What You Need to Know About Small Business Plans
Photo by mentatdgt via Pexels
A business plan for a small business is its roadmap to what the small business owner hopes will be a successful journey. As with everything else in life, the more effort and concern you invest in your small business and small business plan, the more you get back from it.
When drafting a small business plan, consult small business accounting services to have them assess your plan. Keep reading to learn more about small business financial plans and why they are critical for success.
What is a Financial Plan?
A financial plan is a set of financial statements, calculations, business strategies and projections based on the financial data.
What Should Be Included in a Financial Plan?
The answer depends on the industry you are in, how you operate your business, your business and financial goals, etc. Use the financial statements that make the most sense. The ones below are commonly found in most financial plans.
Income Statement
Also known as a Profit & Loss Statement, an Income Statement shows the amounts and sources of all of your small business’s revenues and expenses. In an income statement, you subtract your expenses from your revenues to calculate your gross margin.
Cash Flow Statement
Whether your business uses the cash or accrual method of accounting, a cash flow statement simply looks at all the transactions in a period of time (usually a month) and calculates whether you received more money than you paid out or vice versa.
Operating Income
To calculate your operating income (aka gross income), you subtract your operating expenses from your gross margin. The resulting number is also referred to as your earnings before interest, taxes and amortization (EBITDA.)
Net Income
To calculate your net income, simply subtract interest, taxes, depreciation and amortization from your operating income. Your net income is your profit, and if your small business isn’t currently profitable, by the time you’ve reached this calculation, you should know how long it will take before you are.
Balance Sheet
A balance sheet shows you how your business is performing at any particular moment in time. It lists all of the business’s assets, liabilities and equity (e.g., shares, stock proceeds, net earnings, owner’s equity, etc.) and ensures that the assets are equal to the liabilities and equity.
Sales & Revenue Projections
With one more year of sales and revenue on the books, you now have something to compare against in the future. You also now have access to actual numbers, which you can use moving forward and looking back to compare how accurate the model is at predicting future growth and what tweaks, if any, may be helpful.
Now that you have hard data, your sales and revenue projections should be more accurate, which, in turn, makes your inventory planning and future cash flow projections more accurate as well.
Monitor and Reassess
It’s absolutely vital to revisit a strategy and evaluate its performance vs its goals. Without constant reassessment, your business will not know where it stands or if its plans even work. As with all plans and strategies, assessing the performance of the strategies and decisions made based on the financial statements in the financial plan is critical for your small business’s success. These assessments should be scheduled at regular intervals as part of your operations.
