There are three elements that you need to include in your financial plan. All of these three will show at what stage your business is at in terms of financial capacity. Check out these three as they are all discussed in brief below.
This is a document that collects all the information regarding the business’ expenses and revenues. Revenue is defined as the business income generated through sales and other forms of income generating activities. Under expenses, the business declares how much it spent on items like taxes, cost of supplies, payroll, utilities, interests and more. If you compare the revenue’s final figure against the expenses final figure, you will get your business’ net income figure. Financiers and investors are always interested in what kind of income your company makes.
This is the document where all your business’ assets are compared against its liabilities. The main reason why it is called a balance sheet is because the figures of both should balance out each other. These are the two main classifications. Under each of these are sub-classifications. Under assets, you will find cash, inventory, equipment, and accounts receivable. Under liabilities, you will find accounts payable, and balances from loans. This document is important in the sense that it gives you a visual of what position your business is in at certain points. The main purpose of this is to show you the things you own and you owe. With this information in your hands, you now know what you have to do in order to curb your business to your favor. It helps you re-think your business plan at the point when these figures are presented to you.
Cash flow statement
This one comes in another name – Cash Budget. This is one document that allows you to budget the amount of cash that is going to come in to your business at a certain time. On the other side, you also will know how much cash your business needs to shell out in that same timeframe. To help you predict the amount of cash flow, you will have to look into your forecast for sales, compare cash and credit receipts, and when the accounts receivable are going to come in. In line with this, there are certain things that you have to find out. The first is how much will be your expenses? Second is do you have credit lines with your suppliers? What is your arrangement when it comes to paying them?
One of the things that you can do to control your cash flow is to create a cash budget for one whole year. Additionally, you can have better control of this if you break it down on a monthly basis. The one-month breaks are an important strategy when it comes to handling the company’s cash. Aside from this, it is also important that you plan out for the long term for your cash flow. To do that, you need to calculate how much cash flow to expect three years from now. Some companies go with a 5-year forecast. The long term cash flow projections are called ‘Proforma’ statements. The latter will depend on your expectations regarding the business’ performance in the future.
All these three cover your financial plan. These will help you determine how much money you need and have.