How do you create a strong Financial Plan?

A financial plan is a document you’ll need to share with your potential investor or lender or anyone interested in funding your business. Moreover, it will help them understand how you plan to handle your finances and successfully run your business. If you are keen on getting funded or opt for a joint venture, sharing a Financial Plan with your potential business partners is mandatory. Therefore a Financial Plan is a key component of your Business Plan.

Key Components of Financial Plan

The following financial reports will enable you to provide clarity to your stakeholders:

1. Financial Summary

This document will give the gist of your income statement, expenditure statement, balance sheet, and cash flow. In other words, it will give a brief description of your business’s aspects will provide a clear idea of how you will handle the money.

2. Income Statement:

The income Statement will entail a list of projected revenues and expenses. Firstly, it’ll have a complete, detailed list of all the sources you will receive payments. Secondly, it’ll also have the full detail of your expenses. Therefore it will help you understand when you’ll break even and from when you’ll start to oversee a profitable business.

3. Cash Flow Statement:

The cash flow statement describes in a crystal clear manner where the money will come from (inflow) and the expenditure(outflow). Hence, it is a detailed break-up of income and expenses, which will help you arrange for the required funds adequately to ensure smooth business operations. In the Cash Flow Statement, the account for all the investments you make and all likely revenues you’ll generate is maintained. Mention the outflow expenses like material cost, taxes, general fees, taxes, multiple payments like rental, suppliers, etc.

4. Balance Sheet:

The balance sheet will have details of your business’ financial status. Therefore, it’ll include key insights about assets, liabilities, shareholders, and earnings. For instance, the chart will have assets on the left and liabilities on the right. The total assets must equal total liabilities + complete owner’s equity. Examples of assets are cash, fixed deposits, fixed assets, equipment, machinery bought or leased, vehicles, supplies, inventories, etc. Liabilities include dues, loans, payments to vendors, etc.

Several templates of Financial Plan are available on the internet. You can select the one that you feel comfortable to comprehend and use.

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