The business plan financial objectives involve measuring financial performance to reflect the total operational performance. The aim in managing this performance should be to maximise net profit and net cash surpluses of the operation. The two main measures, therefore, are net profit and net cash flow.
Each indicator for any given period is calculated as follows:
Total receipts (inflows) less total payments (outflows) is equal to net cash flow surplus.
Net profit is calculated as the excess of income (revenue) over expenses of the operation for a given period. Income (revenue) is the earnings of the business and expenses are it's running costs.
Net cash flow surplus is calculated as the excess of receipts (inflows) over payments for a given period. Receipts are the cash inflows of the business, payments are it's cash outflows or outgoings. See also performance metrics
Financial Plan Outline
1) Break even analysis
2) Categorise costs as fixed or variable
Variable costs change proportionally to changes in business activity. When sale levels change, these costs also change (up or down). Examples of variable costs are stock purchases, raw material purchases, and direct costs (job material purchases).
3) Calculate the contribution margin
This is the one of the key financial objectives, as without sufficient contribution margin you cannot meet your operating costs and you will be in negative net profit territory. See also performance metrics
4) Calculate the break-even point
5) Financial Forecasts sales
6) Forecast profit statements
7) Forecast capital expenditure requirements
8) Forecast cash flow
A cash flow statement shows the intended cash receipts and payments of the business over the period of the business plan, which then allows the cash flow to be calculated. A forecast cash flow statement shows the cash receipts (inflows) and payments (outflows) of the operation, which enables future cash positions to be predicted.
This is one of the key financial objectives of your business, and dictates any required level of funding over the coming trading period (budget year).
9) Financial Ratios
Ratios are compared with standard benchmarks such as industry averages for acceptability. Ratios should also be improving over time. The identification of any unacceptable ratios should cause you to review and adjust relevant sections of the operational plan to produce satisfactory forecasts and results.
For a comprehensive understanding of financial ratios see our eBook relationships that show the health of your business.
10) Financial records
11) Business insurance
12) Financial controls
Financial controls are the methods or techniques you will use to monitor and evaluate the financial results of your operation. Key financial results are 'profit', 'cash flow' and 'financial position'. See also performance metrics
Many business fail because they do not take time out to first establish these, and then to monitor them. These are your "stakes in the ground" which ultimately support the structure of your business!
See also our range of financial templates:
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