It’s exciting and challenging to start a new business! As a new business owner, one of the most important steps you can take is to create a financial plan. A financial plan is a roadmap that outlines your business's financial goals and strategies to achieve them. In this blog post, we will discuss how to create a financial plan for a new business. We’ll look at the four main types of financial planning, and also at the key components of a financial plan.
How to create a financial plan
Creating a financial plan for your new business is essential. It can be a bit overwhelming starting from scratch, but here are some steps to get you started:
Determine your financial goals
The first step in creating a financial plan for a new business is to know what your financial goals are. What do you want to achieve with your business, and how much money do you need to make to achieve those goals?
Identify your revenue streams
Next, identify your revenue streams. How will your business make money? Will you sell products, provide services, or both?
Estimate your expenses
Once you have identified your revenue streams, estimate your expenses. This includes fixed expenses such as rent and utilities, as well as variable expenses such as inventory and marketing.
Create a cash flow projection
Based on your revenue streams and expenses, create a cash flow projection. A cash flow projection will help you understand how much money you need to have on hand to cover expenses and how much money you can expect to have left over.
Set a budget
Using your cash flow projection, set a budget. A budget will help you stay on track with your financial goals by outlining how much money you can spend on each expense category.
Monitor and adjust your financial plan
Finally, monitor and adjust your financial plan regularly. As your business grows and changes, your financial plan will need to be updated to reflect these changes.
What are the four main types of financial planning?
There are four main types of financial planning: strategic, operational, short-term, and long-term. Let’s get into detail on each type below:
Strategic financial planning
Strategic financial planning is a high-level approach to financial planning that focuses on the long-term goals of the business. It involves developing a plan to achieve the company's overall mission and objectives.
Operational financial planning
Operational financial planning is a more detailed approach to financial planning that focuses on the day-to-day operations of the business. It involves developing a plan to manage the company's cash flow and ensure that it has enough money to pay bills and meet other financial obligations.
Short-term financial planning
Short-term financial planning is a focused approach to financial planning that focuses on the immediate needs of the business. It involves developing a plan to manage the company's cash flow over the next few months.
Long-term financial planning
Long-term financial planning is a forward-looking approach to financial planning that focuses on the company's future financial needs. It involves developing a plan to ensure that the company has enough money to meet its long-term financial obligations and goals.
Key components of a financial plan
As we’ve briefly outlined, a financial plan is a comprehensive roadmap that outlines the financial goals and objectives of a business, along with the strategies and tactics that will be used to achieve them. There are a number of key components that need to be included in order to make sure you create an effective financial plan. We’ll discuss some of these key components below.
Financial goals and objectives
The first step in creating a financial plan is to define your business's financial goals and objectives. This includes both short-term and long-term goals, such as increasing revenue, reducing costs, expanding to new markets, and more. By clearly defining your financial goals and objectives, you can create a roadmap that outlines the specific steps needed to achieve them.
Revenue projections
Revenue projections are an essential component of a financial plan. This involves estimating the amount of revenue that your business is expected to generate over a specific period of time. Revenue projections should be based on realistic assumptions about your target market, competition, pricing strategy, and other factors.
Expense projections
In addition to revenue projections, it's also important to estimate the expenses associated with running your business. This includes both fixed and variable costs, such as rent, utilities, salaries, marketing and advertising expenses, and more. By accurately estimating your expenses, you can create a budget that ensures your business has enough funding to operate effectively.
Cash flow analysis
A cash flow analysis is a critical component of a financial plan. This involves estimating the amount of cash that your business is expected to generate and spend over a specific period of time. A cash flow analysis can help you identify potential cash flow gaps, such as periods when you may have more expenses than revenue, and take steps to address them.
Financing strategy
Most new businesses require some form of financing to get off the ground. Your financial plan should include a financing strategy that outlines how you plan to obtain the necessary funding to start and grow your business. This may include options such as loans, grants, crowdfunding, or other forms of financing.
Risk management strategy
All businesses face risks, such as economic downturns, industry disruption, regulatory changes, and more. A risk management strategy is an essential component of a financial plan. This involves identifying potential risks to your business and creating strategies to mitigate or manage them.
A financial plan is a critical tool for any new business. By including key components such as financial goals and objectives, revenue projections, expense projections, cash flow analysis, financing strategy, and risk management strategy, you can create a roadmap that outlines the specific steps needed to achieve your financial goals and ensure the long-term success of your business. Remember to revisit and adjust your financial plan regularly to reflect changes in your business and the broader economic landscape.
Expenses to know before making a financial plan for new companies
Creating a financial plan for a new business is crucial to ensure its long-term success. However, before creating a financial plan, it's important to know the various expenses that a new business might incur. By understanding these expenses, you can make informed decisions and create a more accurate financial plan. Below we’ll look at some of the key expenses to know before making a financial plan for new companies.
Start-up costs
Starting a new business often involves significant start-up costs. These expenses can include buying equipment, renting a space, paying for permits and licences, hiring employees, and other unexpected costs. It's essential to include all of these costs in your financial plan to ensure that you have enough funding to get your business up and running.
Overhead costs
These are ongoing expenses that are required to keep your business running. Overhead costs include rent, utilities, insurance, and salaries, for example. Before creating a financial plan, it's important to estimate the overhead costs for your business. This will help you determine the amount of revenue you need to generate to cover these expenses.
Marketing and advertising costs
Marketing and advertising are essential for any new business to attract customers and build brand awareness. These expenses can include creating a website, social media marketing, and print advertising, amongst others. It's important to allocate a budget for marketing and advertising in your financial plan to ensure that you have the resources to reach your target audience.
Inventory and supplies costs
If your business involves selling physical products, you will need to allocate a budget for inventory and supplies. This includes the cost of purchasing products from suppliers, storing inventory, and shipping products to customers. Be sure to include the cost of both raw materials and finished products in your financial plan.
Taxes
New businesses are subject to various taxes, including income tax, sales tax, and payroll tax. It's important to understand the tax laws applicable to your business and include tax expenses in your financial plan. Failing to do so can lead to unexpected tax bills and financial difficulties for your business.
Contingency fund
No matter how well you plan, unexpected expenses can arise in the course of running a new business. It's important to set aside a contingency fund in your financial plan to cover unexpected expenses. This will help ensure that your business can weather any financial storms that may come its way.
Do you know about wamo’s Company Formation feature?
Once you’ve figured out your business plan and created a financial plan for your business, you might be wondering how to efficiently register your new company. wamo’s company formation feature allows you to register a UK company in just 2 days. Our service is streamlined and run through Companies House. While you’re at it, you can get a business account through wamo at the same time. This means you can have a registered UK company and fully functioning business account in 48 hours – and all of this can be done online from wherever you are in the world.
To find out more about registering your UK company, go here and to see wamo’s subscription plan offers, go here.
Now that you’ve reached the end of this blog post, you should have a more comprehensive idea of what a financial plan is and how to create one for your new business. They’re important so that you have a clear understanding of all the expenses you’re likely to come across. To make your financial plan as comprehensive as possible you’ll need to estimate your start-up costs, taxes, and a contingency fund. Once you have your plan set up, you’ll be on your way to creating a successful business. Remember to keep revisiting your financial plan and adjusting it as your business grows and changes over time.
