if you are making the business plan for your venture then this post is for you because we are going to teach you how to implement financial goals in your enterprise.
If you are looking for funding for your venture one of the first things that potential investors are going to evaluate are your estimates of: expenses, capital and projections, but above all evaluate the financial objectives of your venture, if you are not sure of establishing them do not worry, because here we are going to give you some tips for you to include them in your business plan.
Why make a financial plan
The success of any venture lies largely in the correct and timely planning, so your business plan should incorporate a financial plan with short, medium and long term goals that are achievable and realistic.
Many startups and entrepreneurs do not take into account the importance of financial planning, this is a mistake that can cost you your business itself, because when we talk about money it is best to always have clear accounts and know where we stand.
A financial plan is a document that serves to calculate expenses and verify the profitability of the business. Of course, this plan also projects how long it will take to reach the economic goals that have been established.
Another characteristic of this document is that it must include an estimated sales projection, which methodically establishes the strategies that must be applied for the business to achieve that projection and continue growing.
The financial plan should answer the following questions:
- What are the sales forecasts?
- What are the financing methods?
- What are the fixed costs, taxes and fiscal charges?
- What are the results to be obtained or expected from month to month?
If you are going to present it to investors, it is also important to highlight how much the company is worth and what it could be worth in a certain period of time. As you can see, the financial plan is bigger than a budget of income and revenues, so before you start writing it, a meticulous analysis of your company’s finances is necessary, especially in the following points:
- Meticulous analysis of your current situation
- Sources of financing
- Fixed expenses and projected future expenses
- Growth projection
If you want the best tips to develop each of these points in more detail, keep reading because we will explain below how to make a financial plan.
How to make a financial plan
Now that you have a clearer idea of what a financial plan is and why it is important for your business, it is time to start designing your financial plan. We will give you some tips to make this plan a success:
1.- Analyze the financial situation
Analyzing honestly and objectively the current financial situation of your business is the best way to start your financial strategy, no matter if you are starting from scratch or if you already have some time with your business, knowing what capital you have and what your obligations are is the best way to start planning.
The important thing is to be honest and determine these three aspects: what is the capital you have, what are or will be your fixed expenses and existing debts.
Determining these three aspects will help you to establish goals and achievable objectives, in addition you will determine the minimum budget you should have at the end of the month. Of course this aspect will improve with time, but knowing where you are starting from is the best start.
2.- Set objectives
Depending on your current situation, the most important thing is to set clear, realistic and achievable goals, especially if you are going to present this plan to potential investors. It is useless to have very attractive and juicy goals if it is not very clear how they are going to be achieved.
The objectives of financial plans can be presented in three ways, on the one hand we have long-term objectives, medium-term objectives and short-term objectives.
Financial planning with long term objectives are goals that we expect to achieve in 2 or even 5 years in the future, this means that you are dealing with much higher uncertainty variables and therefore require more general approaches to strategize. They may be expanding into other markets or buying other companies.
A medium-term planning objective means that there will be actions that can be postponed, but not beyond two years, to prevent the company from stagnating. Many of these strategies are indispensable for the growth of the company, but they are expenses that cannot be made immediately, such as the purchase of specialized machinery or the purchase of new facilities.
While in financial planning with short-term objectives we are going to establish closer projections, generally equal to or less than a year, that is to say, projections with immediate objectives that require more specific approaches with well-defined actions. These objectives may be to open a certain number of physical stores, or to reach a certain volume of sales in one year.
3.- Setting funds and forecasting capital
The next step is to set the funds needed to achieve your goals, here you will have to establish a budget with which you expect to achieve your goals, and also, you have to detail the availability of capital for a given period of time, that is, to answer what would be the possible sources of funding for your venture. Nowadays, there are several ways in which a venture can find financing.
4.- Review your financial strategy
Once the plan is in place, it is time to establish a systematic control with what you have established, to make sure that everything is working correctly and that there is a balance between liquidity and capitalization. This does not have to be a heavy and complicated task because nowadays, there is a great variety of apps to manage your business finances.
At this point in the planning process, you should add a contingency plan. A good business strategy anticipates external factors that do not depend on you, such as financial reforms, economic crises, environmental changes. These can derail the path of your business, so you must be prepared to design a plan b for these unforeseen events.
5.- Don’t try to save on key points
It is common that when designing a financial plan we try to establish fewer expenses in several aspects, however there are factors in which saving will be counterproductive. One of them is the salary of workers, surely you will be tempted to offer salaries a little lower than average to hire your employees, however this is a mistake that sooner or later you will realize.
Offering low salaries will only make you end up hiring desperate or incompetent workers. If you want to save money, the best thing to do is to hire fewer people. At the end of the day, remember that your employees are your human capital.
It is also not advisable to save money at the expense of the quality of the raw material. Manufacturing low quality products will only affect your reputation and stagnate the growth of your company.
Once you know your business, you will know which are the elements in which you definitely cannot save.
In conclusion, setting financial objectives for your business is an essential step to start your business and, above all, to make it grow. Remember that the most important thing is to recognize the base from where you are going to start, and according to this set achievable goals that allow you to direct your efforts. Tell us, what other aspects a financial plan should have?