Four Mistakes to Avoid When Writing a Financial Plan

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1-financial-planIf you are starting a new business, it is essential that you have a good plan. Without a good financial plan, investors will be reluctant to lend you money, and your business could be a non-starter.

Even if you do not need any financial backing from a bank or private investor, having a good idea of your costs and income helps you to understand your business and its goals.

To get your financial details and projections right, it’s a good idea to be aware of common mistakes that can ruin your hard work.

Poor Communication

Good communication skills are vital in business, and your business financial plan should reflect well on you and your new company. It may sound obvious, but if you do not take care with your spelling, punctuation and grammar, then you are representing yourself as sloppy and disorganized, and this can cause a problem when you are looking for financial backing.

Take the time to proofread everything, and ask someone with good language skills to look over the plan as well. In addition, take the time to double-check that your charts are correctly labeled, your page numbers are in sequence, and the font you have used is easy to read.

Vagueness

The aim of your plan is to present, in a clear and concise manner, how your business operates. Anyone with a high school education should be able to understand your plan, according to Entrepreneur.com.

For this reason, your financial plan should not be vague; however, it is equally important to make sure you do not bog down the plan with too much information, especially technical information. For example, you do not need to include a complete breakdown of your projected expenses for the whole year, with exact dates of when money will be outgoing. A simple overview of your total expenses is all a potential investor will need to know.

Unrealistic Projections

You want your business to be successful, and you want everyone else to think the same way. But be careful not to let this goal lead to a situation where you inflate your financial projections.

The most important rule when creating your business plan is to remain realistic, according to Inc.com.

An unbelievable projection will often have the opposite effect to what you hoped for, ruining the credibility of your report, and turning off investors. However, do not be too pessimistic either. If you dramatically underestimate your company’s growth, investors will not be prepared to risk their money.

The best plans show steady and consistent growth, and will have accurate figures to back up those predictions. Furthermore, such plans make clear any potential risks. No business is risk-free, and an investor will be more at ease if you have already identified the risks associated with your company.

Incomplete Information

It is essential that your financial plan be complete. You need to consider the industry as a whole, so an investor can picture how your company fits into the greater picture. Furthermore, you need to make sure you include all the figures that an investor needs.

For example, when you are looking at projected sales, remember to factor in the associated costs (production, distribution and other expenses). Accurate financial projections are essential, and you must include cash flow and balance sheets.

Look to the Future

A financial plan is a necessary document for any business, particularly one just starting up. It can make the difference between seeing your dreams fulfilled, or seeing them come crashing down. Take the time to get it right now, learning from common mistakes, and your company has a brighter future.

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