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How Do I Develop a Business Financial Plan?

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  • Written By: Angela Johnson
  • Edited By: PJP Schroeder
  • Last Modified Date: 03 November 2016
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Developing a business financial plan can seem like an overwhelming task, but with the right information, it can be quite straightforward and simple. It is essential to begin with a business budget, which can be fiscal, quarterly, or monthly. A financial statement should be included with the business plan that states any debt incurred as well as profit and loss, in addition to income and assets. Public and private companies may produce different kinds of reports. When making a business financial plan, it is important to consider financial projections and forecasts for the following year and possibly for a five-year outlook.

When incorporating a company's budget in a business financial plan, all expenditures should be accounted for. If a company uses fiscal budgets, they will account for an entire year, and the year begins on the date the organization chooses. A quarterly budget is prepared for a three-month period, and a monthly budget is prepared for only one month. Listing all the fixed expenses that do not change throughout the year, quarter, or month, such as rent, as well as variable expenses that may fluctuate, like electricity and phone, will give a clear picture of what the expenses are. The budget must take into account how much money is available for expenditures and should be calculated based on income.

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A business financial plan includes an important element called the financial statement. The financial statement is comprised of three main components, including the balance sheet, cash flow statement, and income statement. The balance sheet shows the company's assets and liabilities, while the cash flow and income statements illustrate the company's current viability. Together, they give a clear picture of where the organization stands. Some companies may also include a fourth element, a shareholder or equity statement.

The final piece of information that is needed when making a business financial plan is the company's financial projections or forecasts. These statements are prepared by analysts who take into account the industry, market, and economic health, as well as what is expected in the future. Financial projections generally use the company's current state and business model to project its future health. If a strategic plan to change is set in place, the projections take this plan into account. With all of these elements in place, a clear business financial plan can be assembled, looking to the next year, the next five years, or even further into the future.

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