Financial planning for businesses
Consider how likely you are to make
a sale based on:
•
your market share
•
resources (including staff)
•
prices
•
barriers to making sales
•
your products
•
marketing and advertising plans
•
legislation changes.
This information might be difficult to
predict for new businesses. However,
it gets easier over time as you can use
figures from previous months and years
to build a more accurate picture of how
much you expect to sell.
New businesses can compare start-up
costs against sales forecasts to get an
indication of the viability of their business
idea. If start-up costs outweigh expected
revenue, you will need to think of ways
to sell more, reduce costs or find a more
feasible business idea.
Expenditure forecast
The second part of the profit and loss
account is the expenditure forecast. This
provides the insight you must have in order
to establish how profitable you might be.
Best projected on a monthly basis, an
expenditure forecast includes:
•
expected sales
•
cost of sales
•
gross profit margin
•
expenditure – the overheads
•
projected net profit.
Compare expected figures with the
actual figures to see discrepancies
in your forecasts and where you can
make savings.
Limited companies have to supply HMRC
with a profit and loss statement as part of
their annual statutory accounts.
Cashflow forecasts
Every business, no matter how profitable,
needs to make sure there is enough
money coming in to pay the bills on
time. A cashflow forecast is a list of
business expenditure and income. It
lets you see easily when you will have a
shortfall or surplus of cash and allows
you to plan accordingly.
Cashflow forecasts can be complied
monthly or weekly depending on the
needs of the business. Things to take into
account may include:
An accurate cashflow forecast will
help you:
•
avoid running into financial problems
•
identify potential trouble spots
•
have a clear view of what lies ahead.
Good cashflow is not necessarily an
indication of healthy profits. A business
can be profitable but suffer from cashflow
problems at the same time, and vice versa.
A business with good cashflow will have
funds available to cover periods between
cash going out of and coming into the
business. A business might also consider
having cash reserves and access to
an overdraft in case of an unexpected
shortfall.
Maintaining a good cashflow is
particularly important in the early stages
of a business when your outgoings are
likely to exceed your incomings. You
will need to consider monthly, quarterly,
annual and one-off costs when working
out your cashflow.
Finance for
established
businesses
Businesses seek external funding for a
variety of reasons. If your business is
doing well, you might need to raise cash
to fund expansion. Or perhaps you might
need some additional funding to survive a
rough patch.
Either way, there’s no magic formula to
convince a bank to lend you money or an
investor to believe in you. However, there
are some practical ways you can enhance
your chances of securing business finance:
•
Business plans are not just for start-
ups. Keep your business plan up to
date to show investors that you know
what you are doing and have a plan
in place to realise your goals.
•
Keeping your paperwork in order
will make the process of applying for
funding much simpler and will give
potential lenders all the information
they need straightaway. Banks might
want to see historical data as well as
recent figures.
•
Use your profit and loss and cashflow
forecasts to your advantage. These
projections can demonstrate your
ability to pay back a loan.
•
Prepare periodic management
accounts in order to keep track of the
actual results compared to forecast.
Checklist: 6 point
business plan
1. Executive summary
An overview of the business
you want to start and run.
2. The business opportunity
What you plan to sell or offer and
who your customers will be.
3. Sales and marketing strategy
The need for your business and
how you plan to sell your product
or service.
4. The people involved
Your experience and the people
you want to work with.
5. Operations
Where the business will be based
and equipment you need.
6. Financial forecasts
How the business will work financially.
We can help
We can help you put together business
plans, applications for finance and
forecasts for all areas of your business
finances. Contact us today to talk about
your business.
Expenditure
Income
Stock and materials
Sales
Equipment
Interest on savings
Wages, rent and
utilities
Bank loans
Running costs
Shareholder and/or
director investments
Loan repayments
Dividend payments
Tax on profits
