We’ve saved the least fun section of your business plan for last: the Finances! I’m not a numbers person by any stretch of the imagination — when it comes to running a business, I’d much rather wear the creative hat. But understanding the finances of your business (even if it’s brand spanking new and not yet turning a profit) is vital. Taking the time to lay out your current financial situation and then forecasting when you’re likely to start turning a profit from your business makes sure that you have a clear picture of where you’re going. Let’s get real — at the end of the day, it doesn’t matter how brilliant your offerings are if they fail to bring in enough revenue to keep the lights on!
For this section, we’re focusing on the next three years of your business. It’s enough time to set some solid financial goals but not so far away that it feels completely unrealistic.
The Finances section of your business plan should be split into two sections:
• The first focuses on your current situation — the daily costs to keep your business running.
• The second focuses on the future — forecasting how much you plan on making in sales while also taking your profits and losses into account.
Map Out Your Finances
• For your first section, include all of your expenses, broken down over the next three years. Rent, internet, electricity, water, office supplies, server space, your entertainment budget (including lunch dates, rounds of beers, the weekly donut run and so on), accounting fees, advertising, cleaning and garbage service, salaries and anything else you can think of all need to be accounted for.
• For the second section, list the projected income you’re aiming for over the next three years. To do this, you’re going to have to break down your revenue streams. Think about all the ways you’re planning on bringing in an income. It’s important to track your revenue streams because chances are that they will shift quite a bit over time and you never want to get caught with all of your eggs in one basket if something goes terribly wrong.
When it comes to Branch, our primary source of income this year has been through offering design-related services but within a year, this will begin to shift as we introduce a steady mix of digital products. My Branch projections are aimed at making at least half of our revenue through digital products within the next three years since scaling up with one-on-one service-based offerings becomes increasingly more difficult as we continue to grow and limits the amount of people we can serve.
• Finally, do you foresee needing any investors? If you do, you need to think about what you’ll offer them for their contribution to your business. In what percentage of your business will they become shareholders? How much decision-making power will they have? Obviously, before you make any of these commitments officially, consult a lawyer!
Finances can be tricky territory but the objective is to set goals that inspire you to stretch. At the same time, keep projections realistic enough so that you can live up to them and not disappoint everyone including yourself!
This section is meant to guide you as you make those big decisions that come with growth. When you find that perfect studio space and your knees buckle, step back and look at your profit and loss projections. Will you actually be able to afford it not just next month but a year from now? When you’re planning out new services, will the pricing make a significant enough dent in your sales forecasts to be worth the time and effort? As much as the creative sides of our businesses make our hearts sing, the finances are what make sure that we’ll be able to continue creating into the foreseeable future.
When you’re dreaming big and those lofty ideas hit you like a ton of bricks, your business plan will guide you and help you decide if your new idea is a good fit for your customers and your finances. It will keep you on track when you hit those unavoidable rough spots. And when you’re feeling disillusioned or lost (because we all have those days), your business plan will remind you of your goals and where you’re heading. A business plan doesn’t need to be perfectly polished and double-spaced. It’s your roadmap for your small business and as long as it keeps you inspired, motivated and on track, it’s more than done its job. -Shauna
Business Plan Basics is a six part series that makes developing a business plan a painless process. Catch part 1 here, part 2 here, part 3 here, part 4 here and part 5 here.
