Mon, November 18, 2019

Simple and Effective Busines Plan – Financials

funny image of business plans

Communicating About Money (Financials)
The financials part can be very long and may include a lot of detail. It depends on how much money you need. Rule of thumb, the more money you need, the more information people will want to see. If you desire a huge loan, you will want to visit sba.gov to see what they have to say about financial analysis.

Some people skip this step because they don’t know a lot about numbers or they hate math. Don’t skip this step. I guarantee, if it is your money, you won’t mind counting it. The more you can understand about financials, the better equipped you will be to grow a large successful business, or a small successful business if you want. (Here are two articles to get you started: Accounting Terms Financial Terms.)

Basically, for our purposes, people reading a business plan want to see three basic things: how much is needed to start and why; what is your ‘break-even’ point; and what your financial future looks like.

START-UP:
You may hear the term ‘start-up capital.’ This means, how much money do you need to start. Some business include manufacturing and huge warehouses, others simply need a computer and a printer. The amount you need is based on how much money it takes before you start making profits. Set the amount needed and list every item that will be bought. Don’t forget to add things like internet connection, marketing, and even electricity (even if you are at home!). I would highly suggest getting an adult who understands money to help you work through this page.

BREAK-EVEN:
The break-even point, is exactly what it sounds like. How much time, how much money, do you need until you can pay back all that you borrowed and begin making money for yourself. It is at this point, that you break even, not owing anyone else and begin to see ‘true’ profits. You may come in and out of this section as your business grows if you have to borrow money to expand, but the more you put your profits into your business to make you more money, the better off you will be.

FUTURE EARNINGS:
Look at your goals. How much money will it take to reach your goals and at what point? Lay out 12 months of what you think your business will do, then list what you think it will do for the next three years each, then five years and ten years. If you plan on selling your business, that is OK, but include what your business will be doing all those years. This takes practice, but it is a good skill to learn called ‘forecasting.’ You may want to do a search on it to find out more.

MAKE IT HAPPEN:
Depending on where you are, this is a crucial step. If you want someone to fund you, you need to take this step seriously enough to get help from an actual accountant. (Why not go to a college and see if a student will help you as part of one of their projects??!).

If this is just for your own benefit, jot down some basic numbers. Set it up like a checking account with four columns. Put an item description in the first column, use two columns for money coming in and going out (income/expense), and use the last column is to keep a running total. If you do this, you will have a basic balance sheet. Wasn’t that fun? It will be more fun when you start making money and can hire someone to do this for you!

Cashflow each month is your earnings minus your expenses. It means you have that much actual money that can be used. The best indication of a successful business is, cash flow. If you have a bunch of money going out, but not much coming it, it is not a good cash flow and not a good business. With that being said, all businesses go through ups and downs. You may buy a lot of supplies one month, but not get paid for them until next month. That is ok, that is business. You just want to watch the overall cash flow and not let the month to month wear down on you.

I hope you got a lot out of our series. If you need to review a section please do so. I suggest going through your business plan once a year. Setting a goal to evaluate where you are, is an important step to growing a successful business.

The Simple and Effective Business Plan
Introduction
1. The Business Idea – Concept
2. Defining The Market – Customers
3. Sending Your Message – Marketing
4. Looking to the Future – Forecasting
5. Communicating About Money – Financials

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