Financial Plan For Your FIRST Small Business – Low Budget Plan

12 September 2024

One of the common reasons why small businesses fail is the lack of working capital. Poor financial decision-making can be detrimental to your small business.

This will not scare you or put you off the idea of starting your very first business. However, it is to convince you how important it is to draft a financial plan for your small business.

The importance of predicting your financial health is not just to maintain a steady cash flow but also…

Understand how lucrative your business is in the long run.

How long will your business be at break-even (no profit, no loss)?

When can your business start making a profit?

Most importantly, what is the contingency plan of any financial hurdle?

In this blog post below, we will be discussing the following:

Importance of a financial plan for your small business.
Elements of a financial plan for your small business.
A template to create a small business plan (for any business).

Importance Of A Financial Plan

Here is why you should begin creating your very first-ever financial plan for your small business.

1. A Business GPS?

Imagine yourself driving to a new destination without knowing where you are or in which direction you should proceed.

This is what it is like to open a business without having a financial plan.

A financial plan will give you a clear roadmap to your business journey, and determine how much to spend on each destination.

2. Where Is The Goal Post?

We all have a vague idea of what a startup goal should be. However, getting overwhelmed is common without a clear picture.

A financial plan will provide you with a clear goalpost. I am talking about tangible, measurable, and achievable goals.

Whether you want to expand your business, increase profits, or reduce costs, a financial plan gives you a clear path.

3. What Ifs & Risks!

It is given that your business won’t be smooth sailing forever!

Businesses often face unexpected expenses. It could be something as simple as equipment breakdowns or sudden major market changes!

As a business owner, being financially ready is a crucial step!

A financial plan can help you set aside emergency funds, so you’re prepared for these surprises.

4. A Long-Lasting Impression

Want investors early on for your business? Then, it would help if you offered them a steady financial plan.

Remember, lenders and investors want to see a well-thought-out financial plan before they commit their money.

Therefore, having a solid plan shows them that you understand your business’s financial health, its cash flow, and the potential profit opportunity. Hence, we are serious about making your business a success.

5. Improves Financial Decision-Making

With a financial plan, you better understand your cash flow, revenue, and expenses.

This knowledge helps you make informed decisions, like when to invest in new equipment or whether to cut costs.

Important Elements Of The Financial Plan Of A Small Business

Before you begin your financial planning, you should be aware of the different financial jargon for a business.

1. Cash Flow Projection

This includes predicting the market, what effect your product will have on the market, and how much you can earn from it.

Now, taking the potential amount you create capital expenditure for each month. The function of a cash flow projection is to ensure you have enough (at the end of the month) in terms of expansion.

It is common for a business to live month by month with no profit for the first six to eight months of the business. Essentially you are establishing your business.

However, if it crosses the one-year mark with just a break-evens, the following could be the reason:

Your business is not making money because of the lack of demand.
The expenditure is way over your income. You must start some cost-cutting methods.
There is a lack of marketing, and your small business is not reaching the target audience.
You do not have enough investment for the small business you are starting.

Keep these points in mind when starting your cash flow!

2. Balance Sheet

A balance sheet is a financial estimation of your small business’s current state. Here are some of the important items your balance sheet will have:

Income & Expenditure
Total owning & total owing (personal debts or small business loans).
Assets that are currently under collateral.

Upon reading it might sound simple. However, when it comes to a balanced business sheet, you will require a finance professional to craft one.

3. Personnel Expense

This brings us to the next point in any financial plan for a small business. The personnel expense, or the amount you are spending on hired personnel.

It doesn’t always have to be your employees. In fact, the number of employees for a small business will hardly reach 15 in the very first year.

A personnel expense includes individuals working as consultants for the business, and the different professionals you hire to help with the internal work (e.g. Finance officer to create the balance sheet).

Some of the common elements of a personnel expense are:

Cost is based on the positions each professional is holding.
Personal insurance plans for your workers (at least medical insurance).
Expenses are spared for other professionals working externally with the business.

4. Assets

The tangible assets that your small business owns:

Current Assets: What the business currently owns. These include inventories, machinery & tech devices, prepaid expenses (for example, digital tools), and other office supplies.

Tangible Assets: The one that physically exists under the name of your small business. Real estate (This will not include rented warehouses or offices. These will go under the expenditure section), land inventory, tangible investment (gold & bonds), and saleable merchandise.

Non-Tangible Assets: These are assets that are not in a physical form. Intellectual property, pre-paid tools, investments (stocks, Cryptocurrency, mutual funds).

Non-Operable Asset: Assets under your small business but from which you are not getting any income. For example, land you have an investment in but not yet open for any business-related functions.

Operable Asset: Assets that your business owns currently, and that are bringing some income. For example: produced goods, factory space, warehouses, and office space.

5. Products & Services

The products and services you are planning to offer will also come into the financial planning for small businesses.

These include the following:

The raw materials are required to create the goods.

Factory costing.
Warehouse costing.
Transport & Drop shipping costing.
Worker’s salary & insurance.
Contingency management funding. (In case of any accident or unpredictable situation).

The summation will give you the total cost of production. With which you can create and understand the market value of your product.

This step is very important to assess the profit and loss of each item.

6. Income Projections

Another crucial part of small business finance planning is prediction. This is how you can predict whether your income will have any substantial income.

Here is how you can protect your business income (before starting it):

Check business income projections of competitors through several data analyses.
Is your small business subject matter trending in the market? What is the current market share of such companies?
Are investors willing to invest in a business venture as such? In fact, check some of the Shark Tank successes, and analyze which business venture seems more profiting by investors themselves.
The inflation rate of the past decade regarding the product or service you are about to sell also matters.

7. Marketing

You cannot spend everything on logistics and not worry about marketing.

One cannot ignore this matter, especially in today’s day and age when small businesses are reaching new milestones by a simple influencer shoutout, or social media virality!

Here are some of the factors in which you will need to spend in marketing:

Social media marketing tools.
Influencer marketing.
Small ad-films over YouTube.
Website building and digital marketing (Website domain and SEO tools).

8. Risk Management

No business is protected from the risks that come to every business in its lifespan. However, the contingency plan is not getting ambushed by a sudden change.

Here are some of the financial risks/uncertainties your new business could face:

Market Risk: The ups and downs of the current & dynamic economy. In fact, after the pandemic, things have become a little less predictable.

Reputation Risk: Social media is indeed bringing customers and businesses closer. However, the downside of such connectivity is the risk of a tampered reputation, especially when audiences jump to conclusions upon hearing anything on the internet.

Competition Risk: This is a common risk every business faces. When your competitors launch something new & exciting, there could be a significant shift in sales numbers for you.

Environmental Risk: One good example of environmental risk that has previously impacted businesses majorly is the pandemic.

Political Risks: The political scenario of your country can have a considerable effect on your business, especially in terms of export-import & business expansion.

This is one of the reasons why having a financial contingency plan for managing sudden risk is one of the crucial components of a business financial plan.

Business Template For A Startup

As promised, we have a business template that will help you take that very first step for your startup.

Financial Plan For Startup (Template)

Table of Contents

1. Financial Overview: A Financial Overview will consist of a financial overview of your business’s current state. Also, please provide the key points and takeaways of the financial data that you will provide.

4. Assumptions – Market Research: This is the step for market research and predicting the business’s profit potential.

5. Break-Even Analysis: A table or graph which provides information on the number of units your business needs, and how much you need to sell to make a profit.

6. Financial Statements: This will include the following charts.

– Profit & Loss (Optional if you have a startup)

– Cash Flow Statement (How the monthly cash flow will look)

– Balance Sheet (Monthly/Quarterly/Yearly Income & Expenditure)

Elements For Your Balance Sheet

The following is what your balance sheets should include based on items required: monthly, quarterly, and yearly income & expenditure.

Operational Financial Plan

Business Location and Facilities
Technology and Equipment
Key Operational Processes
Supply Chain and Inventory Management

Management and Organization Financial Plan

Organizational Structure
Key Management Team
Roles and Responsibilities
Hiring and Training Plan

Financial Plan

Start-up Costs (for new businesses like loans, downpayment; collateral, and personal investments)
Revenue Projections
Expense Projections
Cash Flow Statement
Profit and Loss Statement
Break-even Analysis

Funding Requirements and Strategy

Funding Needed
Purpose of Funds
Potential Funding Sources
Funding Timeline

Key Risks

Risk Mitigation Strategies

Financial Tools to Ease Your Job

In the modern age of technology, you can always lean on tools to automate some of the financial tasks.

So, if you need that digital assistance when

Begin Your Journey!

This is a sign for you to begin your journey as a first-time business owner. Yes, it is overwhelming, and yes it can be intimidating (hence the long procrastinating period!).

Creating a financial plan for even a startup can be intimidating. Here is how you can make this journey a little easier.

Start with defining your business first. The executive plan is a must. You should know what your business is all about.

Then, move through the basic income and expenditures.

Take help from professionals in tax advice and create a detailed balance sheet.

Finally, consider seeing your whole financial plan in a timely manner. It is important to take one step at a time.

Hopefully, we can give you enough answers about a business financial plan. How is your journey going? Please let us know in the comment section below.

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Deepanwita Dey

Deepanwita is a seasoned practitioner of ‘jumping the ship’. She started out her journey with literature and now holds a double graduation degree, one of which is in psychology. As a result, she is now using this skill to help confused job seekers to pick a direction. Given her academic background, her writing is laden with analytical analogies and deep research. As one of Content Rally’s most regular contributors, readers can find a sense of confidence in her writing.

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6 Tips on How to Pay Off Your Tax Debt

For the tax year 2015, the IRS reported that taxpayers filed 150.5 million individual income tax returns, which is an increase of 1.3 percent compared to the previous year. This yielded $10.4 trillion income for the said tax year and also a 4.5 percent increase from 2014. Here’s the thing: not everyone is able to file and pay taxes for the income earned. If you happen to be one of them, then you need to read this post to find out how you can pay off your tax debt and prevent penalties, possible jail time, and garnishment of your assets: 1. Know how much you owe : You can’t just pay any amount just to “lower” your tax debt. Paying the amount stated on the letter from IRS doesn’t automatically mean it reflects the actual tax debt since you could be eligible for a tax credit (or IRS could be wrong too). Therefore, find out first how much you actually owe for each tax year. This will give you a summary of your tax situation, thereby making it easier for you and your tax debt lawyers to come up with strategies that lower your debt. You can also use a tax calculator online to give you an idea of your total tax debt. 2. Consolidate the tax debt with your credit card : First things first, it is not advisable to pay off one debt using another debt. If you owe something especially taxes, then you might want to break this rule. IRS accepts all major credit cards like MasterCard or Visa to pay off your tax debt. Simply go to the payment page of the IRS to make a payment. Keep in mind that IRS doesn’t charge a fee for doing such transaction, although processing companies who process the payment charge up to as much as 2.35 percent. Nevertheless, make sure to pay your credit card in time. 3. Try refinancing your home : Why not? Believe it or not, the IRS could recommend re-financing depending on the situation. If you happen to have equity such as a house and you can afford it, then you can use your assets to pay off your existing tax debt. The good thing about this movie is that mortgage rates are typically lower compared to the rate charged by credit card companies. Also, you can take away home mortgage interest on your income tax return – and how can you say no to that? 4. Apply for Short-Term Extension to Pay : This is only applicable if you can pay your tax debt in 120 days or less. The good thing about this arrangement is that there is no set-up fee and you can apply either online by filling out the Online Payment Agreement application or by phone. Penalties and interest fees are likewise lower, so make sure you pay within the given period granted to you. 5. Enter into an installment agreement : Ideally, you would be able to pay off your tax debt at once. On the other hand, there are instances when you need a little more time to pay it off. In that case, consider entering into an installment agreement with the IRS. The good thing about installment agreement is that you can apply either online or by mail. You don’t have to worry about reminders and missed payments, especially if you sign up for the monthly payment plan. You can apply for the installment agreement if you owe $50,000 or less, which already includes combined individual income tax, interest, and penalties. When you apply for this, make sure that you filed all of your returns in order to qualify for this agreement. How does installment agreement work? A direct debit payment plan is highly recommended because of the lower cost, hassle-free payment, and the cost for a set-up fee is more affordable compared to other payment plans. What if you have more than $50,000 tax debt? In that case, the next tip would be your most feasible option. 6. Consider an Officer in Compromise : Also known as OIC, this strategy could also be helpful if you want to pay off your tax debt. Unlike the Installment Agreement, Officer in Compromise is more applicable for a larger amount of tax debt. How does this work? OIC will allow you to settle your tax debt for less than the full amount you actually owe. Filing of an income tax return and payment requirements must also be updated. Nonetheless, there are several factors IRS looks into before they agree to this kind of arrangement. This includes, but not limited to: Income Expenses Asset equity Ability to pay Aside from this, it is IRS who will determine whether you are qualified for OIC or not. If they see that they won’t be able to collect the entire amount within a reasonable time, then you could be qualified. Check out their website to determine whether you can be qualified for this or not. At the end of the day, it is important that you file and pay on time to avoid hassle come due date. In case there was a delay, take note of these tips and prevent the government from taking what was yours. Read Also : Eight Essential Tips For Getting Out Of Debt Are Debt Consolidation Loans Recommended For Credit Card Consolidation Dealing With A Debt Relief Officer For A Better Assistance

Does Bankruptcy Ruin Your Credit?

Most people understand that bankruptcy can help you discharge the debt if you're in a bad financial situation. They also understand that bankruptcy can hurt your credit score. But can bankruptcy ruin your credit entirely? The Importance of Talking With an Expert First, if you’re considering filing for bankruptcy protection, make sure you talk to a bankruptcy lawyer. A bankruptcy lawyer will have the knowledge and expertise necessary to help you determine whether filing is appropriate for you and which type of bankruptcy you should pursue. They'll also help you understand the core process of filing for bankruptcy and setting your expectations for timelines, costs, and consequences. Lawyers are an indispensable resource here, so don't neglect to hire one. Different Types of Bankruptcy You should also understand that there are different types of bankruptcy. Different types of bankruptcy manage debts in different fashions and have a different impact on your credit score. For example, Chapter 7 bankruptcies tend to stay on your credit report longer than Chapter 13 bankruptcies, due to the fact that Chapter 13 bankruptcies frequently allow consumers to pay back a portion of their debts. A chapter 13 case could benefit a person for numerous reasons. Typically, a person would file a chapter 13 case to save a house from a mortgage foreclosure action and a car from repossession, due to payment arrears. A person may also file for chapter 13 protection to pay back only a portion of unsecured debt because they do not meet the chapter 7 criteria. Chapter 13 requires a person to make monthly trustee payments for 36 to 60 months. A chapter 13 case is completed after all monthly plan payments have been paid in full. Chapter 7 bankruptcies allow an individual to eliminate all unsecured debt, such as credit card debt and personal loans. Therefore, a person who is only interested in eliminating unsecured debt would file a chapter 7 case, if one meets the criteria. The chapter 7 case takes about four months to complete after the filing. No payments are required in a chapter 7 case. The Impact of Bankruptcy on Your Credit A chapter 13 bankruptcy filing stays on a credit report for 7 years from the date of the filing. A chapter 7 bankruptcy case, stays on a credit report for 10 years from the bankruptcy case filing date. Typically, filing for bankruptcy has a negative impact on a credit score, although the filing may increase a person’s credit score, based on their financial circumstances. The most important criteria impacting the credit score are as follows: The shorter the credit history the less advantageous it; Missing payments reflect a derogatory mark; The amount of one’s revolving credit limit compared to the amount of the debt incurred. The optimum debt to credit limit ratio is a debt balance of 30% of someone’s credit limit. The additional debt incurred over 30%, the more the credit score is negatively affected. For example, a person that used $3k of their total $10k credit limit has used 30% of their total credit limit. However, if the same person charges a total of $6k of the $10k credit limit, the ratio is increased to 60%, which reduces the credit score. A person’s credit report lists their creditors and other facts regarding each creditor. This includes the status of payments; type of loan; length of the loan, and the loan balance. Typically, a credit report also reflects a bankruptcy filing, foreclosure action, repossessions, charge-offs, and debt settlements. The credit report also reflects a total score, indicating the general state of a person’s credit. A prospective lender must analyze a person’s financial circumstances to determine: if they will issue the loan; what type of loan will be issued; the loan amount; the loan interest rate; and, the length of the loan. Based on each creditor’s internal lending requirements, the determination of extending credit is based on a balancing act between the loan applicant’s credit report, income, expenses, the debt amount, debt payments, assets, and other information. Typically, a person considering filing for bankruptcy protection is experiencing difficulty paying their monthly credit card payments and/or mortgage or auto finance payments. Consequently, such a person usually has a low credit score. The lower the credit score at the time of the bankruptcy filing, the less the impact the bankruptcy filing has on a credit score. Conversely, a bankruptcy filing will have a substantial impact on a person with a high credit score. In general, a high credit score does not always guarantee that a person will obtain the loan they want with the best terms. A prospective debtor with an excellent credit score and substantial monthly credit card payments may experience difficulties, without filing for bankruptcy. What if a person with an excellent credit score has a very low income? Let’s assume that a person with a high credit score, with substantial monthly debt payments, eliminates all credit card debt, in addition to other types of debt in a chapter 7 case. Initially, the person’s credit score will sustain a substantial hit, resulting in difficulty obtaining any loan. However, within a reasonable time period, together with the proper credit repair, the person’s credit score will substantially increase. In the future, the person will apply for credit without their enormous monthly debt payment load. Now, let’s assume that a person with a low credit score and substantial monthly debt payments eliminates all credit card debt, in addition to other types of debt in a chapter 7 case. Initially, the person’s credit score may sustain a minimal hit. However, most likely this same person was experiencing great difficulty obtaining credit prior to the filing. If this person implements the proper credit restoration process, the person’s credit score will substantially increase, as well. Ultimately, within a short period, the bankruptcy filing will likely increase this person’s ability to obtain credit Typically a bankruptcy mark on a credit report has a negative impact on prospective creditors to review. Generally, within one year after the completion of a chapter 7 case, the debtor (the person that filed) will experience great difficulty obtaining a loan. Although obtaining a loan depends on the totality of the person’s financial circumstances, the rule of thumb for receiving automobile financing with a reasonable to low-interest rate is about one year after the completion of a chapter 7 case. The rule of thumb regarding the receipt of a reasonable to low mortgage rate is about two years after the completion of chapter 7. Based on a debtor’s financial circumstances, she may be able to obtain automobile financing and/or a mortgage during the chapter 13 case. Otherwise, the same rule of thumb applies to a chapter 13 debtor as a chapter 7 debtor regarding obtaining a reasonable and low-interest rate after the case is complete. Read Also: 5 Smart Ways to Boost your Credit Score A Guide to Getting Out of Credit Card Debt Why Would I Need A Business Credit Report? No Credit Rating Check Lendings Online split Second Authorization

How To Cope Up With Debt For New Residents In Canada

For new residents in Canada, it is not unusual to incur debt. Moving and settling in a new country often involves a lot of money, after all. If you are not careful, you will find yourself coping with unmanageable dues, dealing with bouncing checks, and avoiding calls from collection agencies. There is no absolute way to get rid of debts altogether, but with proper planning and execution, you will be able to get your finances back on track. Freeing Up Money To Reduce Debt The first thing to do to take control of your debts is to free up some money. This will involve creating a spending plan, paying your debts consistently, and tracking your progress. With a spending plan, you will be able to determine how much money you can work with. Start by summing your monthly expenses and removing them from your income. The money left over is the money you will use to pay down your debt. If you are spending more than you earn and have no spare money, you need to review your spending habits and determine which ones you have to cut down. Sitting down with a budgeting expert may be advantageous. One way to reduce spending is by not using credit, at least until you have paid off your debt. This includes your overdraft. If you have to use it, you must treat it like a bill that you need to settle. Another way to free up money is by spending less than you plan to spend. Many people get into debt because they buy things they cannot afford. Follow a simple rule – if you do not have money, do not purchase it. If you can be gratified with less than what you usually want, you can use the cash you saved and pay down your debt. Eventually, you will have adjusted to your new setup and learn to put away money for other financial priorities. Tracking your spending and identifying which areas to cut back from also helps. You need to exercise honesty in doing this, otherwise, it will not work. Many people end up being surprised by how much they actually spend daily. Once you have mapped out your spending habits, it will be easy to pinpoint areas where you can cut back. The next step will be to allocate the money you found and settle your debts. Using Funds Strategically To Eliminate Debt Once you have freed up money, you can use it to pay down your debts. There are different ways to do it strategically. New residents in Canada typically apply for a mortgage to be able to afford a home. Banks and lending institutions require a minimum of 35% down payment, paid in cash, with a maximum of 65% of the value of the home provided as a mortgage. Monthly payments will be based on the mortgage option they will choose. In paying a mortgage, a bi-weekly payment may be better than a monthly option to accelerate the process. It may seem like you are paying the same amount of mortgage, but you are actually settling your debt faster by including an equivalent of one extra payment annually. This way, you will be able to pay everything off several years earlier. For more information about the mortgage, visit this page: https://alpinecredits.ca/home-equity-line-of-credit-vs-mortgage/ Another smart way to settle your debt is by paying as much extra as you can afford. With a minimum credit card payment per month, it will take a long time to pay off the balance. Meanwhile, some borrowers choose to settle their most expensive debts first, then work their way to the least. In this snowball method, you will be focusing all your extra payments on the debt with the biggest rate, while making minimum payments on all the others. First, arrange your debts in the order of their interest rates. Then, pick the one that is charging you the most and prioritize it. Once your most expensive debt is settled, use all the money you were reserving and allocate it to the next highest loan. Continue this scheme until you are left with the least expensive debt to pay down. Many attest to this strategy as very effective in getting out of debt quickly. If your debts are becoming too unmanageable and you are really struggling with your financial obligations, it may be time to start speaking with a credit counselor. Credit counselors are experts in helping people assess their situation and eventually put together a working plan to set their finances back on track. They will also negotiate with your creditors to explore your options. Credit counseling is a legal process that is usually for free or at a very low cost. Other Ways To Cope-Up With Debt Having your own vehicle when living in Canada is useful as there are places where public transport is limited. When buying, it is better to choose a quality used car rather than a new one. You can go to a local library or read reviews online to see your options. Meanwhile, if you do choose to buy a new car, pick one with good fuel economy. By keeping it for 15 years, you can stretch your dollars and have plenty of time to save for another vehicle. Reducing your grocery bills also helps. Watch out for sales then stockpile your cupboard with non-perishable items like canned goods, rice, and cereals. Freeze bread and meat properly. Live off your stocks and skip doing groceries every month. This way, you can save up to 25% of your annual bill. If this is not manageable, try skipping once every other month. You can still save a good amount of money. Finally, if you want, you can get a second job or pick up additional shifts to earn extra money. For this to work, you have to consistently allot all your extra income to pay your debts. This does not always suite everyone, but if you can do it, you will find yourself free of debt faster. You also do not need to work extra shifts forever, just until all your debts are paid off. After that, you can consider scaling back again. More Resources: How to Eliminate Hassles of Outstation Travels The Five Most Important Things to Know Before Moving How to Save Time During Your Workday?