I know, I know, it’s the most intimidating part of a business plan. It’s that one part you’re afraid of. You’re not a procrastinator; you just don’t want to do it. So far, you’ve been on a roll. You’ve gotten through the executive summary, company overview, industry analysis, customer analysis, competitive analysis, marketing plan, and the management team. You’ve even outlined the operations plan, which is pretty hard to do (great job!). But now it’s time to start preparing the infamous financial statements. I know what you’re thinking; I thought the same thing when I was in your position. “It’s too complicated” or “I’ll worry about it later” or my favorite, “I don’t need a financial plan; I’m not making any money yet”, (that was the excuse that got me into trouble). Well, just like I was at the time, you couldn’t be more wrong…
Many people (especially stern parents) use the phrase “Listen up, because I’m only going to say this once” as tool to alert their audience to pay close attention to what they are about to say. I’m not that kind of guy. I want to pay close attention to what I’m about to say and I’m going to say it over and over and over again (because I really want you to comprehend it). Ready? Here it goes; a business is NOTHING without a financial plan. I repeat, a business is NOTHING (and I really mean NOTHING) without a financial plan. In fact, it doesn’t matter how great It reads, a business PLAN is also NOTHING without financial statements backing your ideas.
The financial plan is the most important part of any business, however, it’s also the hardest section of a business plan to complete. This is the thing that most sources fail to inform inexperienced entrepreneurs and small business owners. They always say “prepare a business plan” but gloss over just how hard it is to prepare the financial statements. There’s a reason for this. You see, many successful professionals don’t talk about the struggles associated with preparing financial statements because they’ve never had to prepare them. When a company is backed by investors, these investors provide the best resources for the company’s CEO and executives. Professional accountants (which are expensive to hire) prepare their financial statements. It’s not abnormal. A good investor does everything possible to ensure the growth of his investment (the company). However, the average company isn’t backed by investors, which means that the CEO (you) has to prepare the financial statements by himself/or herself.
Sense the EntrepreLoser is different from all those other entrepreneurship advice publications, I’m actually going to tell you how to prepare a financial plan for your business (this is when you shout “yay!”). However, I’m not going to do it in this article. Explaining the entire process of how to prepare the financial statements isn’t a brief job; it’s a long and tedious task, therefore, I want to dedicate an entire article towards it. If I tried to cram all that information into this article, the word count would be way over 1000 words, and I made a promise to you, my articles will be concise (you don’t like reading long, fluffy articles and I don’t either). So, in the next section, instead of telling you how to prepare a financial business plan, I’m going to explain why it’s “the most important part of a business.” If you wish the skip ahead, here is the article that explains how to prepare a financial business plan.
Ok, here’s the deal; a good financial business plan tells you something that’s really important, but that important thing could crush your dream (I know this because it crushed mine). A good financial business plan tells you whether your business will be profitable or not; it tells you whether your business is setup for success or failure; it tells you whether your business model is solid or …squishy (soft). Without preparing one, you’ll never know if your company will ever be self-sufficient, profitable, and most importantly, valuable to the public. Preparing a financial business plan forces you to answer the hard questions: “Is what I’m selling valuable?”, “Who would buy what I’m selling?”, “How much does it cost to produce what I’m selling?”, “How much should I charge for what I’m selling?”, “How much are customers willing to pay for what I’m selling?”, and more questions like these. Preparing a financial business plan pushes you to evaluate your customer base and create buyer personas. Do you know how your buyer looks? What their characteristics are? How much money they have to spend? If not, then you need to find out. Preparing a financial business plan also guarantees that you’re taking ALL expenses into consideration, especially marketing expenses. Many companies overlook how much it cost to promote their products (one reason is because they fail to create detailed marketing strategies, but that’s another subject). I know it’s a long, tedious, and frustrating task, but it’s necessary. Why? Because a business is NOTHING without a financial plan. Trust me, don’t put off preparing one any longer. You may think you don’t need one, but you do. It’s essential. I thought I didn’t need one, and look what happened to my business…it failed. Preparing a financial business plan ensures that your business has a bright future, or any future for that matter.
P.S, thanks for finishing the article. As I promised, here’s the link for the article that teaches you how to prepare a financial business plan.
Mike, creator of EntrepreLoser