Financial plans for SMES

A financial plan is a forecast of future performance for a business, usually prepared using spread sheet software. Small businesses can benefit greatly from taking the time to do a financial plan at least annually. The plan helps a small business owner to better manage cash flow by preparing for situations that could result in cash shortages, such as seasonal fluctuations in revenues. The financial plan is normally prepared as part of an overall business planning process, during which goals are set and strategies are chosen to help the
business grow in the upcoming year.

• Developing a marketing strategy and budget- A strategy might be to advertise in local newspapers or sponsor charity events to increase customer awareness and sales. Do a cost estimate for each strategy.
• Know your financial statements-Your small business financial plan should include four standard forms. The standard financial forms include the personal financial statement, the balance sheet, the income statement and the cash flow statement. These forms provide a well-rounded financial view of your business, from your personal finances to the business finances. The forms explain how your business generates income, how it spends the income and whether it can support itself.
• Create a revenue model-Create variables such as unit sales, number of customers, and prices for your products or services. Calculate month-by-month revenue projections using the assumptions. Build formulas that allow you to change the variables by putting ―what-if scenarios‖ until the revenue forecast reflects what you believe is realistically attainable.
• Forecast on cost of raw materials and production- Use your previous cost percentage as a guide and modify it based on any changes you anticipate in the cost of materials, finished goods, or production costs.
• Forecast general and administrative expense- Project your expected facilities costs, such as rent, utilities, insurance, or recurring legal expenses. Again use prior year numbers as guide but make sure you allow for increases that typically occur. Prepare a personnel/Salary expense forecast- Include additions to personnel that will be needed to carry out the strategies you devised for the upcoming year. A strategy of improving response time to customer inquiries could require adding customer service personnel, which would raise the amount forecast.
• Forecast finances needed for business upgrades- Be sure to estimate the costs of any improvements you want to make to the business. These could include equipment purchases and facilities expansion or renovation.
• Review and finalize the financial plan. Look at the month-by-month projected results. If cash balances appear low for certain months, shift discretionary expenditures like advertising out of those months and into months where revenues are higher.