Business Financial Planning Made Easy: A Step-by-Step Approach

Business financial planning is a crucial step in establishing a solid foundation for your company. By breaking it down into manageable steps, you can ensure your business is on track to meet its financial goals.

Start by setting clear financial objectives, such as increasing revenue or reducing costs. This will help guide your financial planning decisions and ensure everyone involved is working towards the same goals.

Identify your business's financial strengths and weaknesses, including its cash flow, assets, and liabilities. This will give you a clear picture of your company's financial health and help you make informed decisions.

By following these steps, you can create a comprehensive financial plan that will help your business thrive.

Setting financial goals is the first step in creating a business financial plan. It's essential to decide why you want to achieve something financially and identify what you want to achieve.

Your goals can be highly specific or generic, such as saving a 20% down payment on a new home, establishing a college education fund, or launching a small business. Once you've created a list of goals, you can sort them into three time-frame buckets: short-term (six months to five years), mid-term (five to 10 years), and long-term (10+ years).

Short-term goals are what you can accomplish relatively quickly, such as paying down debt and starting an emergency fund. Mid-term goals are relatively achievable but may take some planning and saving, like putting money aside for a down payment on a home. Long-term goals are big enough that you'll have an easier time reaching them if you start planning now, such as paying for a few years of college tuition.

Attach specific timing to a goal whenever possible. For example, if you want to set aside at least two years of college tuition for a child who is now three years old, you have about 15 years to do that.

It's also helpful to identify your financial goals as either needs and wants. You need to pay off your debt, but you want to own a vacation home. This gives you some room to adjust through the years as priorities change.

Here are some examples of business financial goals:

Remember, your financial plan aims to help you achieve your goals, so it's essential to define them clearly.

Managing finances is a crucial part of business financial planning. The average American household carries a debt of over $104,000, including mortgages and credit cards, and businesses are no exception.

Developing a budget is a great way to get a sense of your monthly cash flow and can reveal ways to direct more to savings or debt pay-down. For example, the 50/30/20 budget principles recommend allocating 50% of your take-home pay towards needs, 30% towards wants, and 20% towards savings and debt repayment.

A small leak can sink a great ship, as Benjamin Franklin once said. This is especially true for new business owners, who often underestimate the impact of small, variable expenses. Evaluating your monthly fixed and variable expenditures is essential to avoid unnecessary, unbudgeted expenses.

There are two common strategies for managing debt: the snowball method and the avalanche method. The snowball method prioritizes paying smaller loans first, giving you a feeling of immediate progress, while the avalanche method suggests paying off loans with the highest interest rates first.

Here are the two common debt management strategies:

Remember, managing debt impacts credit scores, and a higher credit score generally equals a lower interest rate on big ticket items.

Disruptions to your life and financial goals because of disability happen more frequently than you might realize: a disabling condition will push one in four of today's 20-year-olds out of work for at least a year before they're retired.

One in four 20-year-olds will be out of work for at least a year due to a disabling condition.

It's worth investigating how much disability insurance you have through work and if you can or want to purchase more. Check with your HR department to find out the elimination period, or how long you would wait to receive benefits if you do become disabled.

A financial professional can help you determine if your coverage level is high enough to protect you and your family.

You can use the disability income calculator to figure out how much disability insurance you may need.

Reviewing your insurance benefits is a crucial step in protecting your financial goals. A disabling condition will push one in four of today's 20-year-olds out of work for at least a year before they're retired.

You may have some form of disability insurance through work, but it's worth investigating how much it is. Check with your HR department to determine the elimination period, or how long you would wait to receive benefits if you do become disabled.

Disability insurance can help you determine if your coverage level is high enough to protect you and your family. A financial professional can help you assess this.

Hospital indemnity insurance can help cover costs during accidents, illness, or maternity care. It's typically an optional benefit that your employer may offer for you to purchase.

Having the right people in place is crucial for any business to meet its goals and maintain a healthy cash flow.

You need to consider hiring employees on a need-only basis, whether they should be full-time, part-time, freelancers, or contractors.

To ensure you're not overextending yourself, you can use a personnel plan to calculate employee costs like wages, benefits, and payroll taxes.

A good personnel plan will also help you determine whether you can afford to hire new employees.

You should only hire employees when you can afford the associated costs, which can include worker’s compensation insurance.

This will help you avoid financial strain and maintain a stable business.

Diversifying your savings is key to reaching your mid- and long-term goals. Investing can put an engine behind your savings strategy.

To generate consistent returns over time, consider a conservative approach with options like government bonds or certificates of deposit. This can help withstand volatility.

A more aggressive approach with stocks and private equity may also be suitable, depending on your timeline and risk tolerance. Diversifying your investments is essential in either case.

Consult a financial professional to take a thoughtful, diversified approach to your investments. This includes regularly rebalancing your portfolio to account for market shifts and life stages.

Creating financial statements is a crucial step in business financial planning. Financial statements are a snapshot of your business's financial health, and they can help you make informed decisions about your business.

An income statement, also known as a profit and loss statement, shows your business's revenue and expenses over a specific period. It helps you understand your business's profitability and identify areas for improvement.

A cash flow statement, on the other hand, shows where your business is earning and spending money. This is essential for staying within budget and paying your bills. You can use the Business cash flow view to see a monthly summary of your incoming and outgoing cash flow in the CommBank app.

A balance sheet is a financial snapshot of your business at a specific moment. It lets you view your liabilities, assets, equity, and any up-and-coming extra expenses. Your business equity is the value of your assets minus your liabilities, which could also include any stock and share options.

Here are the three essential small business financial statements that are automatically generated by software:

These financial statements will help you develop a clear understanding of your business's financial situation and make informed decisions about your business's future.

To create a solid financial plan, you'll want to start by understanding your business's cash flow. Determine the period you want to focus on, such as the next 3 or 6 months, and start with your opening cash balance. You can then estimate your incoming cash and expenses for the period, subtract the estimated expenses from your income, and add it to the opening balance.

A cash flow statement can help you evaluate your business's financial health and show your profit at a glance. It's essential to allow for glitches like late payments when projecting your cash flow.

To create a balance sheet, list all your business assets, such as cash, inventory, and buildings, in one column. On the other side, list your liabilities, such as accounts payable and loans. Subtract your total liabilities from your total assets to determine your equity.

A balance sheet can help you evaluate the financial health of your business and work out if you'll have enough resources to run your day-to-day operations.

Here are the key components of a business financial plan:

Regular reviews of your financial plan are crucial to ensure you're on track to meet your goals. Put time on your calendar once a year to review and adjust your financial plan, and be prepared to make changes if there are significant life changes or unexpected debt.

Retirement and Well-being is a crucial aspect of business financial planning.

Start by maximizing your retirement contributions, especially if your employer offers a 401(k) or similar plan. Contribute enough to get the full matching amount, essentially getting free money.

You can gradually increase your contributions towards the IRS limit, which is $23,000 in 2024 and $23,500 in 2025. If you're 50 or older, you can contribute an extra $7,500 as a catch-up contribution.

Consider opening an IRA, or individual retirement arrangement, to further build your retirement savings. The contribution limit is $7,000 in 2024 and 2025, or $8,000 if you're 50 or older.

Increasing your retirement savings can have a significant impact on your financial well-being. It's also essential to protect yourself from financial setbacks by having an emergency fund and insurance to cover unexpected expenses.

Here's a brief overview of the contribution limits for retirement accounts:

By prioritizing retirement savings and financial stability, you'll be better equipped to handle unexpected expenses and achieve your long-term financial goals.

You don't have to go it alone when it comes to business financial planning. Consider hiring a financial advisor to inform you of prudent financial decisions and investments.

Steve Jobs once said, "It doesn't make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do." This mindset can be applied to hiring a financial advisor for your business.

They can help assess your creditworthiness and consider any past problems that could affect present loan applications.

If you have a complicated financial situation or need a specialist in estate planning, tax planning, or insurance, a traditional financial advisor in your area may fit the bill.

To avoid conflicts of interest, consider fee-only financial advisors who are fiduciaries (meaning they've signed an oath to act in the client's best interest).

Some traditional financial advisors may decline clients who don’t have enough to invest; the definition of “enough” varies, but many advisors require $250,000 or more.

Here are some options to consider:

Want to know more about how much seeing an advisor will cost? Read our guide to financial advisor fees.

A financial plan can help you feel more confident about navigating bumps in the road, like a recession or historic inflation. According to Charles Schwab's 2024 Modern Wealth Survey, Americans who have a written financial plan feel more in control of their finances compared with those without a plan.

A business financial plan is like a roadmap for startups and small businesses, helping them hit their short-term and long-term financial goals. By creating a financial plan, you can ensure that resources are used effectively to support your business objectives, which helps to cut costs and enhance profitability and operational efficiency.

Some benefits of business financial planning include effective resource allocation, risk management, and realistic goal setting. Resource allocation allows you to distribute your resources, including time, funds, and manpower, to support your business objectives.

Having a financial plan helps remove uncertainty from business decisions, replacing it with figures you can rely on. This allows you to prepare for investment opportunities when they arise and confidently navigate any problems during your entrepreneurial journey.

Here are some key benefits of business financial planning:

Having a bucket – a financial plan – ensures you're prepared to take advantage of investment opportunities when they arise.

Creating and updating your business financial plan is an ongoing process. You should update your plan every month to reflect changing circumstances.

Regular revisions will help you make more accurate predictions as you collect fresh data and deepen your understanding of your finances. This is made easier with good financial reporting software that can automate the process.

To create your business financial plan, you need to collect financial information relevant to its 6 critical components. This includes a financial section that outlines your startup and running costs, financial projections, and break-even analysis.

Setting goals and assessing present and future credit needs are key steps in preparing your financial plan. You should also estimate every business expense and plan for contingencies to ensure your business is on its financial target.

Regular monitoring of your plan will help you stay on track and make adjustments as needed. This is crucial for ensuring your business meets its financial goals.

Financial projections are a crucial part of any business plan, helping you estimate your future sales income minus your fixed and variable expenses. This will give you a clear picture of your cash flow and help you understand the costs you need to reach your business goals.

Many small businesses need financial projections to identify and prepare for slow sales due to low seasonal demand or a shift in consumer buying trends. This can help you make informed decisions and adjust your business strategy accordingly.

To create a solid financial plan, it's essential to think long-term and prepare for both best-case and worst-case scenarios. This is where target and baseline scenarios come in, helping you explore opportunities for growth and scaling while also preparing for potential challenges and risks.

Here are the key differences between a target and baseline scenario:

Having a financial plan in place will help you stay on track and make adjustments as needed. However, it's not uncommon for new business owners to overestimate their expectations, and that's where Plan/Actual analysis comes in – it helps you be honest with yourself and correct any mistakes.

At Fuelfinance, we regularly perform Plan/Actual analysis with the following frequency:

By following these steps and regularly reviewing your financial projections, you'll be well on your way to creating a solid financial plan that will help your business thrive.

Financial data is the backbone of any business financial plan. You can't make informed decisions without understanding where your business stands.

Monitoring your Key Performance Indicators (KPIs) is essential to see if your strategy is working. This involves tracking various metrics to gauge progress.

Choosing the right data to track depends on your business model, startup financial model, and revenue streams. For instance, if you're in SaaS, you may want to focus on metrics like MRR, new sign, and churn rate.

Here are some important data points to consider:

Your business doesn't have to be an expert to choose the right metrics. Tools like Fuelfinance can act as your personal financial advisor, recommending important metrics based on your business model.

Financial planning doesn't have to be complex, thanks to financial automation software that can help you create your own plans and stick to them.

With the right support, you can thrive in financial planning, even if you're not a financial expert. Our team at Fuelfinance acts as your fractional CFO, guiding you through the process.

Preparing a break-even analysis can enhance your business financial plan by showing the number of sales needed to cover costs. This can help you judge whether your business idea is feasible.

If your break-even point is years away, you may want to revisit your numbers to see if there are any opportunities to make your business more profitable.

Book a free demo with Fuelfinance to see how you can improve your financial planning and take your business to the next level.