If you are seeking business financing, the Financial Plan / Financial Pro Forma helps convince the lender(s) that your business will be successful, profitable and capable of repaying the money. Accurate budgeting can make or break a business.
Many think, “I don’t know what my sales will be so I can’t have a Financial Plan”. The challenge for any startup or entrepreneur is how to create financial projections when your business is not actually up and running or the future is unknown. SEG Funding can gather information about similar businesses and we will actually have a lot of data to work with to create a Financial Plan for you.
Business Owners need a Financial Plan to Start, Expand and/or Grow their operations. There are diverse variations of a Financial Plan whether you’re starting a company, doing a Valuation of a business idea, figuring out how a Capital Raise can increase revenue & expenses, Merging a company, needing ongoing Financial Support or doing Financial Planning & Analysis for future business venture.
A Financial Plan will help you look in-depth to Income and Expenses for a short period of time and/or multiple years down the road. Short and long term pictures are critical in knowing what Business Loans and Capital needs are required, and at what stages of your growth. Most companies fail for ‘lack of capital’. Therefore there needs to be a plan in place of when, where and how much money to implement. A Financial Plan can also help knowing how large or thin of margins your company will have after all expenses are paid.
Some entrepreneur’s don’t think they need a Financial Plan and can just “fly by the seat of their pants”. This is a Big Mistake. This plan enables you to budget, plan and prepare for the next step in your company. Additionally it gets goals and benchmarks in place for you to hit and measure your success in.
Basic understandings of a Financial Plan include:
- A sales forecast. Projects sales out for at 1-3 years, including monthly sales for the first year, then quarterly for the following years. This will be narrowed down by answering questions like: How many customers can you expect? How many units will be sold? What is the cost of goods sold? How will you price your products?
- An expense budget. Included both fixed costs, such as rent/lease payments, and variable costs like advertising expenses. You don’t need to do an incredibly detailed breakdown, such as listing the cost of every piece of equipment you plan to purchase, but you do need general figures.
- Net Figures. After all the income and expenses have gone through a company, the Net Figures show you what money is left over in the company.
Banks and Lenders know that your financial projections aren’t set in stone, but you do need to make sure they are realistic, and attainable. Financing sources know that entrepreneurs tend to be optimistic about venture, so and they will look at your figures with an analytical eye. Your financial projections must be positive enough to get lenders comfortable about your business, but not so exuberant that they think you’re clueless to your own business.
Discerning between the types of financing you’re seeking with your financial projections is critical. Contact SEG Financing as your Financial Projections Expert today.