Creating a winning business financial strategic plan is essential for any entrepreneur looking to secure funding and drive their venture toward success. But what’s the best way to create such a strategy? Below, we provide a detailed guide on crafting a robust financial strategic plan that aligns with both short-term needs and long-term business goals. It covers the importance of understanding finances, including assessing your cash flow, expenses, and funding requirements. We also tell you how to present these findings to potential investors or lenders in a way that is both compelling and transparent, ensuring they see the value and potential of your business.
Next, we’ll dive into the nuances of choosing the right financing options, from traditional bank loans to Rollovers for Business Startups (ROBS). You need a tailored approach that suits your business model and growth stage, including when and how to approach different funding sources.
A business strategy for finance can also help you maintain good financial health in your business through strategic budgeting and cash management. So, let’s get started with…
Creating a Business Financing Strategy
Whether you’re approaching lenders such as banks or potential equity investors to buy a stake in your business, you need to engage in financial strategy planning for your business. No lender or potential investor will decide without a financial plan that lays out both your short- and long-term business goals and the strategy for attaining them.
The financial plan needs to answer three crucial questions for funders:
- What does the business sell? (products or services)
- What are your goals? (Why are you in the market for funding?)
- What does the business spend to achieve its goals? (expenses and budget)
Elements of a Financial Plan
A financial plan is divided into two basic parts: an overview of your business and an overview of your financial results and forecasts.
Business Overview
The business overview includes a mission statement and history of the company, a description of your products or services, and your target market. The business plan should also include an analysis of your competition, the size of the market (or differentiation within it), and an industry or sector review. It should cover your marketing strategies and key performance indicators (KPIs). If you have a management structure, it should also include an overview of the organization, with biographical information on key executives.
The business overview is where you discuss both your short- and long-term goals and the need for funding to meet them. Do you need to purchase cutting-edge equipment to stay ahead of the competition? Do you plan to expand into new markets? Have you identified needs for product expansion? Do you want to open new supply chain possibilities? Can you manage future costs more effectively with a real estate purchase?
A strong business overview will also identify potential risks and contingency plans for meeting them. How can the business respond, for example, to steep increases in the prices of basic materials? What if a new product introduction is less successful than you assume? Potential funders are vitally interested in the survival and flourishing of your business, so you need to show a plan for any potential and foreseeable roadblocks.
Overview of Financial Results and Forecasts
A financial plan needs to include an income statement, balance sheet, and cash flow statement, at a minimum. Many include breakeven analysis, KPIs, and business ratios, such as net profit margin and return on equity. Most potential funders like to see three to five years of financial history and a three-year forecast to show financial goals for business growth.
All statements cover a specific period of time, such as a month, quarter, or year, for clarity and ease of comparison between periods.
The income statement shows your small business’s net profit or loss by itemizing sales, revenue streams, cost of goods sold (COGS), and operating expenses.
The balance sheet shows your total assets (including cash, investments, and any real property) and total liabilities (debts). It also shows shareowner equity, which is the arrived at by subtracting the liabilities from the assets.
The cash flow statement shows the cash and cash equivalents coming into your company and going out of it. A comprehensive cash flow statement includes operating activities, investing activities, and financing activities. Cash flow statements show how much cash you have to fund your operating and other activities and reveal your company’s cash management practices.
While potential funders will pay close attention to your financial plan, they will particularly scrutinize the financial reports and projections to make informed decisions. Lenders will look closely at your ability to pay back any loans; equity investors will look closely at your ability to maintain and grow the business for an increase in the amount of equity.
Want to get started on creating your own balance sheet? Here’s how to create a balance sheet in 5 steps – along with a FREE template to get started.
A Note About Preparation
Financial plans need to be written clearly and concisely. Remember your audience and write toward their needs – which is to make a decision on whether your business is a good funding risk and will repay them.
It’s a very good idea to begin with an executive summary, a one- or two-page precis of the information covered in more detail in the plan. Financial statements should be itemized clearly. Charts and graphs can help your audience see progress through time at a glance.
How To Choose the Right Financing Options
Financing options must be tailored to your needs, abilities, goals, and company stage. Business financing can occur through lenders, equity investors or your own resources, either alone or in combination.
Lenders
The chief advantage of working with lenders such as banks or credit unions to obtain business loans is that you can obtain money for a wide array of business goals. Lenders can also provide financial planning advice and mentorship for your business.
The chief disadvantage of lenders is the monthly debt payment to repay the loan. The cash flow required to repay business funding through a loan sap cash that you may need for operations or other functions, especially if you’re in the startup stage or a small business.
Some business owners may also find it difficult to be approved for a loan if they can’t meet a lender’s requirements. Most, for example, require a specific credit rating. Many require a down payment of up to 20 percent of the loan and collateral as a pledge against the potential risk of the loan. Collateral requirements can require that you use your assets, such as a house or car. If you’ve had credit challenges in the past or don’t have the cash or collateral for a loan, other options may be a better choice.
Investors
Potential investors also supply money to use toward your business goals. But rather than a loan, investors purchase a stake in the company.
Equity investing can be a good idea if you want other owners as potential partners or mentors or envision taking your company public. Some types of equity investors take stakes in particular industries or stages or a company, with the goal of growing the company, which can be optimal for you.
On the other hand, though, small business owners need to realize that an equity stake gives outside investors control commensurate with their stake. That means your own control is correspondingly less. That might be fine with you. But if control and direction is highly important to you, or future potential disagreements are a concern, other options might be a better choice.
Your Own Resources
Many small business owners have been very successful using their own resources or combining them with loans or equity investing.
One option is to use your retirement funds through a method called Rollovers for Business Startups (ROBS). Many business owners have considerable amounts in their retirement funds, but know that withdrawals before the age of 59½ are subject to tax and penalties from the Internal Revenue Service (IRS).
The ROBS method, though, can avoid the tax penalties. It also is required to provide a retirement plan for all employees.
ROBS can be complicated and it’s important to work with an advisor. But the advantages are funding a business without debt service, lender requirements or giving up control to outside investors. You end up cash-rich and independent.
Financing Strategy as a Road to Business Financial Health
While it can be daunting to prepare a financing plan, it can also help your business remain financially healthy and robust. How? Because the income statement, balance sheet and cash flow statements, as well as other financial information, provide a built-in financial roadmap for how your business is operating. Use strategic budgeting and cash management practices, managing effectively to foster growth and stability.
Once you have the statements, continue to monitor and update all the aspects of your financial plan frequently. If your business meets its projections, you know you’re in good shape. Continue to develop and monitor projections.
If it doesn’t, you can quickly assess why not and make a plan to rectify it. Can you increase prices? Cut expenses? Trim your workforce? You have the information to assess your options and exercise optimal decision making.
How Guidant Financial Can Help Create a Winning Financial Strategy
Discover the power of perfect funding with Guidant Financial. As specialists in small business financing, we’re not just experts in ROBS (Rollover for Business Start-ups); we’re your guides through every twist and turn of the financing journey. Whether you’re looking for advice on securing loans with favorable terms from U.S. Small Business Administration lenders, or you need a mentor to support you through each stage of your business growth, we’re here for you. Reach out to us today and take a giant step toward achieving your business goals.
Call us today at 425-289-3200 for a free, no-pressure business consultation to get started — or pre-qualify in minutes for business financing now!
“If you’re committed to it and you have a vision, then Guidant is the way to make it come to life.”
— Marc Warner, Bovine Burgers
Read the stories of REAL small business owners who work with Guidant.
