Within the business plan of your SME, an essential section is the financial plan, which is what allows you to make projections about the profitability of your company. Read on to learn about the must-haves to consider when creating this key document.
According to an article on the Entrepreneur portal, the objective of any financial plan is to determine if the business you are raising is viable . Along with that, you need to answer the following questions:
- How much financing does it require?
- In what stages will it be necessary?
- What types of financing are more convenient?
- What will be the sources of the Financing ?
To answer these questions you need to determine some key points.
These are the basic items that your financial plan should have
Before addressing the aspects that the finances of your business model should raise, it is essential that your projection is in the short, medium and long term , as advised by the Association of Entrepreneurs of Chile.
With this in mind, take note of the sections that you should consider within your financial plan , as proposed by the Lexington Business Center:
1. Initial investment plan
It reflects the investments that you have to make for the operation of the business, taking into account from the software, machines and facilities that you use to the salaries of workers, insurance and supplier payments.
2. Sources of financing
Within your investment plan, stipulate the people and entities that provide you with the capital you need.
The sources of financing can be your own (yourself) and someone else’s (family, friends, government, banks or specialized companies).
Here it should be noted that factoring is an ideal financing modality for SMEs, as it does not imply any type of debt, since it works as an advance on invoices that you have already generated and that you only hope to be paid.
Of course, we recommend that you integrate factoring costs within your budget so that you know exactly how much you are going to receive in each operation.
3. Balance sheet
In this document you describe the financial situation of your business at any given time, taking into consideration 3 aspects:
- Assets: the goods and rights that have the potential to generate money for the company, through use, sale or exchange.
- Liabilities: the debts and financial obligations that the company has.
- Net worth: are all the own funds that the company has.
With this information, you can recognize the value of your business , according to Abdul Rimaaz, so you must update it once a year.
Take into account that this document is key to obtain financing from third parties.
4. Cash flow projection
Here you must capture the movements or cash flow to make decisions regarding how you use the money in a given time.
To determine the projection of your cash flow take into account these factors :
- Sales (those that pay you in cash and those that you have to collect).
- The purchase of supplies that you will make in the period.
- Loans that you expect from third parties (and the value of the installments to pay)
- Administrative expenses, payment of salaries, taxes and others.
5. Profit and loss account
It is the economic result that arises from the difference between income and costs, as explained in the Lexington article cited above.
6. Break-even analysis
This analysis is what allows you to price your products and services.
It refers to the minimum sales level that equals total costs to total revenue. That is, how much do you have to sell in order not to lose.
Establish different scenarios in your financial plan
As you can see, the financial plan is the part of your business model that allows you to make decisions to achieve the objectives you set for yourself.
It is very important that you clearly capture the information about your current situation and your future projections. Along with this, work out three versions: optimistic scenario, moderate scenario, and pessimistic scenario. This way, you will know what to do in the worst case.