Explore the market before preparing financial plans. After research you have to realize the things as follows: 1. Market volume, i.e. what is the daily revenue from the sales of the similar product on a given territory. 2. Competition. It's important to know not only the quantity of competitors, but how much they earn. Moreover, it's necessary to analyze your competitors’ strong and weak sides and compare the results of analysis with the opportunities of your future business. 3. Price level. It's necessary to understand what is the average price for the similar product or service. Such understanding allows you to have a starting point, that will help you predict future costs.
Define who the range of your clients. Make an accurate classification by territory, age, sex and financial status. You have to know a solvency level of your target segment. It enables you to create a correct price policy and think about the ways of your company’s development.
Practically every business needs the investments. Some ideas need more investments interests while others less. Anyway, it is necessary to evaluate the amount of investments.
Capital investments include the purchase of the following items:
- facilities and buildings;
- office equipment;
- trading marks;
- animals for agriculture business.
All these are fixed assets. The investment costs are included into a product price and divided for several years, depending on the period of fixed capital operation. This is called depreciation, i.e. a gradual decrease of the fixed assets value. We will discuss how to carry out depreciation properly in the article "Fixed assets depreciation methods".
Also, the cost of capital investments includes the renovation of facilities. These costs will be credited to the cost of equity capital after all the repairs.
You should consider an organizational structure of your business and predict the required number of staff. Consider a system of subordination inside the company as well as motivation and career growth. These factors allow predict possible labor costs. It is important to take into account a payroll tax and include social spending into the operating costs of the enterprise.
Let's define the list of commercial expenses. These expenses include the following positions:
• Rent of facilities;
• Advertising expenses;
• Costs of delivery and warranty service;
• Communication costs;
• Public utility expenses;
• Cost of energy resources;
• Consulting, accounting and other outsourcing services.
Expenses on the purchase of goods or raw materials are also important. Depending on the type of activity, these costs may account for a higher or lower part of the total expenses. Generally, production needs more raw materials.
It's important to predict your future income on a basis of market research and the customers’ solvency analysis, taking into account the desired margin. The margin is the main source of income. It is recommended to plan your income from a break-even point, i.e. an income a company should get to cover all necessary expenses.
Cash flow planning
Forecasting of the enterprise’s cash flows is an important part of financial planning. This indicator is used to calculate the return on investments.
Capital structure planning
Cash flow planning allows predict the structure of the future capital. It should be understood that the first entity may be completely financially dependent, as it will use the credit funds. But over time, the own funds have to account for the major part of the capital.
Source of financing
Evaluate all offers and choose the most effective source of financing. As a rule, it is a bank loan, which commonly requires your business as a security.
Risks are a compulsory part of any business. It is necessary to identify them and diminish their impact to a minimum. The possible risks will be discussed in the article "Risks of starting a new business".