How to Create a Small Business Financial Plan (w/ Example)

Small businesses are the backbone of the American economy but in any given year, thousands of small businesses close their doors. There are many reasons that may happen, but one is a lack of proper financial planning.

At Select Funding, small business owners are at the heart of what we do. We understand how crucial it is for any business to have a financial plan that spells out the company’s business goals, plans for financial management, and all other relevant information. With that in mind, here is your guide to creating a small business financial plan. We’ve even included a template to help you create your own financial plan.

What is Small Business Financial Planning?

Small business financial planning involves reviewing the financial status of your small business to get an overview and determine whether you have the resources you need to turn your small business into a success story.

The process of financial planning, while challenging, can help you understand how much cash and other resources you have to enable you to measure your progress and meet your business goals. It’s a key step in determining whether your business idea is sustainable.

The document that you need to create is a small business financial plan, which should incorporate key figures including information about your business income and cash flow and other details that will provide you with a clear picture of your finances.

We will share a full template to create a financial plan with you later in this post, but for now, the most important thing to understand is that your financial plan is an overview of your business finances and resources.

Why is it Important for a Small Business to Have a Financial Plan?

We believe that it’s beneficial and essential for every small business to have a financial plan. Here are some of the most important reasons to have one.

Benefit #1: It Helps You Assess Your Business Financial Needs

A small business financial plan is essential because it helps business owners to assess their business’s financial needs. Without a clear overview of your financial status and prospects, it may be difficult to know when it’s time to obtain additional small business financing.

Benefit #2: It Helps You Project Your Growth

It’s difficult to get a small business off the ground and grow it into a successful and sustainable organization. Having a small business financial plan puts the financial facts at your fingertips, making it easy to project your future growth and – just as importantly – set realistic and achievable financial goals.

Benefit #3: It Helps You Recognize Opportunities

When you own and run a small business, it’s essential to have the agility (and resources) to recognize and take advantage of opportunities when they arise. Without proper financial management, including the creation of a financial plan, it’s likely that you’ll miss opportunities or lack the resources to take advantage of them when you spot them.

Benefit #4: It Helps You Evaluate Your Progress

If you’re not tracking key metrics such as cash flow and revenue, you may not realize how far your company has come – or how far it could go. A small business financial plan is a living document that you can use to assess your progress, celebrate your achievements, and reallocate resources when necessary.

Benefit #5: It Empowers You for Crisis Management

Even the most successful companies experience a crisis now and again. An example is what happened when the COVID-19 pandemic shut down many businesses or required them to pivot to survive in unforeseen circumstances. Having a financial plan allows small business owners to review their finances and resources quickly, so they can make informed decisions that benefit the company and ensure its survival.

Benefit #6: It Helps with Risk Management

Running a business comes with some unavoidable risks, but some risks are avoidable and having a business financial plan can help you identify them and avoid them before they damage your company. For example, you can put guidelines in place to avoid overspending and create a contingency plan and emergency fund to use if you experience a sales slump or some other crisis.

Benefit #7: It Helps with Fundraising

Finally, every small business needs an injection of cash at some point. The cash may come from small business financing such as a term loan or a line of credit or it may come from a private investor. Either way, having a financial plan will help you determine how much cash you need. It will also make you more attractive to lenders and investors when you have a handle on your finances.

What Does a Small Business Financial Plan Include?

Before we get into the steps required to write a small business financial plan, here’s an overview of the things that should be included in such a plan:

• Balance sheet. Your balance sheet serves as a snapshot of your company’s financial position, showing the differences between your assets and liabilities at the moment it is created. The difference between what you have and what you owe is your business’s net worth. The balance sheet should also include a snapshot of equity, including your equity as an owner and that of any investors.
• Break-even analysis. Your break-even analysis is essential because it tells you how long it will take you to break even, or recoup your investments in your company. These investments may include startup costs and expenses for ongoing operations. The break-even should include a breakdown of both fixed and variable costs. You’ll need to use your sales projection to determine how long it will take you to break even.
• Cash flow statement. Your cash flow statement should reveal both where your cash is coming from and where it’s going. If you’re starting a business, you may not have very much information, but you should include your funding sources and your start-up expenses. An established business can use bank statements to analyze cash flow.
• Sales forecast. Your sales forecast is useful because it requires you to look ahead and determine how many sales you expect to make and how much money those sales will generate. 
• Personnel plan. Finally, your personnel plan serves as an overview of departments within your business, individual positions within those departments, and information about the purpose of each. This element may not be necessary if your business has only a few employees.

Another way of looking at it is that your financial plan should serve as a complete overview of your business’s financial position and projections.

How Do You Write a Small Business Financial Plan?

Before we share our small business financial plan template with you, here are the steps you’ll need to follow to create your small business financial plan:

1. Create a list of your existing business assets, liabilities, and equity. Make sure to include any cash you have on hand, including money from investors, as well as a list of any debts you have incurred.
2. Think about your strategic goals and what you hope to achieve. For each goal, estimate what resources, financial and otherwise, you will need to achieve it. You should also think about the impact each goal will have on your cash flow.
3. Work on your financial projections. These should include sales projections and income projections. It’s our recommendation to create a projection based on your most optimistic assumptions, one created based on your most pessimistic assumptions, and one that illustrates the most likely and realistic scenario.
4. Do the necessary calculations. Looking at the list of reports that should be included in your financial plan as outlined in the previous section, do the necessary calculations, so you can include correct figures in your plan.
5. Plan for contingencies. Think about what you will do if you run into a cash shortage or fail to meet one of your goals. Deciding ahead of time where you’ll find the money to make up a shortfall makes it less likely that you’ll take the wrong steps.

Once your small business financial plan is complete, it’s essential to revisit it periodically and update it with new cash flow projections, etc. Remember, your financial plan is a living document.

Small Business Financial Plan Template

Here is a basic template that you can use to create your small business financial plan.

Overview

Financial Overview: Use this space to provide an overview with key points and takeaways of the financial data included in your plan.

Key Financial Ratios and Indicators: Calculate key ratios and input them here, including ratios for debt, profitability, operations, liquidity, and working capital.

Break-Even Analysis

Financial Statements

Profit and Loss Statement

Cash Flow Statement

Balance Sheet

Sales Forecast

Assumptions

Use this section to support the values provided in your financial plan.

Keep in mind that creating a complete small business financial plan will increase the chances that you can meet financial challenges as they arise and attain your business goals.

Have You Done Financial Planning for Your Business?

Creating a small business financial plan is something that can help you as a business owner. Doing the calculations and making the recommended financial projections decreases the likelihood that you’ll stumble when faced with a crisis and increases your chances of success.

Do you need help with financial planning for your small business? Select Funding has the financing solutions you need. Click here to learn about our small business financing and begin the application process today.