Many small businesses fail due to insufficient planning and funding. So a comprehensive financial plan is a must and creating one is easy. Watch the video, download our financial plan template and follow these five steps.
Steps to creating a financial plan for your business
By comparing your set-up costs to your start-up equity investment, you can work out how much money, if any, you’ll need to borrow to start your business. Set-up costs will include:
- Accounting fees
- Registrations and licences
- Equipment and fit out
- Initial working capital
A forecast of sales and expenses, usually for the next 12 months of operations. To produce it:
- Compare potential sales revenue to cost of goods sold and fixed costs of doing business
- Calculate likely margins and put your pricing model to the test
A vital component of any financial plan. You need to be aware that:
- New businesses often need cash to build the capacity necessary to service customers
- Customers may be slow to pay
- The resulting cash-flow gap could leave you vulnerable if you’re not prepared
A snapshot of the business after 12 months of operations. You should base it on:
- The purchases you anticipated in your set-up costs
- The results of your profit and loss forecast
Once you’ve forecast your fixed costs, you can calculate how much revenue you need to break even. If you’ve decided on your pricing, it’s easy to calculate revenue based on sales. Commonly used approaches to predict what those sales will be include:
- For a service business – set a benchmark based on the average number of hours worked per week. Base figures on 60-70 per cent utilisation, rather than assuming all your time will be spent on chargeable activities
- For other businesses – scope the size of your market, then use a conservative estimate of your likely market share to estimate potential sales
- Prepare several forecasts, based on best-case, worst-case and average scenarios
- Document your assumptions and the reasons behind them, then test and update them in line with your current knowledge and business performance
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As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. All products mentioned on this web page are issued by the Commonwealth Bank of Australia; view our Financial Services Guide (PDF 59kb).