Why Is It Important to Write a Financial Plan for Your Business?

2021-11-18 18:37:05
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pencil pointing to the headline of a document titled financial plan

Writing a financial plan is critical to business planning. And just as it is vital, it can take a lot of work that will require you to be on track of details, particularly with money. At any rate, a financial plan will help foster transparency that allows you to focus better on your business goals.

How Will It Help

All in all, a financial plan is a budgetary overview of your business that includes projections and estimates for its growth. It presents a realistic assessment that identifies the needed resources to start and run the business. This allows stakeholders to calculate costs and decide on a budget, including the starting capital required.

Through financial planning, you’ll be able to build a blueprint of how your business acquires funding and potential cash flow. This is why having a sound financial plan will help entice banks and investors to fund your business externally.

Common Parts of a Financial Plan

Financial planning for an online business is the same as that of a brick-and-mortar store, although there are relatively fewer initial start-up expense requirements that an online business will need.

Here are the standard sections that a financial plan should ideally have.

1. Start-Up Expenses

The start-up expenses are the business costs that you need to begin your online business. For example, they may be fees for registration, permits, rent down payment, and initial inventory. In reality, online businesses may have fewer start-up expenses since property rental and initial inventory may be unnecessary for them.

2. Operating Expenses

The operating expenses are the regular expenses that your business will incur as it runs. They can be employee salary, internet, loan payments, and even office supplies.

3. Income Statement

The income statement shows the projected profit or loss over time, which is why it’s also called the profit and loss statement. Because it shows a trend of possible gains and losses, it is beneficial in assessing the viability of a business.

The income statement is only a projection for new businesses, so they may need to generate three versions that show their worst, average, and best scenarios.

4. Cash Flow Statement

The cash flow statement provides the details of your business’ revenue liquidity. It helps project if the company can afford the recurring expenses and estimates if it can pay its financial commitments within the required time frames.

5. Break-Even Analysis

The break-even analysis highlights how long your business can turn your initial and start-up expenses into profit. It typically includes profitability ratios like gross margin, return on sales, return on assets, and return on investment — making it vital for getting external funding from banks and investors.

6. The Balance Sheet

The balance sheet accounts for all the money you have put into your business. In addition, it provides information about your business’ net worth, including the value of its assets and liabilities and resources allocation.

7. Sales Forecast

Lastly, the sales forecast is a projection of how many products your company can sell over a specific period. It will help you set goals and allow you to measure the profit progress of your business.

How SwiftPay Can Help Make Your Financial Planning Easier

Financial planning will help you understand the money and resources needed to run your business. It will help you analyze where the money is coming from and where it is going that will let you efficiently maximize your capital and control unforeseen expenses.

Once you have set up a financial plan for your online business, it’s time to consider a payment gateway like SwiftPay for your e-store. SwiftPay will enable your business to digitally receive payments from your customers, giving you a digital footprint of transactions that will make your financial planning easier. You can read about our product here or sign up for a free demo through this form.

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