which considers how much money a company will need for everyday operations and long-term needs such as capital investments.  

Key points:  

-Accounting is very much focused on transactions and balancing out the books, whereas finance has a broader scope, including managing cash flow or preparing budgets.  

-Finance also manages capital investments, while accounting doesn’t necessarily have this responsibility.  

The difference between accountants and financial analysts.  

Though often misunderstood, the roles of accountants and financial analysts in a business are vastly different.  

Accountants work with numbers to maintain the records of past transactions, prepare taxes, and ensure that necessary reports are submitted for stakeholders outside the company. A financial analyst in a company is focused on assessing a company’s financial health and may have responsibility for preparing budgets, managing cash flow, or handling investments.  

A day in the life of an accountant inside of a company  

-At the beginning of each month, accountants might be tasked with balancing out all the accounts. This could involve reconciling cash receipts to deposits to ensure that there is a balance between them; or checking one column against another for inconsistencies.  

-Accountants may also have other business duties such as preparing reports on financial status and forecasting trends.  

A day in the life of a financial analyst inside of company:  

-A typical workday might entail looking at trends within their industry sector,  researching company performance across different regions, and assessing risks inherent to new ventures.  

-Financial analysts are expected to provide recommendations about what should be done next by way of managing cash flow resources or investing corporate assets.  

Key takeaway:  

So what is accounting? Accounting is very much focused on transactions and balancing out the books; it’s about recording business transactions so that you can track income, expenses, inventory, assets, liabilities, and capital.  

So what is finance? Finance includes cash management as well–which focuses on how much money a company needs every day versus long-term needs such as investments.  

The difference between CFOs and controllers.  

Often business owners are not sure of the difference between a Chief Financial Officer and a Controller, which are both leadership positions.  

The responsibilities of a Chief Financial Officer typically include overseeing all aspects of finance, managing financial performance, and planning for the future.  This includes overseeing the accounting function within finance.  

The responsibilities of a Controller typically include overseeing accounting activities in an organization, including budgeting, forecasting, and reporting, and maintaining control over assets and liabilities, which means managing how much money is coming into your company versus going out.  

Why companies need both finance and accounting.  

Accounting deals with record-keeping and reporting decisions for your company’s finances. Finance helps to analyze all the data to make important decisions about how best to direct the organization. Accounting and finance are two pieces of a successful business puzzle that need each other to thrive.  

CFOs oversee all finance departments while Controllers ensure the accounting department stays compliant.  

The Controller is more hands-on when it comes to financial reporting, whereas the CFO oversees this process across different divisions and reports back recommendations for change if necessary.  

A controller will have their fingers in everything that has anything to do with money. In contrast, a CFO manages all phases of fiscal management, including planning, budgeting, forecasting, and monitoring performance indicators like ROI and cash flow projections (CF).  

Both roles are vital for any organization’s success, but they focus on different aspects, which makes them suited for specific tasks within an organization.  

The differences between accounting and finance are many, but they both serve a valuable purpose in your company’s success. By collaborating with an expert from our team at ROARK , you will be able to make informed decisions about which areas need more attention or investment for future growth opportunities. Whether it is hiring new staff members in executive positions , ensuring you’re GAAP compliant , or helping you get through an audit,  we can help you get on top of these important tasks that may otherwise fall through the cracks as business owner’s duties become overwhelming.  

To learn more about how we work with clients to ensure their numbers never lie (pun intended!), give us a call today!

We’d love to help you create the right accounting and finance program in your business,  schedule a consultation .  

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7 Financial Forecasting Methods to Predict Business Performance

• 21 Jun 2022

Much of accounting involves evaluating past performance. Financial results demonstrate business success to both shareholders and the public. Planning and preparing for the future, however, is just as important.

Shareholders must be reassured that a business has been, and will continue to be, successful. This requires financial forecasting.

Here's an overview of how to use pro forma statements to conduct financial forecasting, along with seven methods you can leverage to predict a business's future performance.

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What Is Financial Forecasting?

Financial forecasting is predicting a company’s financial future by examining historical performance data, such as revenue, cash flow, expenses, or sales. This involves guesswork and assumptions, as many unforeseen factors can influence business performance.

Financial forecasting is important because it informs business decision-making regarding hiring, budgeting, predicting revenue, and strategic planning . It also helps you maintain a forward-focused mindset.

Each financial forecast plays a major role in determining how much attention is given to individual expense items. For example, if you forecast high-level trends for general planning purposes, you can rely more on broad assumptions than specific details. However, if your forecast is concerned with a business’s future, such as a pending merger or acquisition, it's important to be thorough and detailed.

Forecasting with Pro Forma Statements

A common type of forecasting in financial accounting involves using pro forma statements . Pro forma statements focus on a business's future reports, which are highly dependent on assumptions made during preparation⁠, such as expected market conditions.

Because the term "pro forma" refers to projections or forecasts, pro forma statements apply to any financial document, including:

• Income statements
• Balance sheets
• Cash flow statements

These statements serve both internal and external purposes. Internally, you can use them for strategic planning. Identifying future revenues and expenses can greatly impact business decisions related to hiring and budgeting. Pro forma statements can also inform endeavors by creating multiple statements and interchanging variables to conduct side-by-side comparisons of potential outcomes.

Externally, pro forma statements can demonstrate the risk of investing in a business. While this is an effective form of forecasting, investors should know that pro forma statements don't typically comply with generally accepted accounting principles (GAAP) . This is because pro forma statements don't include one-time expenses—such as equipment purchases or company relocations—which allows for greater accuracy because those expenses don't reflect a company’s ongoing operations.

7 Financial Forecasting Methods

Pro forma statements are incredibly valuable when forecasting revenue, expenses, and sales. These findings are often further supported by one of seven financial forecasting methods that determine future income and growth rates.

There are two primary categories of forecasting: quantitative and qualitative.

Quantitative Methods

When producing accurate forecasts, business leaders typically turn to quantitative forecasts , or assumptions about the future based on historical data.

1. Percent of Sales

Internal pro forma statements are often created using percent of sales forecasting . This method calculates future metrics of financial line items as a percentage of sales. For example, the cost of goods sold is likely to increase proportionally with sales; therefore, it’s logical to apply the same growth rate estimate to each.

To forecast the percent of sales, examine the percentage of each account’s historical profits related to sales. To calculate this, divide each account by its sales, assuming the numbers will remain steady. For example, if the cost of goods sold has historically been 30 percent of sales, assume that trend will continue.

2. Straight Line

The straight-line method assumes a company's historical growth rate will remain constant. Forecasting future revenue involves multiplying a company’s previous year's revenue by its growth rate. For example, if the previous year's growth rate was 12 percent, straight-line forecasting assumes it'll continue to grow by 12 percent next year.

Although straight-line forecasting is an excellent starting point, it doesn't account for market fluctuations or supply chain issues.

3. Moving Average

Moving average involves taking the average—or weighted average—of previous periods⁠ to forecast the future. This method involves more closely examining a business’s high or low demands, so it’s often beneficial for short-term forecasting. For example, you can use it to forecast next month’s sales by averaging the previous quarter.

Moving average forecasting can help estimate several metrics. While it’s most commonly applied to future stock prices, it’s also used to estimate future revenue.

To calculate a moving average, use the following formula:

A1 + A2 + A3 … / N

Formula breakdown:

A = Average for a period

N = Total number of periods

Using weighted averages to emphasize recent periods can increase the accuracy of moving average forecasts.

4. Simple Linear Regression

Simple linear regression forecasts metrics based on a relationship between two variables⁠: dependent and independent. The dependent variable represents the forecasted amount, while the independent variable is the factor that influences the dependent variable.

The equation for simple linear regression is:

Y ⁠ = Dependent variable⁠ (the forecasted number)

B = Regression line's slope

X = Independent variable

A = Y-intercept

5. Multiple Linear Regression

If two or more variables directly impact a company's performance, business leaders might turn to multiple linear regression . This allows for a more accurate forecast, as it accounts for several variables that ultimately influence performance.

To forecast using multiple linear regression, a linear relationship must exist between the dependent and independent variables. Additionally, the independent variables can’t be so closely correlated that it’s impossible to tell which impacts the dependent variable.

Qualitative Methods

When it comes to forecasting, numbers don't always tell the whole story. There are additional factors that influence performance and can't be quantified. Qualitative forecasting relies on experts’ knowledge and experience to predict performance rather than historical numerical data.

These forecasting methods are often called into question, as they're more subjective than quantitative methods. Yet, they can provide valuable insight into forecasts and account for factors that can’t be predicted using historical data.

6. Delphi Method

The Delphi method of forecasting involves consulting experts who analyze market conditions to predict a company's performance.

A facilitator reaches out to those experts with questionnaires, requesting forecasts of business performance based on their experience and knowledge. The facilitator then compiles their analyses and sends them to other experts for comments. The goal is to continue circulating them until a consensus is reached.

7. Market Research

Market research is essential for organizational planning. It helps business leaders obtain a holistic market view based on competition, fluctuating conditions, and consumer patterns. It’s also critical for startups when historical data isn’t available. New businesses can benefit from financial forecasting because it’s essential for recruiting investors and budgeting during the first few months of operation.

When conducting market research, begin with a hypothesis and determine what methods are needed. Sending out consumer surveys is an excellent way to better understand consumer behavior when you don’t have numerical data to inform decisions.

Improve Your Forecasting Skills

Financial forecasting is never a guarantee, but it’s critical for decision-making. Regardless of your business’s industry or stage, it’s important to maintain a forward-thinking mindset—learning from past patterns is an excellent way to plan for the future.

If you’re interested in further exploring financial forecasting and its role in business, consider taking an online course, such as Financial Accounting , to discover how to use it alongside other financial tools to shape your business.

Do you want to take your financial accounting skills to the next level? Consider enrolling in Financial Accounting —one of three courses comprising our Credential of Readiness (CORe) program —to learn how to use financial principles to inform business decisions. Not sure which course is right for you? Download our free flowchart .

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Beginner’s Guide to Financial Statements

Whether you aspire to be an executive, an entrepreneur or an investor, it’s important to understand the basics of a financial statement. Financial statements offer crucial insights into a company’s financial health and serve as the basis for company-wide decisions.

As a project manager or executive, financial statements are the foundation for department budgets, operating activities, project budgets, and company goals and objectives. As an entrepreneur, they not only tell you where you are headed with your company, they can also help you sell your brand to potential investors.

This guide goes beyond the accounting statements’ definitions to explore various parts of these statements and what they mean.  

What are Financial Statements?

The simplest way to define financial statements is that they are reports which summarize the financial activities and accounting information of a business over a set period. 1 They allow for assessments of the probability that a company can generate cash, pay off its debts, and remain profitable over time.

Financial statements give you, as a business owner or executive-level employee, an idea of your company’s fiscal health and aid in decision-making. For example, if your company is currently experiencing high profits and steady cash flow, you might be more inclined to take a risk such as entering an untested market.  

Types of Financial Statements

A financial statement is not limited to a single type of report. There are multiple varieties, which offer different information about a company and how it handles its money.

Income Statement

An income statement details a company’s reported income over a specific period, such as a quarter or a fiscal year. 2 Each income statement will contain a headline indicating the period on which it is reporting. It will then outline:

• Revenue: Income gained through regular operations such as sales of goods and services
• Expenses: Regular costs a business must pay, including costs of goods, general and administrative costs, research and development and loan interest
• Gains: Money made from atypical activities such as selling assets
• Losses: Atypical costs such as lawsuit settlements

Balance Sheet

A balance sheet showcases a company’s total assets and how the company owns or has financed them. 3 Each balance sheet has sections showing the company’s assets, liabilities and shareholder’s equity—usually presented with assets on one side and liabilities and equity on the other. They are used to calculate financial ratios that give a glimpse into a company’s performance.

Cash Flow Statement

A cash flow statement is a summary of all cash moving into and out of a company. 4 It shows how a company is earning money, investing it and funding operations. It gives an idea of how well a company can meet its expenses.  

Statement of Shareholders’ Equity

Shareholders’ equity is what remains after subtracting liabilities from assets. This statement explains the account’s valuation to people who own company shares. 5 This financial statement goes in-depth to show how a company raises and distributes its capital.  

How to Read and Interpret Financial Statements

Let’s review the essential types of financial statements.

An income statement is also called a profit and loss statement. 6 It details revenues and expenses. Expenses include general costs and financing activities such as rent, operational costs and equipment leases.

Revenue refers to money made from selling goods or services. The profit and loss statement first lists total revenue and then deducts the cost of goods sold. Next, the sheet shows general expenses and deducts them from the gross profit. At the bottom, you will see a company’s net profit or net loss for the year.

A balance sheet goes into further detail about assets and liabilities. 7 Assets include cash, cash equivalents, property, equipment, investments and accounts receivable. Liabilities include accounts payable, taxes, debt and deferred revenue. Finally, the balance sheet contains information about shareholder equity.

At the top of each column, the balance sheet will tell how to read each figure. For example, some companies shorten figures by thousands or millions, so $650 could mean $650,000 or $6.5 million. Each column will tell how the company abbreviates its numbers, along with the period over which they were measured. Finally, a balance sheet typically compares multiple periods such as years or quarters, showing how the company’s performance has changed over time.

Cash flow statements are similar to income statements, but they only show how much cash a business has on hand. 8 It breaks cash flow into categories, including operating, investing and financing.

Each statement shows the change in cash flow and the total of cash a company has on hand. Cash flow statements often include projected cash flows compared to actual cash on hand, allowing a company to see if it is hitting its projections.

A statement of shareholders’ equity shows how much the company has left when its liabilities are paid. Companies usually pay a portion of their profits to owners and shareholders. When the shareholders’ equity is positive, the company can pay more to these investors. When it’s negative, it could signal impending financial issues.

Key Financial Ratios

The other financial data used in each financial statement allows you to calculate aspects of a company’s financial performance.

Profitability Ratios

These ratios, including gross margin and net profit margin, tell you how much the company has profited once it has covered its operational expenses and other expenses.

• Gross profit margin reflects how much a company earns relative to its costs; 9 a high gross profit margin can indicate a company that is more efficiently operating its business
• Net profit margin refers to the actual profit of a company after paying its expenses

Liquidity Ratios

Liquidity ratios can tell how well a company can pay its debts without raising more money. 10 Common liquidity ratios include the current ratio and the quick ratio.

• Calculated by dividing current assets by current liabilities, the current ratio refers to a company’s ability to pay its current liabilities within the year
• The quick ratio shows how a company can meet its short-term obligations; calculate it by adding cash, marketable securities and accounts receivable, then dividing the total by current liabilities

Solvency Ratios

Any company needs the cash flow to pay off its debts. The most common solvency ratio, the debt-to-equity ratio, is calculated by dividing the company’s liabilities by its shareholder equity.

Efficiency Ratio

To operate well, a company should be able to turn over its inventory and its accounts receivable quickly. Efficiency ratios will tell you about how long it takes companies to sell inventory and to collect on bills.

Common Mistakes to Avoid

Many common mistakes can affect financial statements. By definition, accounting statements require accurate record-keeping. An accountant may forget to log certain data into accounting books or might enter numbers incorrectly when calculating ratios.

Your best defense is to keep electronic records and use software that integrates with your accounting systems to automate financial statements and offer data visualizations that can signal you of potential errors.

Heighten and Hone Your Financial Expertise

As part of the online MBA program at Yeshiva University, you will explore the analysis of businesses in depth. Our faculty of business leaders not only explain financial statements, they share their expertise and experience in the industry with students. The online program allows you to advance your career and gain valuable connections, all while continuing to meet your non-academic obligations.

Join us to learn all about modern business leadership from innovative faculty and a close-knit student body. Take the first step by contacting an admissions outreach advisor today.

• Retrieved on June 6, 2024 from accountingtools.com/articles/financial-statements
• Retrieved on June 6, 2024 from investopedia.com/terms/i/incomestatement.asp
• Retrieved on June 6, 2024 from corporatefinanceinstitute.com/resources/accounting/balance-sheet/
• Retrieved on June 6 ,2024 from td.com/us/en/small-business/statement-of-cash-flow-definition-analysis-creation
• Retrieved on June 6, 2024 from fe.training/free-resources/accounting/statement-of-shareholders-equity/
• Retrieved on June 6, 2024 from bench.co/blog/accounting/how-to-read-income-statement
• Retrieved on June 6, 2024 from fidelity.com/learning-center/trading-investing/what-is-a-balance-sheet
• Retrieved on June 6, 2024 from finmark.com/how-to-read-cash-flow-statement/
• Retrieved on June 6, 2024 from corporatefinanceinstitute.com/resources/accounting/profitability-ratios/
• Retrieved on June 6, 2024 from investopedia.com/terms/l/liquidityratios.asp

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Five Essential Factors to Consider When Selecting an Accounting Firm

Choosing an accounting firm for your business isn’t a decision to make lightly.

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Selecting the right accounting firm for your business is an important decision that can greatly influence your financial health and business success. A reliable and skilled accounting firm can help you manage taxes, financial planning and bookkeeping, ensuring your business operates smoothly and efficiently.

My organization has extensive experience hiring accounting firms for our own needs and on behalf of our clients, so I understand the critical role a top-notch accounting firm plays in achieving financial stability and growth. This experience has given me valuable insights into what makes an accounting firm truly exceptional.

Here are five key tips to consider when hiring an accounting firm:

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1. Assess the firm’s expertise and specialization.

When vetting potential accounting firms, consider the firm’s expertise and specialization. Different firms may focus on areas such as tax planning , auditing, financial consulting or industry-specific services.

Seek a firm with significant experience in your industry. Industry-specific knowledge is invaluable, as the firm will understand the unique challenges and regulatory requirements of your sector. For instance, a construction company would benefit from an accounting firm experienced in managing project-based finances and handling contract revenues.

Additionally, ensure the firm’s accountants are certified and possess relevant professional qualifications. Certified public accountants ( CPAs ) have undergone rigorous training and testing and adhere to high ethical standards, making them adept at handling complex financial issues.

The accounting field is ever-evolving due to changes in tax laws and financial regulations. Firms that prioritize continuing education for their staff are more likely to stay updated with the latest developments, providing accurate and current advice.

2. Evaluate the range of services offered.

Accounting firms’ services vary widely, with some offering comprehensive financial solutions and others specializing in specific areas. If your business requires a broad range of services, choose a firm that provides bookkeeping, tax preparation, auditing, financial planning and advisory services. Larger companies and those experiencing rapid growth typically need comprehensive services due to their complex financial needs and regulatory requirements. In contrast, smaller businesses or startups might benefit more from basic accounting services focused on essential bookkeeping and tax preparation.

It’s important to ask whether the firm can tailor its services to your specific needs. Customization allows the firm to address the financial aspects most relevant to your business. For example, a startup might need strategic financial planning and funding advice , while an established company might focus more on compliance and tax optimization.

Modern accounting firms leverage technology for efficiency and accuracy. Inquire about their use of accounting software and technological tools. Firms employing advanced technology can offer real-time financial reporting, aiding in timely business decisions. Examples of effective accounting software include QuickBooks, Xero, Sage Intacct and FreshBooks and cloud-based platforms such as NetSuite, which facilitate seamless integration and automation.

3. Consider the firm's reputation and references.

The reputation of an accounting firm offers insights into its reliability and service quality. Look for reviews and testimonials from the firm’s current or past clients. Positive feedback from similar businesses can indicate whether the firm can meet your needs. Online reviews on platforms such as Google, Yelp and industry-specific forums can provide valuable insights.

A reputable firm should also willingly provide references upon request. Speaking with past or current clients can give you a clearer picture of what to expect in terms of service quality, responsiveness and expertise.

Membership in professional associations such as the American Institute of Certified Public Accountants or the local Chamber of Commerce is also something to consider, as that can indicate a firm’s commitment to maintaining high standards and staying engaged with industry best practices.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

4. Evaluate communication and responsiveness.

Effective communication and responsiveness are crucial for a productive relationship with your accounting firm. How accessible are the firm’s accountants? Will you have a dedicated point of contact? How quickly do they respond to emails or phone calls? Accessibility ensures you get timely answers to your questions and that any issues are addressed promptly.

You’ll want to make sure the firm you work with has a similar communication style to you, as well. The firm should communicate complex financial information clearly and understandably.

A good accounting firm goes beyond reacting to your needs by providing proactive advice. They should keep you informed about changes in tax laws, identify opportunities for financial improvement and offer strategic guidance to help you achieve your business goals. For example, an accounting firm once advised my company to optimize our cash flow by restructuring our debt and taking advantage of certain tax incentives . This strategic advice not only improved our financial health but also enabled us to reinvest in our business, leading to significant growth and expansion.

5. Assess the firm's pricing structure and value.

Understanding a firm’s pricing structure and evaluating the value it provides help to ensure its services fit within your budget and deliver a good return on investment.

Make sure the firm provides a clear, transparent pricing structure. Be wary of firms that are vague about their fees. Understanding how the firm charges — whether it’s an hourly rate, a fixed fee or a retainer — can help you budget accordingly.

It’s also important to consider the value the firm provides for its fees. A higher fee might be justified if the firm offers extensive expertise or specialized services.

Conduct a cost-benefit analysis to determine if the services offered justify the expense. For example, a firm that helps you significantly reduce your tax liability or streamline your financial processes might offer substantial savings that outweigh its fees.

Setting your business up for success

Choosing an accounting firm isn’t a decision to make lightly. By first assessing these factors, you can make an informed choice that aligns with your business’ needs and goals. A good accounting firm can be a valuable partner in your company’s financial success, providing the support and expertise you need to set your business up for financial success .

Related Content

• Need to Create a Business Tax Plan? How to Work With Your CPA
• Five Tax Breaks Business Owners Might Not Know About
• Three Strategies for Small Businesses to Reduce Taxes
• Audit-Proof Your Small Business

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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Accounting and Financial Statement Analysis Course Outline

 Module 1: Introduction to Accounting

• Fundamentals of Accounting
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• Role of Accounting in Business

Module 2: Understanding Financial Statements

• Balance Sheet Analysis
• Income Statement Analysis
• Cash Flow Statement Breakdown
• Statement of Shareholders' Equity
• Interpreting Financial Ratios
• Key Performance Indicators

 Module 3: Assets and Liabilities Management

• Current and Non-Current Assets
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• Debt and Equity Financing
• Working Capital Management
• Provisions and Contingencies

 Module 4: Equity and Revenue Recognition

• Equity Structure Analysis
• Dividends and Share Repurchases
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• Deferred and Accrued Revenues
• Revenue vs. Cash Flows

 Module 5: Expense and Cost Analysis

• Types of Business Expenses
• Cost of Goods Sold and Operating Expenses
• Depreciation and Amortisation
• Fixed and Variable Costs
• Break-Even Analysis
• Cost-Volume-Profit Analysis

 Module 6: Financial Analysis Techniques

• Ratio Analysis Fundamentals
• Trend Analysis
• Vertical and Horizontal Analysis
• Cash Flow Analysis
• DuPont Analysis
• Limitations of Financial Analysis

 Module 7: Investment and Financial Decision Making

• Capital Budgeting Techniques
• Investment Appraisal Methods
• Risk and Return Analysis
• Financial Forecasting
• Decision Making in Finance
• Ethical Considerations in Finance

 Module 8: Advanced Topics in Financial Statement Analysis

• Consolidated Financial Statements
• Foreign Currency Transactions
• Non-Profit Financial Statements
• Emerging Trends in Financial Reporting
• Corporate Governance and Financial Reporting
• International Financial Reporting Standards (IFRS)

Who should attend this Accounting and Financial Statement Analysis Training Course?

This Accounting and Financial Statement Analysis Training Course is perfectly suited for individuals looking to deepen their understanding of accounting principles and financial statement analysis. It is especially valuable for:

• Financial Analysts
• Accountants
• Business Managers
• Finance Directors
• Corporate Finance Professionals
• Financial Controllers
• Business Analysts

Prerequisites of Accounting and Financial Statement Analysis Training Course

There are no formal prerequisites for Accounting and Financial Statement Analysis Training. However, basic understanding of finance and accounting would be beneficial.

Accounting and Financial Statement Analysis Course Overview

Accounting and Financial Statement Analysis involves examining financial records to assess a business's financial health and performance. This training is crucial for making informed financial decisions and guiding strategic business planning.

This training enhances organisational financial acumen, leading to better strategic decision-making and financial management. Individuals gain critical skills in financial analysis, boosting their career prospects and decision-making abilities. This training offers individuals career advancement opportunities in finance and strategic business roles.     

Our 1-day Accounting and Financial Statement Analysis Training course aims to provide delegates with comprehensive knowledge about Accounting and Financial Statements. During this training, delegates will learn to analyse and interpret financial statements, understand accounting principles, and apply advanced financial analysis techniques.

Course Objectives

• To attain in-depth knowledge of fundamental accounting principles and practices
• To understand the concepts behind thorough financial statement analysis
• To get familiar with advanced financial analysis and decision-making techniques
• To learn about investment appraisal and effective capital budgeting methods
• To understand the importance of ethical considerations in financial decisions
• To get familiar with the nuances of international financial reporting standards

After attending this training, delegates will be equipped with the skills to analyse and interpret financial statements effectively, enabling them to make informed financial decisions and assessments. They will also gain the competence to apply advanced accounting principles and techniques in various business contexts, enhancing their strategic financial management capabilities.

What’s included in this Accounting and Financial Statement Analysis Training Course?

• World-Class Training Sessions from Experienced Instructors           
• Accounting and Financial Statement Analysis Certificate         
• Digital Delegate Pack

Why choose us

Our moscow venue.

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Moscow is the capital and the largest city in Russia. The city has a population of around 12.2 million and the urban area has a population of around 16.8 million. Moscow houses around 1696 high schools, 91 colleges, 222 higher education institutions and 60 state universities. The Moscow State University is a coeducational and public research university. It was established in 1755 and houses the tallest educational building in the world. The university has around 47,000 students in attendance and offers a variety of courses in areas such as; geography, medicine, history, philology, economics, law, psychology, sociology, education, chemistry, television, education and military training.

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Experience live, interactive learning from home with The Knowledge Academy's Online Instructor-led Accounting And Financial Statement Analysis Training in Moscow. Engage directly with expert instructors, mirroring the classroom schedule for a comprehensive learning journey. Enjoy the convenience of virtual learning without compromising on the quality of interaction.

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Unlock your potential with The Knowledge Academy's Accounting And Financial Statement Analysis Training in Moscow, accessible anytime, anywhere on any device. Enjoy 90 days of online course access, extendable upon request, and benefit from the support of our expert trainers. Elevate your skills at your own pace with our Online Self-paced sessions.

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Experience the most sought-after learning style with The Knowledge Academy's Accounting And Financial Statement Analysis Training in Moscow. Available in 490+ locations across 190+ countries, our hand-picked Classroom venues offer an invaluable human touch. Immerse yourself in a comprehensive, interactive experience with our expert-led Accounting And Financial Statement Analysis Training in Moscow sessions.

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• Financial Advisor

Financial Planning Basics

Updated: Jun 26, 2024, 4:51pm

No matter the size or scope of your financial goals, a financial plan can help make them a reality.

Financial planning is the process of looking at the current state of your finances and making a step-by-step plan to get it where you want it to be. That may mean devising a plan to become debt-free or figuring out how to save enough money for a down payment on a new home.

This process can include many aspects of personal finance, including investing, debt repayment, building savings, planning for retirement and even purchasing insurance.

Anyone can engage in financial planning—it’s not just for the wealthy. You can get started on making financial goals on your own, and if you choose, you can work with a financial professional to help devise the smartest plan to make those goals a reality.

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5 Steps to Create a Financial Plan

A financial plan is devised of smaller goals or tasks that will help support you along your financial journey. Create a financial plan with these five steps:

1. Identify Your Financial Goals

By identifying your financial goals, you’ll have a clear idea of what you need to accomplish to make them happen. Your goals should be realistic and actionable and include a timeline of when you want to accomplish them.

Making a goal to pay off credit card debt by a certain date, for example, would be an appropriate financial goal that will set you up for success.

2. Set a Budget

Having a clear picture of your finances will make it easier to achieve any financial goals. A budget can help you understand where your money is going each month. It can also help you identify where you may be overspending, giving you opportunities to cut back and allocate that money elsewhere.

One of the easiest budgets to start with is the 50/30/20 budget . This budget plan allocates your monthly income into three buckets: mandatory expenses (50%), savings and debt repayment (20%) and discretionary spending (30%). This is just one of many types of budgeting plans out there.

A budget should be a guide to help you understand your monthly finances and devise smaller goals that will bring you closer to your long-term financial goals. You likely won’t always follow your budget down to every single penny; keeping this in mind will help you stay on track, rather than get discouraged and give up on budgeting altogether.

There are apps out there that make budgeting much easier by helping you visualize your spending and savings choices each month. Some budgeting apps even give you the option to enter your financial goals directly into their platform to help you stay on track. A fully featured budgeting app allows you to track spending, manage recurring bill payments, set savings goals and manage your monthly cash flow.

3. Build an Emergency Fund

Building an emergency fund will help make sure that a financial emergency doesn’t become a catastrophic financial event.

Experts usually recommend having six months’ worth of living expenses saved to cushion you, should the unfortunate unexpected happen, such as losing a job. But six months’ worth of money can be unattainable for those who may be struggling financially, or those living in tight financial means each month.

You can start building an emergency fund by setting a few dollars aside each paycheck. You can start with a small fund goal of $100 to $200 to establish your fund. From there, you can create other smaller goals that will add up to a larger financial cushion. Some budgeting and savings apps also give you the option of rounding up to the nearest dollar in transactions and funnel that spare change toward your savings.

4. Reduce Your Debt

Having to make debt payments each month means you’ll have less money to allocate toward your purchase goals. Plus, carrying credit card debt can be expensive; every month, you’re accruing interest on your balance, which can make it take longer to pay off.

There are a variety of debt payoff methods out there. Two of the most popular include the debt snowball and debt avalanche methods . With the snowball method, you’ll pay off your smallest balance debts first, then make your way to the ones with the higher balances. The debt avalanche, on the other hand, starts with higher interest rate debts first.

5. Invest for the Future

Although risky, investing can help grow your money, even if you’re not wealthy. You can get started with investing by enrolling in your company’s 401(k) plan or opening a low-or-no fee account through an online broker .

Keep in mind that investing always involves some risk; you could end up losing the money you invest. There are also robo-advisors that automatically recommend investments based on your goals and risk tolerance.

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Bottom Line

A financial plan is composed of a series of smaller goals that will help you achieve a larger financial goal, such as purchasing a home or retiring comfortably. A solid financial plan includes identifying your goals, creating a budget, building an emergency fund, paying off high interest debt and investing.

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Jordan Tarver has spent seven years covering mortgage, personal loan and business loan content for leading financial publications such as Forbes Advisor. He blends knowledge from his bachelor's degree in business finance, his experience as a top performer in the mortgage industry and his entrepreneurial success to simplify complex financial topics. Jordan aims to make mortgages and loans understandable.

Accounting for Small Businesses: What You Need to Know

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Running a small business can be a big job, but your accounting doesn’t have to be a hassle. 

Here’s an itemized overview to get you started.

What you need to know

• Tracking income
• Expense tracking
• Understanding profitability
• Financial statements
• Tax planning
• Hiring accounting professionals  

Tracking income: why?

You’ll want to know how much income your business is generating so you can track your profits and manage your money effectively. 

You’ll also want to track income to report your earnings correctly for taxes and avoid penalties. Keeping detailed records will help in claiming your deductions and credits — we all want to reduce our tax liability!

What about measuring the financial performance of your business? Income tracking provides clarity about  which of your products or services are most profitable, and also reveals trends in earnings over time. You’ll need this information later for planning and making adjustments to improve your profitability.

Income tracking can also help you manage your cash flow. It ensures that there’s enough cash on hand for business expenses, debts, and personal purchases. The goal is to maintain the availability of liquid assets and ensure the stability of your business.

What if you’re trying to attract investors or get a business loan? When you track your income through detailed and accurate records, your business is more attractive to potential investors and lenders. These records are crucial in showing your ability to generate revenue and manage your finances.

Methods for tracking income

While there are many effective methods for tracking income in a small business, there are two you should be most aware of:

By product or service

Tracking income by product or service helps you identify the most profitable aspects of the business and focus on expanding them. 

For example, you may be a building contractor who also offers landscaping and interior design services. Find out which service is more profitable and put more effort into expanding that area.

Some ways to do this:

• Use software like Quicken to generate reports on income by product/service category.
• Create spreadsheets with columns for product/service, revenue, and profit margin. Then assign each product/service a unique code for easy tracking.

By customer or job

Tracking income by customer or job provides a view into your most valuable client relationships or your most profitable kinds of jobs. 

Going back to our earlier example, if you were a building contractor, you could find out which customers or jobs generate the most income and understand where to target your efforts.

• Use software like Quicken to categorize your income by customer or job.
• Use spreadsheets with columns for customers, product/service, revenue, and profit. Then assign each customer a unique code for easy tracking.

Expense tracking — the why and how

It’s important for business owners to track expenses for several reasons. First, it makes financial management and planning easier. It shows where money is being spent, allowing for better budgeting and cost control.

Second, it aids you in tax compliance. Detailed receipts are necessary for claiming deductions and credits when filing taxes, minimizing tax liability.

Third is fraud detection. If you regularly review your expenses, it’s easier to spot signs of fraudulent activity, like duplicate or fake expenses from an unauthorized party.

The fourth and most important benefit of tracking expenses: it helps you save on costs, explore new growth opportunities, and earmark money for future opportunities because you’re armed with information about your business spending.

If you don’t know what’s coming into your business, planning for the future becomes a tough job.

Here are some effective methods for tracking expenses

• Open a dedicated business bank account and credit card to separate business and personal finances.
• Make digital copies of receipts to eliminate paper clutter. Regularly review expenses and put them into categories to get a better view of your outflows.
• Use Quicken to automate expense tracking and categorization.
• Integrate Quicken into your business bank accounts to automatically import transactions.

The importance of categorizing expenses

By consistently categorizing your expenses, you can gain valuable insights into your company’s spending and profitability. It also makes it much easier to generate the financial statements you’ll need to do your taxes.

What are the main expense categories?

Operating expenses — The costs created by a business in its day-to-day operations, like rent, insurance, and funds allocated for research and development.

Cost of goods sold (COGS) — The costs associated with manufacturing the goods sold by your business, like the cost of materials and labor directly related to the production process.

Marketing and advertising expenses — Ad costs, sponsorships, and anything else you do to help market your business .

Payroll expenses — Costs related to employees or contractors. Many small businesses use a payroll service due to the complexity of payroll taxes.

Understanding profitability — why track profit?

When you’re consistent about tracking profitability, you can understand your business better and make better decisions. It’s really that simple.

Is your new line of book-themed candles profitable? Great! Make more. Are your porch swings too labor-intensive to be worth it? Try simplifying the design.

Tracking and understanding profitability helps you make these kinds of decisions and more.

Net profit vs. gross profit

Gross profit is the revenue you have left after paying for the cost of the services or products you sell. 

Net profit, by contrast, is what’s left after paying all your expenses and taxes. 

Both are important for understanding your business’s profitability and helping you make informed decisions.

Cash flow management

Cash flow management is just what it sounds like — paying attention to cash payments as they flow in and out of your accounts.

Many small businesses feel the limitations of cash flow. Maybe they need to buy supplies for a job long before they’ll get paid for that job. Or maybe they need to wait on a customer’s 60-day payment cycle before they can pay their own bills.

Looking ahead at your upcoming cash flows helps you plan ahead so these kinds of situations don’t take you by surprise.

Forecasting cash flow can also help you plan the best way to expand your business, knowing how much cash you’ll have available and when.

Strategies for improving cash flow

Here are 10 simple strategies for improving cash flow in your business:

• Offer discounts for early invoice payment or impose late fees for overdue invoices. This encourages customers to pay you sooner.
• Make it easy for customers to pay by accepting credit cards, ACH, and online payments.
• Provide discounts for customers who prepay for products or services.
• Create subscription or membership programs where customers pay upfront.
• Offer special promotions or limited-time offers to encourage prepayment.
• Avoid tying up too much cash in inventory that sells slowly.
• Sell off discontinued or excess inventory at a discount.
• Ask for extended payment terms from suppliers.
• Review your expenses and cut any costs that aren’t necessary.
• Implement cost-saving measures like energy-efficient upgrades to your properties.

Financial statements — which ones are needed?

Let’s keep it simple — there are three main statements your business needs, and the first two are required for taxes. They are:

Income statement

An income statement focuses on the revenue, expenses, gains, and losses of your business during a particular time period, such as a day, week, month, quarter, or year.

Balance sheet

A balance sheet shows you what your company is worth based on the value of your company’s assets and debts at a given moment in time.

Cash flow statement

A cash flow statement shows you how cash has been flowing into and out of your business.

Most small businesses use accounting software to generate all 3 of these financial statements automatically. 

Tax planning and compliance

Tax planning can help lower your taxes while making sure you’re still complying with local and federal tax laws. A tax professional can help you find those savings.

Be proactive and tackle tax planning throughout the year instead of waiting until the end and scrambling around like a chicken in a barnyard. (Been there, done that. Trust me, it’s not great.) 

Besides, most of your tax savings will come from things you have to do all year long, like tackling your expenses and saving receipts.

Hiring accounting professionals

As your small business grows, hiring an accountant or bookkeeper becomes more important to make sure you’re keeping good financial records, complying with tax regulations, and making informed decisions. 

Look for a professional who understands your business, and communicate with them regularly about your goals and concerns. 

Working closely with someone you trust can help you focus on the things that make your business profitable — and maybe even fun.

Small business accounting — what you need to know

You made it! 

Accounting work can feel like a hassle, but it doesn’t have to consume you as a business owner.

Automate those boring accounting tasks with a faster, easier way to manage your finances. Quicken is here to help .

Quicken has made the material on this blog available for informational purposes only. Use of this website constitutes agreement to our Terms of Use and Privacy Policy. Quicken does not offer advisory or brokerage services, does not recommend the purchase or sale of any particular securities or other investments, and does not offer tax advice. For any such advice, please consult a professional.

About the Author

Jason Weiland

Writer, founder of  Singularity Management Group, LLC , and advocate for coloring outside the lines,  Jason Weiland  thrives where business meets technicolor living. He loves challenging the idea of ‘normal’ and expanding our ability to express our authentic selves.

Disrupting unforgiving landscapes of tech bros and Ivy League entitlements wherever he finds them, Jason envisions a world in which business is a place for everyone — where different is good, and alternative equals remarkable.

If you’re looking to break free from imbalance, embrace innovation, and explore professional behaviors that promote mental health and wellness, he’d love to chat.

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What is holistic financial planning? Three questions to consider

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Do you have a financial plan that includes your life goals, or do you make financial decisions independently? 

Holistic financial planning combines your life goals with solid financial strategies, so that every strategy supports your short- and long-term future plans. A well-crafted financial plan protects your future, raises financial awareness and encourages proactive management.

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1. How do you build a holistic financial plan?

Holistic financial planning considers all aspects of your personal and financial life to craft a tailored strategy. It goes beyond your investments as it weaves in your goals, values and big life changes to build a personalized financial blueprint. There are two things to consider when building a plan:

Bring your finances together

Holistic financial planning comes down to integration. For example, when financial advisors craft a financial plan, they consider how your spending habits, savings, tax planning and long-term goals integrate into your life.

Protect your money and manage your risk 

Risk management and asset protection can also be considered as part of holistic planning. Strategies can include asset diversification and structuring assets to protect your wealth against volatility and unforeseen events. Creating a financial plan that helps you have enough cash for immediate needs while also investing in assets that can grow over time requires financial flexibility. This includes:

• Creating an emergency fund.
• Using credit strategically.
• Investing in a mix of assets.

Financial advisors can offer more practical guidance when they take this comprehensive approach. They’re looking beyond numbers and considering your life goals. Whether budgeting for now or estate planning for the future , holistic planning can empower you to make financial decisions confidently and clearly.

2. How does holistic financial planning work?

Traditional financial planning can sometimes fall short or miss the mark in helping you fully prepare for the future. Many of today’s financial products and strategies can feel very similar, which can make it difficult to find personalized financial planning that works for you.

But holistic financial planning considers all aspects of your economic life, including goals, values, lifestyle, income, expenses, assets, liabilities and risk tolerance. It connects your financial objectives with broader life goals like family, career and health. It also helps identify gaps in your current financial strategies and any potential risks that can potentially impact your financial stability.

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3. Who can benefit from holistic financial planning?

Holistic financial planning isn’t always a one-size-fits-all solution, but it can offer a tailored approach to managing your wealth and planning for your future. While some may prefer a narrower focus, holistic planning can often adapt to life changes, including marriage, career shifts or unplanned expenses. Here are a few groups that can benefit from holistic financial planning:

• Young professionals: If you’re just starting your career, holistic financial planning can provide a solid base for tackling student debt, building an emergency fund and setting long-term goals, offering a roadmap for a more secure financial future.
• Families: Holistic planning can help families plan for college, buying a home and retirement , often accommodating each family member’s diverse financial goals.
• Entrepreneurs: If you’re managing both business and personal finances, a holistic strategy may help you balance the needs and risks of your business venture with your personal financial stability.
• Retirees: For those nearing or already in retirement, a holistic approach can offer a nuanced perspective on managing investments, cash flow in retirement, healthcare expenses and estate planning.

Holistic financial planning is flexible and can work for many people. It’s especially helpful if you want to make sure that your finances and goals align. 

Getting started

You can start your journey to financial empowerment by setting specific short- and long-term goals for your holistic financial plan. This could include opening savings accounts, making strategic investments or adjusting your daily spending. It’s about turning those plans into reality one step at a time, while keeping an eye on your progress and adjusting as life changes.

Staying financially informed is important as the market shifts and personal situations change. Regular check-ins with your financial advisor , staying up-to-date on the latest in finance news and continually learning can help you manage both immediate needs and long-term goals. 

Consider choosing fiduciary advisors who offer customized plans tailored to your needs. If you need help finding a vetted financial advisor, a platform like Datalign can help match you with an advisor ready to review your unique financial needs.