What to Know When Creating a Financial Plan for Your Startup
Financial planning is not just creating a financial statement. It focuses on where and how you are going to use your finances before you use them. It’s usually created one year in advance to make sure to you don’t waste your money and to get an idea of how much money you need to execute your plans.
A financial plan is defined as a document that contains the current financial situation, long term financial goals, and strategies to achieve those goals.
This article briefly guides you in creating a financial plan for your startup to build a strong foundation.
Also, check out Business Plan Breakdown
Estimate Startup Cost
You have to consider finances from two points of view when just getting started with a business. First, the initial investment it will take to start and then a series of expenses to keep it running.
If you already have a stable business, you don’t need to consider the startup cost and move on to the next step. The startup cost is usually high compared to one year of operations expenses.
The financial plan you create at this point is very important for your business plan as relying on unrealistic numbers would make it difficult to survive in an already saturated market.
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Decide Your Annual Goals
The first and foremost thing to do is to decide your business goals by the start of next year. Whether you plan to build a stable small business or your need to expand, you should plan it ahead of time.
You also need to decide if you will have to invest in some other things. You should know if you will need more equipment and staff and how much they will cost. In addition to these resources, you should also consider how it will affect your cash flow.
You can limit all expenses and plans according to your current financial situation or you can take online loans to take a step. Only after you are sure of your monetary strength should you move forward.
Study Income Tax
An often-ignored part of financial plans is the income tax. Depending on your state and industry, you will have to pay a specific amount to the government in the name of tax. This amount can be easily affordable or very high if you don’t manage it properly.
Financial planning should also take taxes into account before allocating any amount to anything. It is suggested to discuss it with a professional in this field who can show you how you can save on taxes and use it for the development of your business.
Some businesses have to pay up to fifty percent of their total revenue as tax, and many don’t pay a single dime. It’s all about how you operate your business and use your finances.
Create Monthly Balance Sheet
Create a balance sheet every month and use them to create the annual balance sheet. It will ensure that you know where all your money is going and where it is coming from.
The balance sheet discusses three types of accounts: Assets, Liability, and Equity. If the sum of Liabilities and equity equals the assets, it means your sheet is balanced. The equity can be a little more difficult to understand and manage when you have shareholders and other investors.
You would know that none of your finances were wasted and used exactly as you planned them. If your sheet doesn’t balance, you can investigate if someone tried to scam you or if you made a mistake. Your annual balance sheet will tell you a lot about how effective your financial plan was.
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