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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

• 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!

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Financial Plan in Business Plan: Essential Steps for Success

Executive summary of a financial plan

Revenue streams and sales forecasts, expense breakdown and management, cash flow analysis, capital and funding requirements, budget allocation and financial controls, financial statements overview, profitability and net worth, market analysis and forecasting, liabilities and risk management, financial planning and performance metrics, exit strategy and long-term financial planning.

Creating a financial plan in a business plan is a crucial step that can determine the success or failure of your venture. Whether you’re looking to attract investors, secure loans, or simply ensure long-term growth, a well-crafted financial plan provides the roadmap. It not only showcases your current financial health but also forecasts the potential profitability of your business. This article will summarize the key components and steps to help you craft a comprehensive financial plan aligning with your overall business goals.

Understanding how to incorporate a financial plan into your business strategy can set you apart. By learning the essentials, you’ll be better equipped to manage cash flow, estimate profits, and navigate financial challenges.

What is a financial plan in business planning?

What are the elements of a financial plan?

How to write a financial plan in a business plan?

What should be included in a financial plan?

What is the financial part of the business plan?

How do I write a financial plan?

How to write a financial summary for a business plan?

What’s the difference between a business plan and a financial plan?

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What is a financial plan in a business plan?

A financial plan is a key part of a business plan . It shows the money side of a business idea. This plan helps owners and investors see if the business can make money.

A financial plan has several important parts. It starts with a sales forecast that predicts how much money the business will make.

Next, it lists all the costs of running the business. This includes things like rent, supplies, and worker pay.

The plan also shows cash flow. This tells when money comes in and goes out of the business. It helps make sure there’s always enough cash to pay bills.

Profit and loss statements are another big piece. They show if the business is making or losing money over time.

The balance sheet lists what the business owns and owes.

Lastly, the plan may include goals for sales growth or profit. It might also have ways to reach these goals. All these parts work together to paint a clear money picture of the business.

Elements of a financial plan in a business plan

The elements of a financial plan in a business plan are essential to understanding your company’s financial health and future potential. They provide a detailed picture of revenue generation, cost management, and profitability.

A financial plan needs clear revenue projections. Sales forecasts help predict future income. This section examines how to make these forecasts and what numbers to include.

Sales forecasting methodology

Sales forecasts use past data and market trends. Start by looking at your sales history. Check for patterns in monthly or yearly sales. Then, factor in things that might change sales. This could be new products, more marketing, or changes in the market.

Use a simple model to start. Take last year’s sales and add expected growth.

As you get more data, you can make your model more complex. Some businesses forecast by product line. Others look at sales channels or customer types.

Remember to account for seasonal changes. Many businesses have busy and slow periods. Your forecast should reflect these ups and downs.

Projected sales numbers

Your sales projections should cover at least the next 12 months. Break this down by month. For years 2 and 3, you can use yearly totals.

Be realistic in your numbers. Aiming low and exceeding your goals is better than aiming too high.

Include unit sales and prices in your forecast. This helps you see if growth comes from selling more or raising prices. If you have multiple products, show sales for each one.

Here’s a simple example of a sales forecast table:

This table shows sales growth for two products over time. It’s a clear way to present your projected income.

A good expense breakdown helps businesses track and control costs. It shows where money goes and helps find ways to save.

Fixed and variable costs

Fixed costs stay the same each month. These include rent, insurance, and salaries.

Variable costs change based on sales or production. Examples are raw materials and shipping fees.

To manage fixed costs:

• Look for cheaper office space
• Negotiate better deals with suppliers
• Cut unneeded services

For variable costs:

• Buy in bulk for discounts
• Find more efficient ways to make products
• Use cheaper shipping methods when possible

Tracking both types of costs helps businesses plan better and save money.

Operational expenses analysis

This looks at the day-to-day costs of running a business. It includes things like:

• Office supplies
• Employee travel

To analyze these expenses:

• List all costs
• Group them by type
• Look at trends over time
• Compare to industry standards

This helps find areas to cut costs. For example, a business might see high utility bills and decide to use energy-saving light bulbs.

Regular expense reviews can lead to big savings. Even minor cuts in daily costs add up over time.

Cash flow analysis helps businesses track money coming in and going out. It shows if a company can pay its bills and invest in growth. This analysis uses cash flow statements and looks at investing and financing activities.

Cash flow statements

A cash flow statement shows how cash moves through a business. It has three parts: operations, investing, and financing.

The operations section shows money from sales and day-to-day activities. This part is key for seeing if the business makes enough to cover costs.

Cash flow statements also show changes in assets and debts. They help spot cash shortages before they happen.

Managers use these statements to plan for slow periods and growth.

Investing and financing activities

Investing activities involve buying or selling long-term assets. This includes things like equipment or property.

Financing activities show how a business raises and repays money.

Examples of financing activities are:

• Taking out loans
• Selling stock
• Paying dividends

These activities affect cash flow but aren’t part of regular operations. They’re important for growth and expansion. Businesses must balance investing in the future with having cash for daily needs.

Money is key for new businesses. You need to figure out how much cash you need and where to get it. This helps you start strong and grow.

Estimates for seed capital

Seed capital is the money to get your business going. You need to add up all your costs. Think about things like:

• Permits and licenses

Make a list of everything you’ll need to buy. Get price quotes when you can. Add some extra for surprise costs. This gives you a good guess at your total seed money needs.

Having enough cash for at least 6 months of expenses is smart. This helps if sales are slow at first.

Investor funding strategy

Once you know how much money you need, plan how to get it. You have a few choices:

• Use your own savings
• Ask family and friends
• Look for angel investors
• Try crowdfunding
• Apply for a business loan

Most new businesses use a mix of these. Your choice depends on how much cash you need and how fast your business might grow.

Make a strong pitch to investors. Show them why your business idea is great. Tell them how you’ll use their money and when they might see returns.

Be ready to give up some control of your business if you take investor money. Decide how much of your company you’re willing to sell.

A business plan needs a strong budget and financial controls. These help a company use its money wisely. Good budgets split cash between different parts of the business.

Budget allocation means giving money to each department. This is based on what the company wants to do. Some areas may get more money than others.

Here’s a simple example of how a small business might split its budget:

Financial controls are rules that keep spending in check. They make sure money is used as planned. This can include:

• Approval steps for big purchases
• Regular budget reviews
• Tracking of all income and spending

These controls help catch problems early. They also show where a company might save money.

Good budget allocation and controls lead to smart financial decisions. They help a business use its resources well. This can give the company an edge over others in its field.

Regular budget checks are key. They let a business change its plans if needed. This keeps the company on track to meet its goals.

Financial statements show a company’s money situation. They help business owners and investors see how well a company is doing. These statements include income, balance sheet, and profit and loss information.

Income statement details

The income statement shows how much money a company makes and spends. It lists sales, costs, and profits over a set time. This could be a month, quarter, or year.

The income statement starts with total sales. Then, it takes away costs like supplies and employee pay. What’s left is the profit.

Sales numbers come from what the company thinks it will sell. Expense numbers come from expected costs.

The difference between sales and expenses is gross profit. Take away other costs like taxes to get net profit. This final number tells if the company made or lost money.

Balance sheet insights

A balance sheet shows what a company owns and owes at a certain time. It has three main parts: assets, liabilities, and equity.

The company owns assets like cash, equipment, and buildings. Liabilities are what the company owes, like loans or bills. Equity is the money left over for owners if all debts are paid.

The balance sheet must always balance. This means assets must equal liabilities plus equity. If they don’t, there’s a mistake somewhere.

A strong balance sheet shows more assets than liabilities. This means the company can pay its bills and has room to grow.

Profit and loss statement analysis

The profit and loss statement (P&L) is like the income statement. It shows if a company made money over time.

The P&L starts with sales and takes away all costs. What’s left is the profit or loss.

This statement helps owners see where money comes from and where it goes.

The P&L can show trends over time. For example, it might show that sales go up in summer. Or it might show that some costs are too high.

A business financial plan shows how much money a company expects to make and keep. It also looks at the total value of the business.

Gross margin and net income projections

Gross margin is the money left after paying for materials and labor. It’s found by subtracting the cost of goods sold from total sales. A higher gross margin means the business is more profitable.

Net income is the profit after all expenses are paid. To project net income:

• Estimate sales for each month or quarter
• Subtract all costs and expenses
• Account for taxes

These numbers help owners see if the business will make money. They also show when cash might be tight.

Shareholder equity calculation

Shareholder equity is the company’s net worth. It’s what’s left after subtracting debts from assets. To calculate it:

• Add up all assets (cash, inventory, equipment)
• Subtract all liabilities (loans, bills to pay)

The result is shareholder equity. A growing net worth over time is a good sign. It means the business is becoming more valuable.

Investors look at this number to see how much their company share is worth. A strong net worth can help attract new investors or get loans.

Market analysis and forecasting help businesses understand their industry and plan for the future. These tools give key insights into competitors, trends, and financial projections.

Competitive market research

Businesses need to know who they’re up against. Market research looks at other companies selling similar products or services. This research covers things like:

• Competitor prices
• Product features
• Marketing strategies
• Market share

Understanding the competition helps a business find ways to stand out. It also shows gaps in the market that a company could fill.

Market research uses surveys, focus groups, and data analysis. These methods give a clear picture of what customers want and how much they’ll pay.

Trends affecting financial projections

Economic shifts and industry changes impact a company’s financial future. Some key trends to watch are:

• New technologies
• Consumer behavior changes
• Government regulations
• Economic growth or recession

These trends shape financial forecasts. For example, a new law might increase costs. Or a tech breakthrough could boost sales.

Financial forecasting uses past data and future predictions. It creates estimates for:

• Sales revenue

Good forecasts help with budgeting and planning. They also show potential investors what to expect.

A financial plan needs to address both liabilities and risks. Liabilities are what a business owes to others. Common liabilities include:

• Credit card balances
• Accounts payable

Tracking liabilities helps businesses understand their true financial position. It’s important to list all debts and when they’re due.

Risk management aims to protect a business from financial losses. Some key risks are:

• Economic downturns
• Property damage
• Data breaches

To manage risks, businesses can:

• Get insurance
• Create emergency funds
• Diversify income streams
• Have backup suppliers

A good risk management plan looks at what could go wrong and how to respond. It helps keep a business stable when facing challenges.

Businesses should review their liabilities and risks regularly. This allows them to spot issues early and make changes as needed. With careful planning, companies can reduce their financial risks and build a stronger future.

Financial planning and performance metrics are key tools for businesses to track their financial health and progress. They provide valuable insights into a company’s efficiency, profitability, and overall financial position.

Key financial ratios

Financial ratios help analyze different aspects of a business’s finances. The debt-to-equity ratio shows how much a company relies on debt versus equity funding. A lower ratio is often seen as better. The current ratio measures a firm’s ability to pay short-term debts. A ratio above 1 is good.

Profit margin is the percentage of sales that turn into profit. A higher margin means more efficient operations. Return on assets (ROA) shows how well a company uses its assets to generate profit. A higher ROA is better.

The inventory turnover ratio reveals how quickly a business sells its inventory. A higher ratio may indicate strong sales or good inventory management.

Performance benchmarking

Benchmarking compares a company’s performance to industry standards or competitors. It helps identify areas for improvement and set realistic goals.

The revenue growth rate is a key benchmark. It shows how fast a company expands compared to others in its industry. Gross profit margin compares a firm’s pricing and production costs to peers.

Market share is another important metric. It reveals a company’s position relative to competitors. Customer acquisition cost and retention rate are vital for assessing marketing effectiveness and customer satisfaction.

Employee productivity metrics, such as revenue per employee, can highlight operational efficiency compared to industry norms.

A business exit strategy is a plan for selling or leaving a company. It helps owners prepare for the future.

Exit plans are part of long-term financial planning.

There are several types of exit strategies:

• Selling to a buyer
• Passing the business to family
• Going public with an IPO
• Merging with another company
• Closing the business

Owners should think about their goals when choosing an exit strategy. Some may want to keep the business in the family. Others might prefer to sell for the highest price.

Exit planning takes time. Experts say to start 3-5 years before leaving.

This gives time to boost the company’s value. It also allows for finding the right buyers or successors.

A good exit plan includes:

• Business valuation
• Financial records
• List of assets
• Growth plans
• Potential buyers

Long-term financial planning helps with exit strategies. It involves setting goals and making plans to reach them.

This might include saving money, investing, or growing the business.

Regular financial check-ups are important. They help track progress toward exit goals.

Owners should review their plans yearly and adjust as needed.

A solid financial plan in your business plan is not just about crunching numbers— it’s about creating a clear path toward growth and stability.

Every component plays a role in guiding your business toward profitability, from financial statements to cash flow projections. Whether seeking funding or simply aiming to understand your finances better, a well-thought-out financial plan is indispensable.

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