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Importance of financial plan in business


Financial plan is a very important part of your business plan. In this section you need to present the three main financial documents, income statement, cash flow projections and balance sheet. The point of financial plan is to determine is your business viable and this is the part that most investors will examine when deciding to invest in your business. Financial planing is more of a process  than a product. In order to create good financial plan you need to establish business goals. Monitoring the financial plan on a regular basis is essential to make necessary changes and achieve your business goals.

When starting a business you will have two kinds of business costs, start-up and operating expenses. Start-up cost will get your business up and running while the operating costs are going to keep your business running. In order to make a good business plan you need to gather and analyze data. There are three main financial documents that will help you. Income statement shows your revenues  and expenses for particular period and it will show whether your business is profitable or not. Usually businesses produce income statement at the end of each fiscal quarter. Cash flow projection show how you are anticipating that cash will go in and out of business in specified period in the future. It will determine your credit risk. Balance sheet shows net worth of your business at a particular point. It summarizes all financial data about assets, liabilities and equity.

 In the analysis of the financial statements you will be able to see growth of your company and present condition of your business so you can have a better understanding and make necessary improvements. The best monitoring of assets and liabilities you will achieve trough financial planning. In that way you will know how many expended, earned and remaining asset you have and the same goes for you liabilities. You will have a better perspective about your current liabilities, long term debt and owners equity so you can make financial plans accordingly. Also you can track income and profit loss and determine what is profitable for business and what needs improvement.

The main benefits of financial planning is that provides your business with structure and help to manage flow of cash. Financial plan is necessary for business to function and be financially stable. It helps you to think ahead, prepare and plan your business moves in advance. You will be able to allocate funds in the best possible way and prioritize you expenditures and purchases in order to achieve your business goals and financial success. 

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