Financial Planning for Small Businesses and Startups: A Practical Guide (2023)

So you have a great business idea and you are ready to go. Congratulations! But before you start making decisions or spending money, it's important to create a financial plan.

financial planningThat might seem intimidating, but it doesn't have to be. And it's definitely worth the effort. A good financial plan will help you make wise decisions about allocating resources and managing your money.

Not sure where to start? Do not worry. We provide you with 411 to create a financial plan for your small business or start-up.

Let us begin.

What is a financial plan?

Before we learn how to create a financial plan, let's first define what a financial plan is. A financial plan is a roadmap that outlines your company's financial goals and how you intend to achieve them. For example, your financial goals may include generating income, achieving profitability, or growing your business at a certain rate.

Your financial plan also details how you intend to use your financial resources, such as income, investments, and credit. And it includes information about your expected expenses, such as: B. Operating expenses, marketing expenses and payroll.

Why is financial planning important?

Improves strategic thinking about how to use your resources effectively and what results you can expect

Creating a financial plan forces you to think strategically about the best use of your resources to achieve desired results. This strategic thought process will help you make better decisions about where to invest your resources and what results to expect.

Suppose you launch an application that provides instant messaging for business owners and their teams. First you need to consider how much it will cost to develop the app, how it will generate revenue, what your marketing budget should be and what your overhead will be. Without it, it would be easy to overstate or understate expenses and income.

Helps you better manage your business

In order to lead your team effectively, you need to have a thorough understanding of your financial situation. This allows you to allocate the resources needed to each department and make informed decisions about where cost savings can be made.

(Video) How to Do Financial Planning for Startups? | Finances For Startup Business | Startup Financial Plan

For example, if you know that your marketing budget is limited, you will be more strategic in allocating resources and better understand your budgetproject cost management. You can work with your marketing manager to create oneSocial media post scheduleIt is a effective Social Media Campaignyou don't need a lot of money. or you can decideInvest in SEO, then your siteappears higher in search engine results.

Forecasts determine your short- and long-term goals

A financial plan can help you set realistic goals for your business. Without a plan, it can be easy to go beyond ideasinterfering with the running of your new business, losing sight of your long-term goals.

Creating a financial plan forces you to think about where your business will be in the future and the steps you need to take to get there. Additionally, this process will help you set realistic goals to work toward over time.

Suppose your goal is to increase your company's textingApplication business up 30% next year. To achieve this goal, you need to create a plan that describes how you can generate additional income and reduce expenses. This can include strategies such as raising prices, launching a new product, or reducing overall costs.

Serves as a stepping stone to creating a plan

Once you have a financial plan in place, you can use it as a stepping stone to developing a plan of action for your business. This action plan outlines the steps you need to take to achieve your financial goals.

Let's say your goal is to achieve a certain customer growth over the next year. To achieve this goal, you need to create a plan that outlines how to attract new customers and keep existing customers. This can include strategies such as B. Improving yourMarketing Efforts, offer discounts or loyalty programs or provide excellent customer service.

Set reasonable expectations for your business

As a business owner, it's easy to become overly optimistic about your company's potential. However, without a financial plan, it can be difficult to set realistic expectations for your business.

Creating a financial plan helps you develop more realistic expectations for your business and forces you to consider the costs and revenues associated with desired outcomes.

What makes financial planning successful?

Now that you know what a financial plan is, you might be wondering what makes a plan successful. To do this, you need to understand the different parts of a financial plan.

(Video) Small Business Basics: Financial Management

demonstration of the results

An income statement, also known as an income statement, shows your company's income, expenses, and profits over a period of time. This information is critical to understanding if your business is profitable and how much cash you have on hand.

Personnel plan

A staffing plan outlines the number of employees you'll need, their roles, and how much you'll pay them. This information is critical to understanding your organization's labor costs and ensuring you have the right workforce to meet your business goals.

balance sheet

A balance sheet shows your company's assets, liabilities, and equity. This information is essential to understanding the financial health and fortunes of your business.

cash flow statement

A cash flow statement shows how much money your business is making and spending over a period of time. This information is critical to understanding the short-term financial health of your business and whether you have sufficient cash to meet your business needs.

sales forecast

A sales forecast is an estimate of how much revenue your business will generate over a specific period of time. This information is critical to understanding the growth potential of your business and making informed decisions about allocating your resources.

Business metrics and break-even analysis

Business indices and break-even analysis are tools you can use to assess the financial health and performance of your business. This information is critical to understanding your organization's strengths and weaknesses and making informed decisions about how to improve your business outcomes.

strategic exit

An exit strategy is a plan for how you will sell or divest your business in the future. This information is critical to ensuring you are maximizing the value of your business and making informed decisions about your future. Common exit strategies include selling the company to a third party, passing it on to family members, or going public through an initial public offering (IPO).

How to create a financial plan for your small business

Financial Planning for Small Businesses and Startups: A Practical Guide (1)

Make a strategic plan

The first step is to create a strategic plan. This will help you focus on your goals and create a roadmap to achieve them. This should include any financial goals you wish to achieve in the short and long term.

(Video) How to Write a Business Plan Step by Step in 2023

create financial forecasts

The second step is to make financial forecasts. This allows you to predict how much money you'll need to meet your goals and make informed decisions about where to allocate your resources. Financial forecasts can be created using Excel or another software program.

Prepare contingency plans

The third step is to create contingency plans. This will help you plan for unexpected events that might impact your small business. Contingency planning should include:

  • Risk assessment.
  • Estimate the cost of these risks.
  • Develop strategies to mitigate them.

The targets need to be monitored and compared

The fourth step is to monitor your goals and compare them to actual results. This will help you track your progress and make changes to your plan if necessary. Monitoring should be carried out regularly, e.g. B. monthly or quarterly.

Financial planning tips for startups

To start a businessIt's an exciting time, but it can also be stressful. There are so many things to think about and plan for, here are our top financial planning tips.

take easy steps

Remember, you don't have to complete your financial plan at the same time. Instead, you can break it down into smaller, more manageable steps that can be completed over time. For example, you can start by creating a budget and then set up a systemtrack your expenses.

Prepare for a variety of scenarios

Creating a financial plan is essential to weather any storm. That means preparing for various possible scenarios, both good and bad. For example, you should have a plan of what you will do if your business experiences unexpected growth or sudden setbacks.

The best way to do this is to create a business template canvas. This is a tool that allows startup founders to outline their business plans and track progress over time.

Some important things to include in your Business Model Canvas are:

  • They arevalue proposition
  • your target market
  • Your most important partners and suppliers
  • your sources of income
  • your costs
  • your milestones
  • Your KPIs (Key Performance Indicators)

Ask the Greats "What if"

This will help you create a complete and flexible plan.

(Video) How To Build A Startup Company Budget! A Step-By-Step Guide.

This means you need to ask yourself several "what if" questions, such as:

  • What happens if my income drops?
  • What happens if my expenses increase?
  • What happens if my customers don't buy what I'm selling?
  • What if I can't get the funding I need?
  • What happens if my business fails?

Your expenses will not be the same, be prepared

with hissmall business or start-upgrows, your spending is likely to change. This can be due to increasing inventory costs, more expensive office space, or hiring additional employees. Your financial plan must reflect these changes. Expense software like QuickBooks can help you keep track of your expenses and make any necessary adjustments to your budget.

Plan where your money will come from

You can't create a financial plan without knowing where your money will come from. This means that you carefully examine your expected income and identify possible sources of financing such as loans, investments or donations.

Consider all personnel costs

Your employees are one of your most important assets and their cost needs to be factored into your financial planning. Some staff costs to consider are:

  • Salaries – These are the most obvious costs, but don't forget to factor in things like bonuses and raises.
  • Benefits: This may include health insurance, dental insurance, vision insurance, and other benefits.
  • Training: You need to invest in training your employees so they can do their jobs well.
  • Retirement Plans - Make sure you offer a retirement plan to attract and retain top talent.
  • Office space: Do your employees work from home or do you have an office? How much space do you need and how much does it cost?
  • Equipment: Do your employees need laptops, desks, chairs or other equipment?

You must also set aside money for yourself. After all, you run a business and you deserve compensation for your time and effort.

Review your financial plan regularly

Your financial needs change over time, so it's important to regularly review your financial plan. This way, you can ensure your plan stays relevant and continues to meet your ever-changing needs.

Share your financial plans with others

Don't keep your financial plans to yourself. Instead, make sure you share them with your team so everyone is on the same page. This ensures that everyone is working toward the same goals and understands the company's financial constraints.

By following these tips, you can create a successful financial plan for your small business or startup.

Travel key: Make financial planning a recurring part of your business

So there you have it. Financial planning is critical to the success of any small business or startup. By taking the time to create a financial plan, you can make informed decisions about where to allocate your resources and how to achieve your goals. And by regularly reviewing your financial plan, you can ensure it continues to meet your ever-changing needs.

(Video) How to Build Financial Projections for Your Business

Good luck and good planning!


What are the 6 elements of a successful financial plan for a small business? ›

A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan. A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected.

What are the 4 basics of financial planning? ›

The main elements of a financial plan include a retirement strategy, a risk management plan, a long-term investment plan, a tax reduction strategy, and an estate plan.

How do you present a financial plan for a startup? ›

Here are some steps to help you create an effective financial plan for your startup:
  1. Define your financial goals. ...
  2. Understand your financial situation. ...
  3. Develop realistic assumptions. ...
  4. Create different scenarios. ...
  5. Implement your plan. ...
  6. Know Your Business Model. ...
  7. Make Realistic Assumptions. ...
  8. Know Your Expenses.
Mar 2, 2023

What's the 50 30 20 rule for planning money in small businesses? ›

The rule states that you should spend up to 50% of your after-tax income on needs and obligations that you must-have or must-do. The remaining half should be split up between 20% savings and debt repayment and 30% to everything else that you might want.

What are the 7 key components of financial planning? ›

A good financial plan contains seven key components:
  • Budgeting and taxes.
  • Managing liquidity, or ready access to cash.
  • Financing large purchases.
  • Managing your risk.
  • Investing your money.
  • Planning for retirement and the transfer of your wealth.
  • Communication and record keeping.

What are the 5 pillars of financial planning? ›

The five pillars of financial planning—investments, income planning, insurance, tax planning, and estate planning— are a simple but comprehensive approach to financial planning. They are foundational in the course for financial freedom in any financial plan.

What are the 3 most important things investors look for in a winning business plan? ›

Among other things, your business plan should include: Your intended market, with data to show why that market is your target. Data-based, hard-number financial projections. Sales channels, with data to show why those channels will be effective.

What are the 3 financial statements usually included in a business plan? ›

The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

What are the 3 rules of financial planning? ›

Understand the difference between needs and wants, live within your income, and don't take on any unnecessary debt. It's really that simple. Get into the habit of saving money by paying yourself first. On payday, transfer money to your savings account even before you pay bills.

How to do a balance sheet for a startup business? ›

How to make a balance sheet in 8 steps
  1. Step 1: Pick the balance sheet date. ...
  2. Step 2: List all of your assets. ...
  3. Step 3: Add up all of your assets. ...
  4. Step 4: Determine current liabilities. ...
  5. Step 5: Calculate long-term liabilities. ...
  6. Step 6: Add up liabilities. ...
  7. Step 7: Calculate owner's equity.

What is the most important financial statement for startups? ›

Profit And Loss (P&L) Or Income Statement

The first (and arguably most important) of the three basic types of financial statements is the profit and loss statement. It summarizes the revenue, cost of sales, gross margin, and operating expenses incurred in a specific period of time.

What financial statements do startups need? ›

A startup financial statement helps startups secure funds from lenders. It includes a balance sheet, income statement, cash flow statement, and break-even analysis. A startup financial statement contains financial documents you'll need to put together when you're trying to secure funds from lenders.

What is the 75 15 10 rule? ›

for anybody with any amount of money. so for every dollar you make, you can spend 75 cents. then 15 cents is the minimum that you can invest, and 10 cents is the minimum that you save.

What is the 50 15 5 rule? ›

50 - Consider allocating no more than 50 percent of take-home pay to essential expenses. 15 - Try to save 15 percent of pretax income (including employer contributions) for retirement. 5 - Save for the unexpected by keeping 5 percent of take-home pay in short-term savings for unplanned expenses.

What is the 75 25 rule money? ›

"the investor should never have less than 25% or more than 75% of his funds in common stocks."

What are the six steps to create a financial plan? ›

Financial Planning Process
  1. 1) Identify your Financial Situation. ...
  2. 2) Determine Financial Goals. ...
  3. 3) Identify Alternatives for Investment. ...
  4. 4) Evaluate Alternatives. ...
  5. 5) Put Together a Financial Plan and Implement. ...
  6. 6) Review, Re-evaluate and Monitor The Plan.

What are the 5 steps in the financial planning process? ›

Plan your financial future in 5 steps
  • Step 1: Assess your financial foothold. ...
  • Step 2: Define your financial goals. ...
  • Step 3: Research financial strategies. ...
  • Step 4: Put your financial plan into action. ...
  • Step 5: Monitor and evolve your financial plan.

What are the four cornerstones of financial planning? ›

I believe the key to putting any plan on solid footing means starting with a foundation that consists of four cornerstones: cash reserves, insurance, equity assets, and fixed assets.

What are the three 3 analytical pillars of financial management? ›

Leading accounting and finance organizations are transitioning into a more analytical function and partnership role by building their business plan around three pillars: Close Process Transformation, Process Automation Transformation, and Integrity and Risk Transformation.

What are the 3 C's for a success business plan? ›

These three C's include: (1) having a concept of what your business is all about; (2) identifying who your customer or client will be; and (3) figuring out how the cash flow in your business will actually work.

What are the 3 P's of successful business? ›

If you want your business to succeed, you absolutely must focus on three key variables: people, process, and product. The three Ps, as they're often called, provide the highest return for your efforts because they act as the cornerstone for everything your business does.

What are 3 indicators that a business is successful? ›

According to, volume and frequency of sales are indicators of company success in several ways. You can measure the amount of sales sold to new customers, the amount of sales to existing customers, the amount of profit per sale and the average amount transacted during each sale.

What 3 financial statements are most critical to small businesses? ›

For the next steps, start with the three most important reports, the income statement, balance sheet, and cash flow statement, and practice your financial analysis skills to uncover truths about your business and clarity on how to move forward towards financial excellence.

What are the 12 steps to starting a business? ›

How to Start a Small Business in 12 Steps
  1. Brainstorm Business Ideas. ...
  2. Conduct Market Research. ...
  3. Write a Business Plan. ...
  4. Select a Business Structure. ...
  5. Register Your Business. ...
  6. Obtain Licenses and Permits. ...
  7. Open a Business Bank Account. ...
  8. Secure Funding.
Feb 20, 2023

Which of the 3 financial statement should be prepared first? ›

The income statement, which is sometimes called the statement of earnings or statement of operations, is prepared first. It lists revenues and expenses and calculates the company's net income or net loss for a period of time.

What is the 60 20 20 rule? ›

If you have a large amount of debt that you need to pay off, you can modify your percentage-based budget and follow the 60/20/20 rule. Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.

What is the 50 40 10 rule? ›

that doesn't involve detailed budgeting categories. Instead, you spend 50% of your after-tax pay on needs, 40% on wants, and 10% on savings or paying off debt.

What is the 50 30 20 rule in 2023? ›

The 50/30/20 rule splits your take-home pay into: 50% for essential spending, 30% for flexible spending, & 20% for financial goals. Before you begin, step back and analyze your essential spending, financial goals, and flexible spending.

What is the first key component of a successful financial plan? ›

What is the first key component of a successful financial plan? The first key component of financial planning is to outline your short-term and long-term goals and align them with your present savings, investments and expenses.

What is the correct order for financial planning? ›

Setting goals & objectives. Identify critical success factors and barriers to achieving your goals. Identification of possible strategies. Implementing the agreed strategy.

What is the 3 financial statement model? ›

A three-statement financial model is an integrated model that forecasts an organization's income statements, balance sheets and cash flow statements. The three core elements (income statements, balance sheets and cash flow statements) require that you gather data ahead of performing any financial modeling.

What is a 3 way financial model? ›

A three-way forecast, also known as the 3 financial statements is a financial model combining three key reports into one consolidated forecast. It links your Profit & Loss (income statement), balance sheet and cashflow projections together so you can forecast your future cash position and financial health.

How do you record start up expenses? ›

Startup costs are included in the value of your business as capital costs, and they must be deducted over 15 years using a process called amortization. The costs are for starting up the business and for costs of organizing for corporations, partnerships, and limited liability companies.

What are the assets and liabilities of a startup? ›

Assets such as cash, equipment, inventory, real estate, and IP are all necessary for day-to-day operations. Liabilities include debt financing, equity financing, lease obligations, legal fees, taxes, and insurance policies that must be taken into consideration when starting a business.

What is a balance sheet for an LLC? ›

A balance sheet is a statement of a business's assets, liabilities, and owner's equity as of any given date. Typically, a balance sheet is prepared at the end of set periods (e.g., every quarter; annually). A balance sheet is comprised of two columns. The column on the left lists the assets of the company.

What are the 2 most important financial statements of a business? ›

In that case, the best selection is the income statement and balance sheet, since the statement of cash flows can be constructed from these two documents.

What are the 4 most common financial statements prepared? ›

For-profit businesses use four primary types of financial statement: the balance sheet, the income statement, the statement of cash flow, and the statement of retained earnings. Read on to explore each one and the information it conveys.

What are the three most important sources of funding for financing a start up? ›

The three major sources of corporate financing are retained earnings, debt capital, and equity capital.

What are the 5 required financial statements? ›

Here's why these five financial documents are essential to your small business. The five key documents include your profit and loss statement, balance sheet, cash-flow statement, tax return, and aging reports.

Do startups need audited financial statements? ›

Because startups are private companies they are not required to undergo the annual audit of financial statements required of public companies. That said, there are a number of scenarios that might require a startup to undergo an audit of its finances. These scenarios include: A fundraising round.

What is a financial plan for a startup? ›

A financial plan is like a financial game plan for your startup. It outlines your company's current financial state, your goals for the future, the actions you'll take to reach those goals, and how much it's going to cost. Financial planning is the process of putting your “game plan” together and documenting it.

What is an example of a financial plan? ›

A financial plan example of possible goals might include the following: Pay off your credit card debts. Create a budget that you can live with. Save an emergency fund of three to six months' worth of your income.

What is included in a financial plan for a business? ›

A financial plan is the part of your business plan that details how your business will achieve its financial goals. It includes information on the company's income, expenses, and cash flow. The plan should also include a description of the business's current financial situation, as well as its long-term goals.

What financial documents are needed for a small business? ›

The five key documents include your profit and loss statement, balance sheet, cash-flow statement, tax return, and aging reports.

How to create a financial plan for a non profit organization? ›

For instance, nonprofits in particular cannot forget these five essential steps:
  1. Budget according to past data and goals.
  2. Consider your overhead expenses.
  3. Rely on and create an organized system.
  4. Make well-informed decisions.
  5. Maintain transparency with supporters.

How do you write a financial plan step by step? ›

Financial Planning Process
  1. 1) Identify your Financial Situation. ...
  2. 2) Determine Financial Goals. ...
  3. 3) Identify Alternatives for Investment. ...
  4. 4) Evaluate Alternatives. ...
  5. 5) Put Together a Financial Plan and Implement. ...
  6. 6) Review, Re-evaluate and Monitor The Plan.

What are the three types of financial planning? ›

What are the Different Types of Financial Planning?
  • Cash Flow Planning and Budgeting. The first step in the financial planning process is to develop a budget and cash flow plan. ...
  • Insurance Planning. ...
  • Retirement Planning. ...
  • Investment Planning. ...
  • Tax Planning. ...
  • Legacy Plan for Wealth Distribution.
Dec 20, 2022

What key elements should be included in a financial plan? ›

8 Components of a Good Financial Plan
  • Financial goals. ...
  • Net worth statement. ...
  • Budget and cash flow planning. ...
  • Debt management plan. ...
  • Retirement plan. ...
  • Emergency funds. ...
  • Insurance coverage. ...
  • Estate plan.

What are the 3 financial statements? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

How do I create a balance sheet for a startup business? ›

How to make a balance sheet in 8 steps
  1. Step 1: Pick the balance sheet date. ...
  2. Step 2: List all of your assets. ...
  3. Step 3: Add up all of your assets. ...
  4. Step 4: Determine current liabilities. ...
  5. Step 5: Calculate long-term liabilities. ...
  6. Step 6: Add up liabilities. ...
  7. Step 7: Calculate owner's equity.

What is the basic income statement for a small business? ›

An income statement provides details on revenue, sales, and expenses for a specific period of time. Information such as sales, cost of goods sold, and operating expenses are all included on an income statement, which reports net income for the period and provides a good snapshot of company performance.

What are the most important financial statements for small business? ›

Cash Flow Statement

Alongside the income statement and balance sheet, it is one of the three most important financial reports for small businesses. It helps billing teams and business owners ensure that they have enough cash to maintain their current operations.

What is the average budget for a small nonprofit? ›

97 percent of nonprofits have budgets of less than $5 million annually, 92 percent operate with less than $1 million a year, and 88 percent spend less than $500,000 annually for their work. The “typical” nonprofit is community-based, serving local needs.

How much of a nonprofit budget should be salaries? ›

Salaries are a large part of a nonprofit's program expenses, as it cannot run without a staff. The Better Business Bureau's Charity Accountability Standards state that nonprofits should spend at least 65% of their operating budget on program expenses. About 75% to 90% of this 65% should go toward paying employees.


1. How to Make any Startup Successful? #1 Secret
(pranjal kamra)
2. Financial Projections for Startups Basic Walkthrough
(Mike Lingle)
3. Sources of Finance | Financing the New Venture | Innovation and Entrepreneurship | Entrepreneurship
4. Financial Analysis for Startups and Small Businesses. Learn all you need with this video
(Hotel Management School, Learn Skill Based Courses)
5. Startup Financial planning and Funding
(UoB Business Incubator Center)
6. Understanding What It Is and How to Get It
(Unsolved Legal Group)


Top Articles
Latest Posts
Article information

Author: Zonia Mosciski DO

Last Updated: 08/01/2023

Views: 6340

Rating: 4 / 5 (51 voted)

Reviews: 82% of readers found this page helpful

Author information

Name: Zonia Mosciski DO

Birthday: 1996-05-16

Address: Suite 228 919 Deana Ford, Lake Meridithberg, NE 60017-4257

Phone: +2613987384138

Job: Chief Retail Officer

Hobby: Tai chi, Dowsing, Poi, Letterboxing, Watching movies, Video gaming, Singing

Introduction: My name is Zonia Mosciski DO, I am a enchanting, joyous, lovely, successful, hilarious, tender, outstanding person who loves writing and wants to share my knowledge and understanding with you.