What is financial management?
Let’s look at applying the financial management principles to the business’s finances you are making the plan. To a potential lender, this section is vital, and it’s completely understandable because making money and creating wealth is the ultimate goal of operating a business.
The appendix usually takes the detailed calculations of the information here. This section will verbally explain the business’s finances, with perhaps a few tables highlighting important information.
Include the business’s financial history as part of the financial section if you use your business plan to attract investment or get a loan. Add supplementary documents to the economic area, such as the financial statements, listing assets, and liabilities.
The Financial Management section in a business plan comprises the below;
- Financial SWOT Analysis
- Review of Current Financial situation
- Managerial expertise
- Financial strategy
Financial SWOT Analysis
Talk about the Strengths, Weaknesses, Opportunities, and Threats of your firm’s financial status.
Review of Current Financial Situation
Highlight the crucial points of your current outstanding debts, how frequently you make payments, how many gains to complete, and your financial statements(balance sheet, income statement, and statement of cash flows).
Furthermore, a table of financial ratios would be helpful, providing a snapshot view of the firm. You will want to provide profitability, economic efficiency, liquidity, and solvency measures.
Talk about other sources of managerial decision-making input. The financial managerial expertise usually is challenging to monitor. Some businesses use business consultants or other financial advisors to help increase profits as they analyze financial data and make recommendations for review.
Talk about how you intend on financing the firm’s operations over the planning period.
Talk about where you intend to get the money when purchasing a new truck or putting up a new warehouse.
Your financial plan should be related to your production, marketing, and human resources strategies.
Perhaps, add a timeline relating events planned in the other sections to financing to help clarify the message in this section for the reader. Let your reader know how you will assess financial performance. Be specific!
Tips & Summary
Project your sales over the same period of years.
Use a Spreadsheet to prepare the details in this section.
You’ll need to calculate the gross margin. Gross margin is usually useful when compared with different standard industry ratios.
You will have to make an educated guess if it’s a new product or a new line of business and you’ll have to look at past results.
You’ll need an expense budget, and you’ll have to talk about how much it will cost you to make the sales you have projected.
You’ll also have to multiply estimated profits and tax percentage rates to estimate taxes.
Develop a cash-flow statement. It’s believed that “Cash flow is king,”. You will usually base this partly on your sales forecasts, balance sheet items, and other assumptions for effective financial management.
If the business is in operation already, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on.
Make your Income projections. Detail the forecasts for your business for the future say, three years. Then, you use the numbers that you put in your sales forecast, expense projections, and cash flow statement.
Also, deal with assets and liabilities when outlining a financial management strategy. will project your balance sheet. Deal with the assets and liabilities that aren’t in the profits and loss statement and project the net worth of your business at the end of the fiscal year.
At the breakeven point, your business’s expenses match your sales or service volume. The income projections will assist you to undertake this analysis. Your business is viable when at a certain period your overall revenue exceeds your overall expenses, including interest.
You can look for business planning software for the calculations you need to assemble for the financial management section of a business plan.
Conclusion on Financial Management
Money is the ultimate reason behind your business plan.
Present the facts, be specific, and inform your reader about your current finances and future possible projections.
You’ll need a business consultant, accountant, or other financial advisors to help develop this financial management section.