explain the financial aspects of business plan

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9 Elements of a Successful Financial Plan for a Small Business

Improve your chances of growth by covering these bases in your plan.

Many small businesses lack a complete, well-thought-out financial plan — even though evidence shows one is essential for long-term success and growth. A business financial plan can help an organization better manage cash flow, guide investment and financing decisions, and take advantage of growth opportunities with confidence. We’ll explain nine elements of a solid business financial plan. We’ll also share tips for writing a comprehensive plan to guide and nurture your company’s financial health.

What is a business financial plan, and why is it important?

A business financial plan is an overview of an organization’s financial situation and a forward-looking growth projection. It can help you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you plan for taxes and create a business budget that accounts for daily and monthly expenses.

A financial plan helps business leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. It’s particularly important if a business owner is looking to sell, attract investors or enter a partnership with another business.

However, perhaps the most crucial benefit of a financial plan is helping you focus on your business’s long-term growth. It allows you to look beyond your company’s day-to-day activities and avoid losing sight of your goals. Focusing on your long-term vision ensures you prioritize your financial resources.

9 components of a successful financial plan for business

Your unique business financial plan may differ by industry and business type. However, all businesses should include the following nine components.

1. Sales forecasting.

Sales forecasting is a crucial element of your business financial plan. A sales forecast estimates how much of a product or service a business will sell in the next week, month, quarter or year.

Sales forecasting can help you identify patterns in your sales cycles and better understand — and improve — your business. For example, a seasonal business can use sales forecasting to inform strategies for improving off-season sales and becoming a year-round venture. Another business might use sales forecasting to understand how factors like the weather or the economy influence sales fluctuations and prepare more effectively.

This knowledge is invaluable as you plan marketing initiatives. Additionally, sales forecasting can be the foundation of your business growth plan and goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay.

Your financial plan should include an accounting of all regular expenses, expected future expenses and associated expenses.

Regular expenses: Regular expenses are your business’s current ongoing costs; this includes operational and overhead costs such as rent, utilities and payroll. They also include standard yearly business activities, such as conference attendance, advertising and marketing, and the office holiday party. It’s advisable to distinguish essential expenses from expenses that can be reduced or eliminated if needed.
Expected future expenses: Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. You should also consider unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters (and costs for disaster preparedness ).
Associated expenses: Associated expenses are the estimated costs of various initiatives, such as hiring new employees, investing in employee training , expanding your delivery area and opening another business location . An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities).

Business assets and liabilities are the foundation of your company’s balance sheet and the primary determinants of your business’s net worth. Tracking assets and liabilities allows you to maximize your business’s potential value.

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a deeper view of your business’s health than does a profit-and-loss statement or a cash flow report.

4. Cash flow projection.

You should be able to predict your cash flow on a monthly, quarterly and annual basis.

Projecting cash flow for the entire year allows you to anticipate financial struggles or challenges. It can also help you identify a cash flow problem before it harms your business. You can set the most appropriate payment terms — such as how much you charge a customer upfront or how many days after invoicing you expect payment.

A cash flow projection reveals how much money will remain at the end of each month, allowing you to plan for expansion or other investments. It also helps you budget. For example, you can spend less during one month to meet the anticipated cash needs of another month.

5. Break-even analysis.

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs vs. profits of expansion or growth.

Having your expenses fully fleshed out, as described above, makes your break-even analysis even more accurate and useful, allowing you to:

Determine pricing (set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive).
Understand how many units you must sell at specific prices to cover costs.

6. Operations plan.

To run your business efficiently, you must craft a detailed overview of your operational needs. You can make more informed decisions for your business’s growth and efficiency when you:

Understand what roles are required to operate your business at various output volumes.
How much output or work each employee can handle.
The costs of each stage of your supply chain.

Tightly controlling expenses — such as payroll or supply chain costs — relative to growth is essential. An operations plan can also help determine if there is room to optimize operations or supply chains through automation, new technology or superior vendors.

Focusing on profit margins is also essential for many businesses. For example, credit card processing fees can take a big bite out of your bottom line. Managing these costs can make the difference between turning a profit or going into the red.

7. Funding plan.

Your financial plan will include a funding plan. While some business owners bootstrap their companies out of their own pockets, many others will require funding. In your funding plan, you must consider whether to use debt or equity financing and outline the reasons for your decision. If you decide to take on debt, ensure you understand the process of applying for a business loan . U.S. Small Business Administration (SBA) loans are especially prized for their low interest rates and long repayment periods.

Equity financing involves finding business investors . In exchange for funding your company, investors will take an ownership stake in the business. It’s crucial to know how to present your idea to investors to maximize your chances of a successful pitch.

8. Investment analysis.

An investment analysis looks at industry trends, investment opportunities, and resource allocation to ensure funds are spent wisely and effectively. For instance, determining which projects will yield the highest return on investment (ROI) is crucial for long-term success. Acquiring customers is especially important for growing your business. So, for example, it’s essential to measure the ROI of digital marketing campaigns to maximize limited investment funds. By incorporating investment analysis into your financial plan, you can make informed decisions that drive growth and profitability.

9. Risk management plan.

While it’s essential to plan for success, it’s also crucial to identify financial risks and develop mitigation strategies. Does your industry tend to move through cycles of boom and bust? Is there an elevated risk of litigation? Does your business face potential disruption from weather-related events? Ensure you create contingency plans for potential financial setbacks and secure appropriate insurance.

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view of future growth or expansion. Here are some tips for writing a comprehensive business financial plan.

1. Review the previous year’s financial plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate it was. That way, you can address any discrepancies or overlooked elements in next year’s plan.

2. Collaborate with other departments.

The individual charged with creating the business financial plan should collaborate — mainly with the finance department, human resources department, sales team , operations leader and those in charge of machinery, vehicles or other significant business tools.

Each division should provide the necessary data about projections, value and expenses. These elements combine to create a comprehensive financial picture of the business.

3. Use available resources and financial plan templates.

Business owners don’t have to go it alone to create their financial plans. Numerous resources exist to provide guidance and even templates. Consider the following options:

SBA: The SBA is an excellent resource for learning about financial plans. This knowledge includes the necessary elements and how best to work with the different departments in your business to collect the required information. Additionally, the SBA’s Learning Platform offers a course on how to create a business plan; this involves financial planning elements as well as worksheets and templates to help you get started. You can seek additional help and more personalized service from your local SBA office.
SCORE: SCORE (Service Corps of Retired Executives), the SBA’s nonprofit partner, is the largest volunteer network of business mentors. It began as a group of retired executives but has expanded to include business owners and executives from many industries. SCORE provides free advice, group and online learning, and mentoring resources. SCORE’s business plan and finance templates are excellent resources for small business owners.
Accountants and financial professionals: You can ask your business accountant for financial plan guidance; many accountants provide financial planning services in addition to their usual tax and finance services.
Microsoft 365: Microsoft 365 offers numerous financial management templates , business budget templates and other resources.
QuickBooks: QuickBooks has several resources, including business plan templates and budgeting tools.
Additional templates: BDC’s free business financial plan template , Hubspot’s financial planning templates and JotForm’s financial plan template .

Mike Berner contributed to this article.

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Business Plans

How to Write the Financial Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

explain the financial aspects of business plan

Taking Stock of Expenses

The income statement, the cash flow projection, the balance sheet.

The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:

Business registration fees
Business licensing and permits
Starting inventory
Rent deposits
Down payments on a property
Down payments on equipment
Utility setup fees

Your own list will expand as soon as you start to itemize them.

Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:

Salaries (including your own)
Rent or mortgage payments
Telecommunication expenses
Raw materials
Distribution
Loan payments
Office supplies
Maintenance

Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business plan starting with the income statement.

The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.

While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.

Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.

If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.

The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how much capital investment your business idea needs.

For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.

Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.

There are three parts to the cash flow projection:

Cash revenues: Enter your estimated sales figures for each month. Only enter the sales that are collectible in cash during each month you are detailing.
Cash disbursements: Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay for each month.
Reconciliation of cash revenues to cash disbursements: This section shows an opening balance, which is the carryover from the previous month's operations. The current month's revenues are added to this balance, the current month's disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month.

The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:

Assets: Tangible objects of financial value that are owned by the company.
Liabilities: Debt owed to a creditor of the company.
Equity: The net difference when the total liabilities are subtracted from the total assets .

The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .

For your business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.

Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than an in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.

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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses.

Why it matters

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers.

Through the financial section, you can:

Forecast your business’s future finances
Budget for expenses (e.g., startup costs)
Get financing from lenders or investors
Grow your business

describes how you can use the four ways to use the financial section of business plan

Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section.

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup.

Your financial section should detail:

Business expenses

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses.

Take a look at some common business expenses you may need to include in the financial section of business plan:

Licenses and permits
Cost of goods sold
Rent or mortgage payments
Payroll costs (e.g., salaries and taxes)
Utilities
Equipment
Supplies
Advertising

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs).

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes).

How much do you anticipate earning from sales each month?

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance.

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period.

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions.

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements.

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses.

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover.

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment).

Back up your funding request by emphasizing your financial projections.

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc.

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it.

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!