How to Build a Financial Plan for Your Business
Doing your own financial forecasting as a small business owner can be daunting and time-consuming—but it doesn’t have to be.
With some basic tools and knowledge, you can create an accurate, easy-to-maintain financial plan that will help guide decision-making and allow you to track progress.
The first step to creating a financial plan is to ensure that you have accurate and up-to-date financial data. You’ll need to export the last 2-3 years of Profit & Loss (P&L), balance sheet and statement of cash flow data, by month, from your accounting system into Excel. Once imported, align the columns so that each month matches and begin adding rows for key ratios/metrics between various P&L and Balance Sheet accounts such as gross profit margin, customer acquisition cost, Accounts Receivable (A/R) days, Accounts Payable (A/P) days, and inventory days.
The next step is to start filling in forecasted assumptions for revenues, costs assets & liabilities. Use your historical information as a starting point but also consider using the historical relationship of these accounts to your P&L to drive the calculations for these accounts.
Once you have your projections complete, create a statement of cash flows calculation below your balance sheet to determine what assumptions from the P&L and balance sheet will impact cash flow and estimate a potential cash balance each month. Finally, create summary tabs such as monthly and annual summaries that boil down key financial information (historical and projected).
It’s important to update the forecast with ‘actuals’ every time you close out the accounting for the month. This allows you to compare how well you did against expectations and take corrective actions if needed.
If this all sounds like too much work, or you’d like a hand with creating an accurate financial forecast for your small business, please don’t hesitate to get in touch. We'd be more than happy to help build a financial plan that is tailored to your business and provide ongoing support and management.
We understand that setting up proper forecasting can take time, but it is worth it in the end. Reliable cash flow projections give you the information you need to make informed decisions about the future of your business. With the right tools and knowledge, you can save yourself time and money by creating an accurate and easy-to-maintain financial plan. If you have any questions or need assistance getting started on your own financial forecast, please don’t hesitate to reach out. We would be delighted to advise and create a plan that works for your business.
