Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.
Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.
What is the financial section of business plan?
Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.
The financial part of the business plan introduces numbers. It comes after the executive summary, company description, market analysis, organization structure, product information, and marketing and sales strategies.
Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses.
Why it matters
The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers.
Through the financial section, you can:
Forecast your business’s future finances Budget for expenses (e.g., startup costs) Get financing from lenders or investors Grow your business
Sounds pretty great, right? But according to one study, only 35% of surveyed business owners completed a business plan. Here’s why that could be a problem for business growth and financing:
Growth: 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan. Financing: 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.
So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section.
Writing your financial section
To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup.
Your financial section should detail:
Business expenses Financial projections Financial statements Break-even point Funding requests Exit strategy Business expenses
Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses.
Take a look at some common business expenses you may need to include in the financial section of business plan:
Licenses and permits Cost of goods sold Rent or mortgage payments Payroll costs (e.g., salaries and taxes) Utilities Insurance Equipment Supplies Advertising
Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs).
Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes).
How much do you anticipate earning from sales each month?
If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonalityContinue reading