Main Inputs to Your Financial Plan

To create your financial statements, you need to project the major financial elements of the business. These financial projections include the following elements:

  • Sales Forecast. Project your sales out for at least three years, including monthly sales for the first year, then quarterly for the following years. How many customers can you expect? How many units will be sold? What is the cost of goods sold? How will you price your products?
  • Expense Budget. Include both fixed costs (e.g. rent for your location) and variable costs (e.g. marketing expenses).
  • Cash Needs. Your plan must take into account the cash needs of the business. This includes all cash inflows and outflows. This then becomes part of the needs for additional financing as part of your financial plan.
  • Financing plan. Your plan for raising capital in any form other than from the day to day operations of the business. This includes any debt, equity or other forms of investments in the company. This answers the question – other than from sales from the business, will you want or need bring in outside investment to achieve your plan?
  • Break Even Point. This is the point at which your business stops operating at a loss and starts to turn a profit.

“Always measure your performance.” 

Your financial plan is the yardstick by which you first project and then measure the financial performance of the business. Financial projections are vital to creating your plan. First, they enable you to plan and budget for your new business. Second, they serve as a yardstick against which you measure your performance. By comparing your actual financial statements to your projections, you’ll be able to see if your business is consistently falling short of your projections or surpassing them. If your projections are falling behind, then you’ll need to make some changes by raising prices, cutting costs or rethinking your business model. Conversely, if your income surpasses your projections, then you may need to hire employees, expand your facility or seek financing sooner than you expected.

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