Question to know Before Making Financial Plan for Your Business:- We know many entrepreneurs who have very good business ideas and who understand well the market in which they want to compete. However, it is common for these entrepreneurs to ignore or feel lost in the financial part of the company and have difficulty making a financial plan for their business. Is my business profitable? How do I do a feasibility study?
More from Business Study Notes:- How to make a Financial Plan
Question to know Before Making Financial Plan for Your Business
How do I create a financial plan before starting my business? These are some of the questions that are most often repeated when starting a business and considering the financial analysis.
- What do I need to make a Financial Plan?
The main reasons that justify the need to make a financial plan for your new business are:
- Know the financing needs, in the short term – daily operation of the company – as in the long term – investment financing.
- Know the economic viability and possible returns.
- Know the minimum volume of sales necessary to start making money (break even).
- Study the sensitivity of your business to the main factors: sales growth, costs etc.
It is important not to be obsessed by the accuracy of the forecasts, the value of a financial plan is in the questions and reflections that it raises and the support that can give to our decisions.
- Same thing a Financial Plan that a Business Plan?
The financial plan is part of the business plan. The business plan is a comprehensive document that describes and analyzes all aspects of the business: strategy, marketing, marketing, purchasing, production, distribution, organization and of course includes financial.
- What content should have a good Financial Plan?
The basic elements of a financial plan are:
- Income statement
- Investment plan
- Cash flow
It is very common to incorporate the following:
- Breakeven analysis
- Sensitivity analysis
- Company valuation
- How I can take advantage ofthe format of Financial Plan that asks me the Bank?
In many cases the entrepreneur is forced to make a financial plan in the format required by a third party: a bank, agencies
These models are always very similar and cover the most accounting part of a financial plan, i.e.: income statement, balance sheets and cash flows to three or five years. In this situation we recommend taking advantage of the obligation to make these financial plans to model well the financial keys of our business. Although we always end up covering the aforementioned accounting formats and their analysis has an important value, we can make much of the model by simply linking the key indicators of our business with the accounting model.
For example: The line sales turnover or we can calculate it based on our sales forecast for each market segment and product you have defined. We can also break it down into units and unit price …, all of which will allow us to do simulations and detect the weaknesses or greater risk in our business.
- Financial Plan for an online Business or a startup Necessary?
When you begin to define how to run an online store or any other business on the internet, many questions arise: how much can I spend on the design or development of the platform, how much I reserve for marketing, what sales will I need to recover that money, if I get A salary how much can I charge, what price and discounts can I put to make it viable … Obviously there will never be a single answer to all these questions but the financial plan is an ideal tool to test all the possibilities and minimize the risks of our market.
- EBITDA, EBIT, Cash-Flow: What acronyms or terms mean?
In the financial plans are handled many acronyms and names that for many entrepreneurs are impossible to decipher. Some of them are:
Gross Margin: The resulting margin when sales subtract only “direct” costs i.e. the consumption made necessary to produce our goods or services. It is advisable to investigate the average gross margin of other companies in the same sector.
EBITDA: Gross Earnings before interest, taxes and amortization (also called EBIT). It is obtained by subtracting the operating and general expenses from the gross margin. This result gives us an idea of the “money” generated by the business, a clean figure that is not “contaminated” by the effect of taxes, interest and amortizations.
EBIT: Net income before interest, taxes and amortization after.
Cash-flow or cash flow: One of the most important elements of the financial plan. The annual income statement or monthly accounting (income-expenses) will indicate if the business is profitable or not, but the evolution of the cash (payments-payments) will tell us whether we will need financing in each period or if we have surpluses of box.
Example: Monthly income statement:
Suppose we charge sales with a month’s delay and we pay the cash costs. If we make a monthly cash flow chart we clearly see the months in which we will have cash problems and that do not have to coincide with what an accounting result tells us.
- With a Financial Plan I can know how much better my Business?
If we are thinking of selling our company or want to introduce new partners, we will need a starting point, the most used way to value a company or startup is the so-called “Cash flow discount rating”. As its name indicates is based on knowing the box that each year will generate the business and “discount an interest” or bring those amounts to present value. It is fundamental to have a good financial plan if we want to know the value of our company, by working well the model we can know which indicators are the ones that may be affecting the value of the company.
- How I can know if my Financial Plan is well calculated?
To validate the reliability of a financial plan we have to analyze separately:
Hypotheses or data introduced in the model.
The calculations made by the financial model.
In the first part, the data entered, there is no fixed rule for validation only a good knowledge of the sector, market and competition can tell us whether the data are realistic or not.
Regarding the calculations of the model, it is important that an expert confirm us, before starting to use any model that is well designed. It is common to find models where the results, balance and cash-flow account are not well connected to each other or simply work independently, this and other design errors can make our projections are not coherent.
- What information do I need to start making the Financial Plan of my new company?
In order to start making a financial plan you need to collect the following information:
- Prices and units of sale estimated by product-service-market.
- Structure of costs to obtain the service or product.
- Estimated personnel costs.
- General and administrative services expenses.
- Cost and planned investment plan.
- I cannot do a Financial Plan … Should I learn?Who can help me?
In the questions and answers above you can see that the completion of a good financial plan requires a combination of knowledge and skills:
- Business knowledge: prices, margins, costs
- Technical and analytical knowledge of financial models.
Some entrepreneurs have in their team both profiles but it is very common that the entrepreneur knows the business but does not have the technical knowledge to make a financial plan. In these cases there is always the possibility of forming, but since Business Study Notes recommend that the entrepreneur to focus on the business side that really dominates and relies on freelance professional experts to make your financial plan.
Do you need more information to create your Financial Plan or your Business Plan? Currently you have a free counseling service which will help you select the best professional freelance for your draft financial plan:
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
Love my efforts? Don't forget to share this blog.