Steps in Creating Financial Plan for Small Scale Business in Nigeria
The most difficult aspect of drafting a company plan is a financial strategy. It is, however, one of the most important. Small businesses having detailed financial plan are way better positioned to pitch potential investors and achieve success on a long-term basis.
Thankfully, a degree in accounting is not needed to put one together. All you need to know is what goes into the major parts. So, continue reading to learn the steps that must be included in your financial strategy to launch your firm successfully.
Financial Plan? What Does it Entail?
A financial plan can help you assess whether a business idea is viable and keep you on track to financial health as your company grows. It’s made up of three financial statements: a cash flow statement, an income statement, and a balance sheet, and it’s an important aspect of a larger company strategy. Each of them will have a brief explanation or analysis in your plan.
Why Do Small Businesses In Nigeria Need Financial Plans?
A well-thought-out financial strategy can help you gain more confidence in your company while also allowing you to understand better how to allocate resources.
It demonstrates your company’s commitment to prudent expenditure and its ability to pay financial responsibilities. A financial plan can assist you to figure out if your decisions will affect your revenue and when you’ll need to delve into your reserve cash.
It’s also useful when you’re trying to persuade investors to invest in your company. Your financial strategy demonstrates how your company handles spending and creates revenue. It demonstrates your company and how much money it needs from sales and investors to meet key financial targets.
Steps to Creating a Financial Plan For Small Scale Business
1. Get a tax ID and open a company bank account.
Keeping record of your costs is difficult enough, but when you combine your company earnings with the funds in your account, a lot things may easily spiral out of control.
As a result, we recommend that you start up a business account just before starting your business so that you may start fresh. Then, apply to an ITIN or business tax ID. You might get into a lot of difficulty with the government if you can’t recall when working as a partnership or sole proprietorship.
2. Figure out where you’re going to get your money
Identifying your cash sources is the second phase in your financial strategy. You’ll require money to start your business, but how do you go about getting it? Several ways are available to fund a small business, depending on your preferences and the amount of money you’re worth. Check out a handful of the most common ways for entrepreneurs to fund their businesses:
1. Self-Sufficiency: Although it is dangerous, there are several ways to achieve your goals on your own. Whether tapping into your market accounts, bank loan, or a credit card to fund your firm, practically any ambitious sole proprietorship can find a method to fund it on their own.
2. Friends and Family – When going it alone, many entrepreneurs have bad luck – life happens, and that savings account can be emptied after emergencies. As a result, enlisting the assistance of close family and friends is a good idea. You wouldn’t be left alone; 67 percent of small-business owners have used their network to retrieve funds. Trust that it will work out. Otherwise, your connections will suffer greatly.
3. Venture Capital (VC) — VC organizations invest in early-stage start-ups for ownership holdings. If you decide to work with this option, have it in your mind that there is a lot of competition happening in this sector, and they intend following those organizations with the best growth potential.
4. Business Administration Loans (Small-scale): These loans are issued by banks, non-profit credits, and lenders unions that meet certain criteria. The 7(a) Program, which offered an average of $336,730 per loan in 2011, is one of the most popular.
The options enumerated above are only a few methods to fund your start-up. Other financing possibilities for your business can be found here.
3. Calculate your expenses
Total expenses are easy to underestimate when starting a small business, so ensure to categorize everything you’ll be required to invest effectively in when you get started – In the end, this may be amended as time goes on as your company grows. Here are some costs you’ll want to factor into your startup budget:
- Equipment for the workplace
- Supplies for the office
- Designing websites and logos
- Pre-opening promotion
Once you get the numbers, multiply them by the assets and recurrent expenses that keep your organization running to get your capital.
4. Establish profit margins and price points.
Determine how much profit you want to make. Once you’ve determined how much profit you want to generate, you’ll need to set a price for your essential product that spans through your manufacturing costs while also providing you with the margin of profit you desire.
5. Promotion and Advertising factor
You’ll need to advertise and promote your business to develop. As a result, allocating a budget to handle marketing costs is critical for a small firm. Small-scale business owners often don’t consider the cons of having a marketing budget to run carry out proper advertising and get products in front of the right audience.
Thankfully, Facebook, Instagram, and other social media platforms have terrific advertising strategies that aren’t nearly as costly as a television advert. They operate in support of start-up businesses. However, it’s still crucial to remember that having a set budget for successful marketing and advertising initiatives will help your firm go a long way.
Finally, it would be best if you plan where you desire to go. It’s critical to consider the company’s long-term viability and expansion. You’ll be able to focus more easily on product development, outsourcing, and customer interaction once you’ve done this. Your tiny business will make huge financial decisions before you know it.