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Financial Planning in Starting a Business

Monday, March 19, 2018



Financial planning is an important part of business development. It is not only for a basis of various business activities, but also significant as a measure of success. This financial projection should be projected for at least the next three years. It enables you to plan and undertake business activities, which consequently affects the success of your business. A business may perform a financial projection, for a period of at least 3 years.  

To get started there are several basic elements of business financial planning:

  • Estimated sales revenue: Project your expected sales revenue for at least 3 years. Begin with monthly sales for the first year, then every three months for subsequent years. How many customers can you expect? How many units will be sold?  How will you manage the price of your product?
     
  • Budget cost: Include fixed costs (example: rental fees for your location) and variable costs (example:  raw material). A general overview is sufficient, without having to go into details of each item purchased for example. 
     
  • Income report: Project how much money will be generated, by projecting sales, cost of goods sold, expenses and capital. Such information is typically tabulated into monthly earnings reports, quarterly statements or annual income statements. 
     
  • Cash Flow Statement: This is like a checking account list, but is more detailed in showing cash flows from income earned and various types of expenses. At the end of each period (example: monthly, quarterly, annually), it will reveal whether your cash flow is positive or negative.
     
  • Balance Sheet: The balance sheet is a statement of financial position that shows the business’ assets, liabilities and equity. Usually, you will make an annual balance sheet for your financial projections.


HAVE A REALISTIC FINANCIAL PROJECTION

Making a 3-year financial projection makes it possible to forecast a break-even point. That is the point at which your business stops operating at a loss and starts making a profit. Most businesses break even within 18 months, however the threshold varies based on business model and industry. Along with your financial statements and break-even analysis, include assumptions behind your financial projections.

The challenge for any new entrepreneur is how to create financial projections that are realistic. By collecting information about similar businesses, you will have plenty of data to use and make comparisons to. If you have no experience in making financial projections, you can talk to someone who can give you guidance, such as an accountant or business consultant.

New entrepreneurs tend to be overly optimistic about their business. While it offers a feel good sensation when starting a business it is likely to result in a rude awakening later on. Always prepare balanced projections under different scenarios, namely optimistic, neutral and pessimistic. 

ENSURE YOU HAVE SUFFICIENT CASH

Anticipate situations where you need a funding boost when there is shortfall in available cash for the business. There are various financing options you can consider, such as bank loans, private investors or increasing shareholders capital. This will ensure your business is not disrupted from lack of internally generated funds.  

At the end of the day, making good financial planning will not only guide your business activities, but let’s you plan ahead with obtaining external funding. However, as lenders/investors are generally cautious, the business needs to exercise good financial management so that it is able to repay when the loan is due.   

If your business has been running for more than one year and has a proven track record of healthy financial management, submit your application for crowdfunding of up to SGD150,000. Get funded today and grow your business with Kapital Boost crowdfunding.


Read also : Crowdfunding for Business Branding

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