According to the results of the Small Business Index for the last quarter of 2023, one out of ten small business owners defined the health of their business as somewhat poor, and this has most to do with not having stable finances and healthy cash flow.
The best way to solve this is with thorough financial planning that can help you forecast your revenue and overcome challenges associated with unstable finances.
If you don't know where to start, we've got you covered. We've created a guide for small business financial planning that everyone can follow, even though you may not be a financial expert.
Financial planning for small businesses and startups is a comprehensive process of projecting future scenarios and optimizing your finances accordingly, and as such, it is the basis of small business financial management.
It provides you with a transparent insight into the current financial state of the company and helps you manage your budget and make informed decisions that will ensure long-term sustainability and growth.
Small business or startup financial planning typically includes a business description, financial statements, risk analysis, Key Performance Indicators (KPIs) and ratios.
But financial planning isn't something you do once and never again. In fact, it's an ever-changing process due to the constant internal and market shifts. The good thing is that there are plenty of financial management solutions that can help you automate a huge part of the process.
Here's how to create a strategic financial plan for your small business in only five steps.
Creating a financial plan starts with assessing where you currently are. Monitoring your KPIs is the only way to see if you're actually making progress and your strategy works.
Choosing the right data to track depends on various factors, such as your business model, startup financial model, revenue streams etc.
Here are some important data to consider:
The good news is that you don't have to be an expert to choose the metrics to focus on. Fuelfinance acts as your personal financial advisor, and our comprehensive dashboard will recommend the most important metrics you should focus on based on your business model.
If you're in SaaS, you may want to check out our list of 15 key SaaS metrics & KPIs (formulas included!).
If you want to implement an effective financial planning process, you need to start gathering data from day one! The next step is generating financial statements.
Here are three essential small business financial statements that are automatically generated by our software:
As a small business owner or startup founder, it's essential to think long-term and prepare both for best-case and worst-case scenarios.
Financial forecasting for startups isn't easy, and that's where Fuelfinance steps in. Our financial modeling software can generate two forecast versions based on historical data and your future goals:
Fuelfinance helps you create a solid financial plan by updating these projections monthly, incorporating the latest data and insights.
Do per-project plan-actual analysis
Financial plans aren't flawless, and mistakes can occur. Therefore, you shouldn’t skip Plan/Actual analysis because it acts like an error detector, helping you correct certain mistakes.
New business owners often can't be fully realistic while making financial plans, and overestimated expectations might slip through. However, Plan/Actual analysis helps you be honest with yourself and keeps you on the ground. It shows you the real cause-and-effect scenario of your previous actions.
At Fuelfinance, we do the Plan/Actual analysis regularly, with the following frequency:
You can also use Plan/Actual at executive and one-on-one meetings. During an executive meeting, you can make use of Fuelfinance's dashboard with all the relevant metrics.
On the other hand, at one-on-one meetings, you can start from the results and create a pro-discussion environment where you can talk about progress, blockers, issues and new ideas.
Read this article for a more in-depth guide on how to do financial analysis.
In business, circumstances change constantly, so you should regularly revise your financial plan – we do it every month. The good thing is that you can automate this process with good financial reporting software.
As you collect fresh data and deepen your understanding of your finances, your predictions will become more accurate.
At Fuelfinance, we start our planning journey with revenue as our key metric. From there, we move to expenses, EBITDA and finally net income and burn rate.
However, if we're not satisfied with the main metric or net income (and burn rate) in the financial plan, we do it all over again and make certain changes. You can consider this as experimenting with different scenarios.
Of course, the right FP&A system will depend on the stage of your business. We have helped create hundreds of complex financial models with many variables for large companies and enterprises, but as a seed-stage startup, we use a super simple financial plan that fits a single Google Sheet.
As your business evolves, so does your plan. Therefore, you'll have to make a lot of changes and manually input them, which is not only time-consuming but also creates room for mistakes.
That’s why I advise using financial planning software tools to automate as much as possible.
Most business owners start with QuickBooks and its alternatives, but as their finances scale, they start needing a tool with more advanced automation and projecting features.
At Fuelfinance, we help you automate your finances as much as possible. This means you don't have to do a lot of boring and repetitive work, such as data collection or number crunching.
Instead, you can focus on the more exciting and important things, such as setting new goals and growing your business.
Moreover, you’ll have unlimited support and guidance from our financial experts, who act as your outsourced CFO and advisors and can provide custom answers for you.
When done right, a business plan is like a roadmap for startups and small businesses, helping them hit their short-term and long-term financial goals.
Some benefits of business financial planning are:
Besides resource allocation, risk management and realistic goal setting, business financial planning offers numerous other benefits. They include better cash flow management, investor confidence, adaptability to the market, trends and customer preferences and long-term success.
Many startup founders and business owners put their financial planning on the back burner, not realizing that it’s one of the activities with the highest ROI.
We hope this article helped you realize that it doesn’t have to be as complex as it seems. With the right financial automation software, everyone can create their own plans and stick to them, even though you might not be a financial expert.
If you opt for Fuelfinance, you’ll get support from our team, who will act as your fractional CFO and guide you through the process. That’s what makes us stand out from other similar software solutions on the market.
Book a free demo and see how you can thrive in financial planning with our help and support.
Start by outlining clear financial goals, creating financial statements and a detailed budget and projecting revenue and expenses.
The most important components are cash flow projections, financial statements, risk management, target and baseline scenarios, tax planning and KPIs to track.
