What business plan financials do SMEs need to prepare?
Are you one of the 53% of UK SMEs that doesn’t have any kind of business plan in place? Tut tut! Many small businesses grow out of a hobby, or something the business owner does in their free time. As things grow, you never quite get round to writing down business plan financials which detail all your plans.
But do you actually need a business plan? It might be apocryphal, but there’s a story that search engine giant Google never had a business plan – at least not in the early years. Of course, if you’re the next Google, good luck!
However, most firms will benefit massively from having a business plan. It will give you a sure financial footing and help you grow:
- If you’re going for a bank loan or asking for investment, most banks or investors will expect to see a solid business plan with financials detailed
- Even if you don’t need external cash, financial planning will help you with everything from pricing your products to deciding when to hire new employees and ultimately deciding if you can actually generate enough cash to run a business
- Get an idea of whether your business is performing well
The government has tips on what to include in a generic business plan, here. However, let’s look in more detail at what you need on the finance side of your business plan, before looking at how you can get the figures together.
3 essential business plan financials to include
Creating your business’s finance plan requires you to speculate as to what your business will earn in future. The important thing here when creating these plans is to be realistic. You should neither be overly pessimistic or overly optimistic.
Every small business’s finance plans need to include the following three features. You should, at a minimum, include all this information in a spreadsheet or use more complicated accounting software. Most business plans provide projections for the next three years.
- Income or profit/loss statement
Your income or profit/loss statement simply reports what all your expected income and expenses will be. For a standard business plan, you should provide estimates for the first 12 months, then provide quarterly estimates for the following years.
- For income, this will include your revenues from all the products or services that you sell. Depending on how big your firm is – whether you’re a start-up or have already been established for a while – you may have one single source of revenue, or many. List all your products or services in a spreadsheet and estimate how much cash you expect to generate from each per month.
- For expenses, your plan needs to include the costs involved in selling your goods or services (such as advertising, travel, client lunches), insurance, wages, loan interest and more.
Once you have completed this statement, add up the totals for your profit and loss, then minus expenses from your income. Hopefully, you’ll still be in the black. If not, it might be time to take another look at your plans.
- Your balance sheet
A balance sheet sums up what you own and what you owe. It’s especially useful for investors or banks, because it gives them a snapshot of a moment in time – rather than any ‘glass half full’ projections. The balance sheet includes your assets and liabilities and should be given for the same point in time as for the assets:
- Assets – this includes all the cash you hold at a given point in time, your equipment, inventory, Debtors (amounts owed to you) and anything else of value, such as Patents.
- Liabilities – On the same date as for assets this covers amounts owing to suppliers, taxes, business loans or hire purchase and rent.
- Cash flow statement
Your cash flow statements include all the money you expect to come into the business over a given period, as well as any money out over that same period of time. Your cash flow statement needs to include:
- Sales receipts
- Cash receipts
- Credit receipts
- Accounts receivable
- Accounts payable
It’s worth emphasising here that you need to think carefully about your cash flow. Depending on the type of work you do, you might receive your cash on the same day you make the sale, or could only receive payment months later. So, take this into account when preparing your statement – it will also help you decide whether you will have enough regular income.
How do you get the data to draw up your plan?
If you’ve been in business for a while, you should hopefully have quite detailed information on your cashflow, your expenses and profits and loss. To build your finance statement, you’ll just need to take a couple of hours to go back through all your filing and put the numbers together (we make it sound so easy!).
On the other hand, if you’re launching a new business, getting the data can be a little trickier. It’s highly advisable to do some in-depth research – getting a feel for the prices charged by similar businesses, and writing down all your expected costs.
Helping small businesses with big ambitions
Projecting your business plan financials includes many of the same activities as accounting – thinking about turnover, expenses, tax, VAT and more. Of course, the difference is that in a business plan you’re looking forward at what might happen – not back at what did happen. Nevertheless, talking to an accountant with expertise in small business financing can be invaluable here, as they can provide you with a realistic view on what companies like yours really spend.
At DSL Accounting, we’ve worked with hundreds of UK businesses, and can give you direct, simple and logical advice on the best plans for your business’s financial projections. Get in touch with us today to find out how we can help you.