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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.
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Download and use these free financial templates and calculators to easily create your own financial plan.
Sales forecast template
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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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6 Small Business Financial Statements for Startup Financing
Financial Statements You'll Need for Your Startup Business Plan
You're ready to start your small business and your're working on a great business plan to take to a bank or other lender. A key part of that plan is the financial statements. These statements will be looked at carefully by the lender, so here are some tips for making these documents SELL your business plan .
Financial Statements You Will Need
You may need several different types of statements, depending on the requirements of your lender and your own technical expertise.
The statements you will certainly need are:
- A startup budget or cash flow statement
- A startup costs worksheet
- A pro forma (projected) profit and loss statement
- A pro forma (projected) balance sheet
Your lender may also want these financial statements:
- Sources and uses of funds statement
- Break-even analysis
Putting these Statements in Order
First, work on your startup budget and your startup costs worksheet. You'll need to do a lot of estimating.
The trick is to underestimate income and overestimate expenses, so you can create a more realistic picture of your business over the first year or two.
Then work on a profit and loss statement for the first year. A lender will definitely want to see this one. And, even though it's not going to be accurate, lenders like to see a startup balance sheet.
Some lenders may ask for a break-even analysis, a cash flow statement, or a sources and uses of funds statement. We'll go over these statements so you can quickly provide them if asked.
Business Startup Budget
A startup budget is like a projected cash flow statement, but with a little more guesswork.
Your lender wants to know your budget - that is, what you expect to bring in and how much to expect to spend each month. Lenders want to know that you can follow a budget and that you will not over-spend.
They also want to see how much you will need to pay your bills while your business is starting out (working capital), and how long it will take you to have a positive cash flow (bring in more money than you are spending).
Include some key information on your budget:
- What products or services you are selling, including prices and estimated volumes
- Key drivers for expenses, like how many employees you'll need and your marketing initiatives
A typical budget worksheet should be carried through three years, so your lender can see how you expect to generate the cash to make your monthly loan payments.
Startup Costs Worksheet
A startup costs worksheet answers the question "What do you need the money for?" In other words, it shows all the purchases you will need to make in order to open your doors for business. This could be called a "Day One" statement because it's everything you will need on your first day of business.
- Facilities costs, like deposits on insurance and utilities
- Office equipment, computers, phones
- Supplies and advertising materials like signs and business cards
- Fees to set up your business website and email
- Legal fees licenses and permits
Profit and Loss Statement/Income Statement
After you have completed the monthly budget and you have gathered some other information, you should be able to complete a Profit and Loss or Income Statement. This statement shows your business activity over a specific period of time, like a month, quarter, or year.
To create this statement, you'll need to list all your sources to get your gross income over that time. Then, list all expenses for the same time.
Because you haven't started yet, this statement is a called a projected P&L, because it projects out your estimates into the future.
This statement gathers up all your sources of income, including shows your profit or loss for the year and how much tax you estimate having to pay.
Break-Even Analysis
A break-even analysis shows your lender that you know the point at which you will start making a profit or the price that will cover your fixed costs . The break-even analysis is primarily for businesses making or selling products, or to set the right price for a product or service.
It's usually shown as a graph with sales volume on the X axis and revenue on the Y axis. Then fixed an variable costs (those you must pay) are included. The break-even point marks the place where costs are covered.
This analysis can also be useful for service-type businesses to show an overall profit point for specific services. If you include a break-even analysis, be sure you can explain it.
Beginning Balance Sheet
A startup balance sheet is difficult to prepare, even if there isn't much to include. The balance sheet shows the value of the assets you have purchased for startup, how much you owe to lenders and other creditors, and any initial investments you have made to get started. The date for this spreadsheet is the day you open the business.
Sources and Uses of Funds Statement
Large businesses use Sources and Uses of Funds statements in their annual reports, but you can create a slightly different simple statement to show your lender what you need the money for, what sources you have already, and what's left over to be financed.
To create this statement, list all your startup and working capital(on-going cash needs), how much collateral you will be bringing to the business, other sources of funding, and how much you need to borrow.
Optional: A Business Requirements Document
A business requirements document is similar to a proposal document, but for a larger, more complex project or startup. It gives a complete picture of the project or the business plan. It goes into more detail on the project that will be using the financial statements.
Include Financial Statements in Your Business Plan
You will need a complete startup business plan to take to a bank or other business lender. The financial statements are a key part of this plan. Give the main points in the executive summary and include all the statements in the financial section.
Finally, Check for Mistakes!
Before you submit your startup business plan and financial statements, check this list. Don't make these common business plan mistakes !
Check all numbers for accuracy and consistency. Especially make sure the amounts you are requesting are specific and that they are the same throughout all the parts of your business plan.
SCORE.org. " How to Set Up and Maintain a Budget for Your Small Business ." Accessed Sept. 10, 2020.
SCORE.org. " Financial Projections Template ." Accessed Sept. 10, 2020.
Harvard Business Review. " A Quick Guide to Breakeven Analysis ." Accessed Sept. 10, 2020.
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