The Ultimate Guide to Creating a Solid Business Plan
February 23, 2024
10:30am
April is the beginning of the new financial year. Businesses close their financials on March 31st and see where they stand. Have they achieved their targets? What went well? What can be improved on?
While it is easy to see how and what went wrong based on the actual numbers, the real challenge is setting the targets for the next year. How do you determine your numbers and lay out your plan for the next year? What if you are a new business? How do you set your financial roadmap without any basis or previous results?
As April 1st comes around, businesses close their financials and see how they performed in March.
Did they achieve their target numbers? Were they as profitable as they could be? Did they get the cash flow they needed? If you’re a business owner or investor, this is the time of year to evaluate your business’s performance against your strategy for the coming year.
Setting financial targets for your business is one of the most challenging tasks you will have to do. It can also be one of the most crucial ones as setting unrealistic targets will only lead to disappointment and frustration. A lot of people are confused about how to start setting these targets and where to start. They just want to know what they should focus on.
Why do you need a business plan?
A business plan is like a roadmap to your business. It answers the question “Where do you want to take the business in the next 1 year? 5 years? 10 years?” With that being said, the goal needs to be SMART (we’ll talk about that, too).
Imagine being on a rowboat with a person.
While you are rowing in one flow, the other person is rowing in the opposite direction. You’re not going to get anywhere, right?
Your business plan gives a sense of direction to your team and helps align all the activities and tasks to achieve that goal.
How to get started with your business’s financial plan?
Long-term Goals: Your business goals for the next 3-5 years. Where do you want to take your business? Short Term Goals: Your business goals for the next 1 year? Baseline end of FY23: A baseline or starting point that tells you where the business stands currently. Sales and Revenue Projection:Your business’s targeted/ estimated revenue Budget and cashflow: How much do you want to spend on each function within the business? Operation Plan: A breakdown of all the activities your business performs/ needs to improve in a detailed, structured manner.
What should you include in your financial plan?
Financial budget – A detailed list of all the financial activities that your business will focus on in the coming year. Here are some aspects you need to consider: Detailed Revenue, Profitability, Cost, Bad debts, Financial Risk, Stress testing, Volume of business, Orders/pipeline. Cash flow budget – Understanding the cash flow your business runs through over the course of a specific time. This is an estimation of the cash inflow and outflow expected within your business. Investment budget – This focuses on the assets, and investments your business will be making in the long run for future growth and returns. This includes investments such as upcoming projects, expansion of business, purchase of equipment or investment in technological innovations. Identify the growth areas for your business and where you get the maximum output from. Operating budget – Create a detailed estimate of the company’s expected revenue and expenses. The operating budget will include: Operational budget, KPIs metrics, Operational Risk, SOP management.
How to set your financial goal for your business plan?
The key to financial goal setting (or any goal setting, as a matter of fact) works best when worked backwards. What is your goal? How are you going to achieve these goals? What are the action items? A great way to start goal setting is by ensuring that it’s a SMART Goal. Specific Measurable Achievable Relevant Time Bound
Breaking down the goals
Analyse your business model. This includes things like industry, where is the revenue coming from, and when it is coming. Set your revenue projections for the next financial year. Identify how the revenue gets generated throughout the year, by breaking it down quarter-wise.
Quarterly goals
Consistent Q-on-Q:
Your business model generates equal revenue throughout the year. So, it needs to meet 25% of its revenue each quarter. For example, if your goal is to generate a revenue of Rs. 1 crore, your quarterly revenue target will be equally split across each quarter. Thus, each month’s target revenue would be Rs. 25 Lakhs.
Seasonal:
This means your business generates the most revenue during a certain time of the year. This could be due to the nature of your business based on different social, economic and environmental factors. In this case, you need to break down your goals quarter-wise, and see which quarter generates the most revenue. You need to ensure that your work is done and that you are ready to face the sales-heavy quarter by aligning your products and processes to meet the demand.
Differing across quarters:
Many businesses split their revenue targets by chasing the target in one particular quarter. For example, Q1, Q2, and Q3 = 20% revenue target, each quarter. Q4 = 40% revenue target to be chased.
To achieve this target, you have to align your Debt and Equity throughout the period for a seamless achievement
Monthly goals
Whatever your business model or revenue flow is based on your quarterly revenue, you just need to ensure on a monthly basis that your tasks are aligned with and meet your goals. Preparing an effective plan is a crucial step towards ensuring the longevity and profitability of your business. It will help you put things in perspective and set realistic goals for your business to work towards. A business plan should always be dynamic and subject to change based on changing circumstances and emerging opportunities. But at its core, it should contain all the key components of a well-planned, successful business and will help you minimize risk by laying out an action plan to achieve success in your industry.