Develop a financial plan for your small business

You’ve got a great idea, lots of enthusiasm and are determined to work hard to make your small business succeed. Do you really need a financial plan? Absolutely.

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“Without a road map to follow, business owners become distracted from their core objectives, because there are many opportunities that come about over time to distract them,” says Chartered Accountant John Caggianiello, a partner with Meyers Norris Penny LLP in Toronto. “Creating a financial plan is important, because the thought process behind it allows you to become more strategic with your business plans.” You need a financial plan if you are seeking a loan to start your business. It can also provide important information when it’s time to sell. “The financial plan is one aspect of a business plan and it may be the most important one,” says Chartered Accountant Jordan Caplan of Soberman LLP in Toronto. “People will look at your executive summary, your business concept, your goals, management and ownership information, but they tend to focus on your numbers.” Caplan suggests that your financial plan include: Financial statements; profit margin, market share and break-even analyses; pricing formulas; start-up costs; and how much of your own money you are investing. You may also want to include information on products and services, marketing, your competition, operations, management and staffing. “It’s also a good idea to include a risk analysis of the business,” advises Caggianiello. “Outline the key risks the business is facing and how you will address and mitigate them.” Some business owners claim to have a financial plan - they just haven’t written it down. “You may have a plan in your head, but when you write it down and start reviewing it, you may see things differently and discover ways to expand your business,” says Caplan. “The old saying is true: Failing to plan is planning to fail.” Now that you know you need to write a financial plan, how do you do it? “A template is a good way to get started,” suggests Caggianiello. “But at the end of the day you need to customize it to reflect your own situation.” Both Caggianiello and Caplan believe that business owners should draft financial plans themselves - with professional help as required. “The content should be derived from your insights as the business owner,” says Caggianiello. “You are the one with the ideas and the passion behind the business. A professional can assist with the process, help vet the ideas, crunch the numbers and polish the writing.” Caplan adds that it really depends on how much you are comfortable doing yourself. “It’s not too difficult to prepare a set of books and financial records; all the accounting software packages do that,” says Caplan. “But many business owners don’t keep proper books and records. If you don’t, it can be very expensive to reconstruct them later.” A Chartered Accountant can help you develop and implement the financial plan for your small business. “Your CA can set up your books and reports, make recommendations and advise on tax considerations, payroll, pensions and other financial matters,” says Caplan. “Information is power. A financial plan can help you control the evolution of your business and increase its likelihood of success.” Brought to you by the Institute of Chartered Accountants of Ontario