Do you want to ensure a sustainable financial future for your new start-up business? If so, it’s important to get to grips with the basics of financial planning and analysis. Find out everything you need to know, including how to make a financial plan for a start-up, right here.
What is financial planning?
Financial planning refers to the process of understanding how your company is going to achieve its strategic goals and financial objectives. This constitutes a broad range of financial activities, including cash flow analysis, the production of financial models and simulations, analysis of internal controls, and creating and implementing annual growth strategies.
It’s important to remember that financial planning isn’t just about modelling the way that your business’s bottom line is likely to change over time, but creating solutions to improve financial performance. Whereas your company’s accounting team will analyse the historical performance of your business, financial planning takes an active role in shaping the future.
Why is financial planning important?
Before getting into the nitty-gritty of start-up financial plans, it’s important to consider why they’re necessary in the first place. Although virtually all companies will do some form of financial modelling, it’s especially important for start-ups, not least because it plays a key role in the financing process. Many financiers and investors will require a financial plan before they’ll consider funding your start-up, so on a purely practical level, a financial plan for a start-up business is important.
You should also consider the fact that it’s a necessary part of building a viable business model. Without a financial plan, you won’t be able to quantify your assumptions about the business. Plus, by building out different scenarios for the business (especially negative scenarios where things don’t go the way you expect), you’ll be much better able to deal with potential issues as they arise. Finally, financial plans can provide your company with benchmarks and targets to achieve, which is an effective way to measure the success of your company, particularly in the early years when you may not be making a profit.
How do I produce a start-up financial plan?
One of the key elements of financial planning is learning how to write a financial plan for a start-up business. When you create the plan, you’ll need to think about a broad range of issues, including your business’s gross/operating margins, profit potential, fixed/variable costs, break-even point, potential changes to cash flow, and profit durability. Some of the activities that you’ll need to undertake when producing a financial plan for a start-up business include:
Balance sheet projections
Income statement projections
Of course, making a financial model requires a significant amount of effort. For a little more insight into generating financial projections for start-up businesses, take a look at our guide to financial projections.
How does financial planning work?
Generally speaking, businesses use financial planning software for start-ups to create a financial plan. For example, accounting software like Xero or QuickBooks can help you produce start-up financial plans, while there are many different financial plans for start-up business templates available online. Simply browse around until you find a template that’s well suited to your business’s needs.
Tips for producing a good financial plan for a start-up business
Now that you a little more about how to make a financial plan for a start-up, let’s take a look at some of the tips and tricks you can utilise to optimise financial planning:
Understand that financial planning is continuous – You can’t simply switch your financial planning activities on and off. Ensure that the financial planning and analysis process is ongoing to give your business the best chance of success.
Never underestimate the importance of cash – When it comes to start-ups, and businesses in general, cash is king. To keep your business in the black, make sure that your cash flow remains healthy with well-founded cash flow projections.
Creativity is key – Although it’s a numbers game, creating a viable financial plan for a start-up business is a creative endeavour. Think creatively about your business and consider alternative sources of financing, as well as different ways to launch the business.
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