Making A Home Business Plan IV – Financial Plan
The financial plan has to cover all of your financial needs at present and also in the future and it’s a very important part of planning a business. This home based business plan or action plan is necessary even if you do not intend to apply for finance. It is useful to have all the information regarding your business in the form of a plan so that you can see where you are headed.
CAPITALIZATION
When you start a business it is important to know how much capital you need to get it off the ground. This is the start up cost and is the first thing that you need to calculate. Make a list of your start up costs as well as operating costs i.e. the cost incurred in manufacturing and reaching the goods to the customers before getting any money from sales. How much of the capital needed is available with you? It is imperative that you have enough to cover at least your start up costs. You may have to apply for a loan but even then the investors will need to see that you are making a sizeable contribution, in order to give you a loan.
If applying for a loan give a detailed account of how much is required, what you can offer as collateral, when and how it will be paid back. If possible back all this up with proof of purchase orders as well as any other document which will help prove your good credit history. Describe in detail as to how the funds will be allocated and the purpose for which they will be utilized.
FINANCIAL STATEMENTS
If you have an already established business, include the actual business statements for the past year to show the performance of your business. A new business does not have any past records to show hence it is necessary to project your financial plan to know where you are headed. The information in the financial plan will be based on your research and analysis but it must be realistic I order to give a fair idea of how profitable the business will be in the future. There are basically four types of projected statements that you require:
1) Cash flow statement (budget) The cash flow statement traces the cash projected to move in and out of the business in form of receipt of cash payments and expenses made in cash. In this you need to show how much cash will be going out as payments made and how much is expected to come in as receipts of payments made to you i.e. sales. It should also show how and when the cash will be moving both in and out. In essence it should show your monthly cash flow as well as your profit after deducting taxes.
2) Income statement The income statement of your business should include the projections showing the sales, cost of sales, gross margin, expenses and profit.
3) Break-even analysis The break- even point occurs when both your expenses and costs match each other. The income is such that it covers the costs so you are not losing any money. There is no profit but there is no loss either.
4) Balance sheet The balance sheet of a business shows the sources of the funds being utilized in the business. It shows how much investment is required for the business and also how much of that investment is to be used as working capital.
RISK
Any business has certain risks involved and it is wise to be aware of these risks beforehand. You and your investors will need to know how much the business is going to earn for you and also what the risks are. It is important to be aware of any potential problems which may arise so as to be able to handle them. You may want to be able to judge what your competitors’ reactions will be. Will they slash their prices in order to out price you and retain their edge on the market? What if your planning fails? What are the steps you have taken to be able to contain such risks? Identify all the risks that you are aware of and analyze them so that you are able to come up with a plan to tackle such risks if they should arise.
