Business And Financial Planning

Financial Planning for business owners is often two-sided: personal financial planning and planning for the business.Business owners have access to a lot of financial tools that employees don’t have access to; this is a great advantage, however it can be overwhelming too. A financial plan looks at where you are today and where you want to go.When you’re putting a business plan together, the financial plan can feel like the most intimidating part.

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Without a thorough understanding of how much cash you have, where your cash is coming from, where it’s going, and on what schedule, you’re going to have a hard time running a healthy business.

And without the cash flow statement, which lays that information out neatly for lenders and investors, you’re not going to be able to raise funds.

At the end of the accounting year, your total profit or loss adds to or subtracts from your retained earnings (a component of your equity).

That makes your retained earnings your business’s cumulative profit and loss since the business’s inception.

No business plan is complete without a cash flow plan.

It is possible to be extremely profitable and still not have enough cash to pay your expenses and keep your business afloat, and it is also possible to be unprofitable but still have enough cash on hand to keep the doors open for several months and buy yourself time to turn things around—that’s why this financial statement is so important to understand.A profit and loss statement is essentially an explanation of how your business made a profit (or incurred a loss) over a certain period of time.It’s a table that lists all of your revenue streams and all of your expenses—typically for a three-month period—and lists at the very bottom the total amount of net profit or loss.They’re the fixed expenses that don’t fluctuate depending on the strength or weakness of your revenue in a given month—think rent, utilities, and insurance.Depending on how you classify some of your expenses, your operating income will typically be equivalent to your “earnings before interest, taxes, depreciation, and amortization” (EBITDA)—basically, how much money you made in profit before you take your accounting and tax obligations into consideration.This is a financial statement that goes by a few different names—profit and loss statement, income statement, pro forma income statement, P&L (short for “profit and loss”)—but no matter what you call it, it’s an essential report and very important to understand.You’ll also list your operating expenses, which are the expenses associated with running your business that aren’t incurred directly by making a sale.I think that the accrual method of accounting gives you the best sense of how your business operates, and that you should consider switching to it if you aren’t using it already.Here’s why: Let’s say you operate a summer camp business.Financial Planning is the process of estimating the capital required and determining it’s competition.It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.


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