You increase the odds of success for anything you do in your life by having a plan. It’s no different from starting a company and entering the entrepreneurship world. Apart from designing a business plan, you need to have a roadmap for your finances. That’s why it’s important to create a sound financial plan for startup business.
Our guide will help to understand what to include in that plan. It reveals how to cover all scenarios and details, which maximizes your chances of achieving financial goals. Keep reading to learn more about planning and using the money invested in your startup wisely!
What Does a Financial Plan for a Startup Include?
A financial plan focuses on money and outlines how your company will manage it in the future. It explains your current financial situation and underlines your plans for the specified period. It also discusses how you plan to achieve those objectives.
Here is a brief overview of the elements included in the financial plan for startup business:
- Expenses, including variable and fixed ones
- Financial statements for startups
- Potential profit
- Break-even point
- Cash flow adjustments
- Cash balance
- Gross/operating margins
It’s up to you how detailed the financial plan would be. It helps to hire a professional to analyze your current situation and make suggestions based on financial reports.
Why Should Startups Have a Financial Plan?
Running out of money is the most common reason why entrepreneurs close their startup companies. It’s not easy to succeed in today’s turbulent market. But if you have a financial plan on how to manage the money available, it increases the odds of a positive outcome.
Check out these reasons why a startup should have a financial plan:
- Be aware of how much revenue you could generate in the coming months
- Plan fixed expenses and be prepared for unexpected ones
- Figure out how much you can spend on marketing and other activities
- Discover if you can hire new staff members
- Attract investors by showing you manage finances sensibly
Tips to Make the Best Financial Plan and startup profit and loss statement
If you have existing financial data, start by analyzing it. From there, it could be easier to make reliable projections about revenues, expenses, sales, etc. Your financial plan could cover the next couple of months or an entire year. Here are some tips to make the document more reliable!
Be Aware That Multiple Scenarios Are Possible
You might think that you have a reliable sales projection for the upcoming months. But the truth is the market is unpredictable, and you can never be 100% sure. That’s why it’s important to establish multiple scenarios, including:
- Baseline plan with steady projections that seem realistic
- Upside plan that exceeds your realistic expectations
- The worst-case scenario that covers what could go wrong
You begin by setting a baseline. Do you think your cash flow won’t likely change much in the coming months? Do you have reasons to believe you’ll maintain at least the same income as today? These realistic projections should be a part of your baseline scenario. This plan also includes you won’t make sudden moves in running the business.
Next, it’s time to be optimistic and create an upside scenario. What if you increase sales and profit? Customers might like your products and recommend them to friends, which leads to a sudden sale boost. But you can’t just hope for this miracle. Try to assess and mention how you could make this happen.
You hope for the best but need to be ready for the worst. That’s why you should create a downside scenario. It gets you ready for the future where your expenses increase but revenues decrease. You might try to predict what could go wrong and how to counteract it. This is vital because you could have a strategy ready if the worst-case scenario actually occurs.
Try to Predict How Different Moves Could Contribute to Your Business
You’ll also be envisioning scenarios here, but the difference is you’ll be the one taking action. Let’s say you are considering increasing a product price. Do you believe that would help generate more revenue, or you’ll be costlier than the competition and lose some customers?
Some other moves to consider include:
- Is it smart to invest more in marketing, and which channel is the best choice?
- Can creating a new website help attract more customers?
- Do you have the financial means to support a new product launch?
- Can a new service increase your overall revenue?
Plan Your Revenue Carefully
Any business lives from revenues, and they are critical for startups. This is a major category of your financial plan, so aim for the highest accuracy level. First, you need to identify how you plan to generate revenues.
Are you counting on product sales? Do you believe that event you are planning will generate income? Can that online advertising campaign attract new customers? A detailed strategy for each department might be a part of your strategic plan. From a financial perspective, it’s important to note potential revenue sources and how much they could generate. For example, if you use a Facebook advertisement campaign, specify the results you’d consider satisfying. Try to make an educated guess and avoid making assumptions.
Final Thoughts – The Importance of Making and Reviewing a Financial Plan
Preparation has always been the key to success. If you run a business, managing your finances is imperative. You need to know how much money you have available and what could happen to your finances in the future. It’s why you need a financial plan.
You shouldn’t stop when you create a financial plan. It’s vital to monitor it and see how the future plays out. Based on that, you should return to the plan and make the necessary adjustments. If anything unpredictable happens, it indicates you should change the previous plan. It always helps to work with an expert since they can help you get accurate predictions and secure a better financial future for your company.