How (and Why) to Create a Financial Plan for Your Business

Whether you’re just starting out or growing your small business, having a financial plan can be the difference between failure and success. But what is financial planning exactly? Why is it important? And how do you go about creating a financial plan? 

From what to include, and common mistakes to avoid, this article will explore everything you need to know to create a robust financial business plan to help you achieve your goals.

What is a financial plan?

A financial plan is a roadmap that outlines a business or person’s financial goals and the steps needed to achieve them. 

A personal financial plan can be for a short-term goal, like saving up for a holiday, or a long-term one like retirement and ongoing financial stability. Personal financial plans generally include things like budgeting, saving, investing, debt management, retirement planning, and insurance.

Meanwhile, a financial plan for business includes things like budgeting, revenue projections, expense management, cash flow planning, and funding strategies to ensure the business stays profitable and financially stable.

Why is financial planning for businesses so important?

Having a financial plan is essential to your business’s survival. It allows you to make smart and carefully considered decisions that help you maintain stability while achieving profitability and growth.

The benefits of having a financial plan for your business include:

• Setting and achieving goals: Taking time to decide on key financial goals can help you focus on the actions that will allow you to achieve them. Whether it’s reaching revenue targets or making cost reductions, a financial plan keeps you accountable and on track.
• Managing income and expenses effectively: A detailed financial plan helps with cash flow management. By planning for expected income and expenses, you can prevent cash shortages and minimise (or even avoid) unnecessary debts.
• Preparing for emergencies: Even the most savvy business leaders encounter unexpected challenges. From economic downturns to unforeseen costs, having a financial plan helps identify financial risks and allows you to implement contingency plans when needed.
• Improving profitability and efficiency: A clear plan helps cut unnecessary expenses and optimise resource allocation, ensuring your business remains profitable and competitive.
• Attracting investors and lenders: Whether you need a business starter loan or want to entice investors so you can take your business to the next level, having a clear and well-considered financial plan can help convince banks and investors that your business is financially viable.

What should a financial plan include?

A financial plan for a business should be detailed and precise. Elements to incorporate into your financial plan include:

• Executive summary: This is a brief overview of your plan. It should include key financial figures like revenue expectations, profitability projections, funding needs, and your overall financial goals.
• Financial overview and goals: This should detail your short-term and long-term financial objectives—whether that’s increasing revenue by 30% in two years or breaking even by the end of the first year. You should also include measurable targets for growth, investment, and debt management. 
• Financial projections: Based on market research, historical data, and industry trends, you should estimate your sales and income over specific periods. This could be monthly, quarterly, annually, or all of the above.
• Key financial indicators: This should include profitability ratios like gross profit margin, net profit margin, return on assets, and return on equity. It should also highlight liquidity ratios, efficiency ratios, and leverage (debt) ratios.
• Break-even analysis: This allows you to understand how much revenue you’ll need to cover all your costs and start making a profit. It also helps inform pricing strategies.
• Financial statements: A profit and loss statement (or income statement) shows the business’s profitability over time by comparing revenue to expenses. This should include figures on revenue (sales, investments, other income), cost of goods sold, operating expenses, and net profit/loss.
• Potential risks: Whether it’s market downturns, natural disasters, or workplace injuries, you need to think about potential risks and include strategies like emergency funds and alternative revenue streams to mitigate these risks.
• Funding requirements and strategies: If it’s applicable, here’s where you can detail any loans, investments, or funding sources your business needs as well as a plan for repaying these debts.
• Growth strategies: Although it might feel a while off when you’re starting a new business, it’s always good to keep one eye on the long-term. Here you can set goals for future expansion along with an outline of how you plan to get there.

How to create a financial plan

Now that you understand the importance of a financial plan and have a good idea of what you need to include, let’s look at a step-by-step guide for creating a financial plan:

1. Set financial goals

Before you can outline actions to reach your financial goals, you need to decide on what they are. This includes short, medium, and long-term goals.

Remember to make them measurable and specific. For example, “Increase revenue by 20% in 12 months” instead of just “increase revenue”. 

When coming up with your financial goals, you can use SMART:

• Specific - Clearly defined.
• Measurable - Use numbers or percentages.
• Achievable - Realistic and based on business performance.
• Relevant - Aligned with overall business strategy.
• Time-bound - Set a deadline. 

2. Assess your balance sheet 

A balance sheet is a financial snapshot of your business that shows assets, liabilities, and equity at a specific point in time. 

Analysing your balance sheet should involve the following:

• Reviewing your assets: This includes cash, accounts receivable, inventory, property, equipment, and long-term investments.
• Reviewing your liabilities: This includes short-term loans, accounts payable, taxes, long-term loans, bonds, and leases.
• Reviewing your equity: This includes owner’s capital, retained earnings, and stockholder equity.
• Checking liquidity: Look at your Current Ratio (Current Assets ÷ Current Liabilities) and Quick Ratio ((Current Assets - Inventory) ÷ Current Liabilities).
• Assessing your long-term stability: Check your Debt-to-Equity Ratio and Interest Coverage Ratio.
• Evaluating your asset management: Look at your Return on Assets (ROA) and Asset Turnover Ratio.
• Analysing owner’s equity: Check retained earnings and look for equity growth trends.
• Compare your data with industry benchmarks: This will help identify areas where you can improve.

3. Analyse your break-even point

The break-even point (BEP) is when your total revenue equals total costs, meaning there is no profit or loss. This helps you understand how much you need to sell to cover expenses and start making a profit.

To understand your break-even point, you’ll need to look at factors like:

• Fixed costs: These stay the same regardless of business performance.
• Variable costs: These are costs that fluctuate according to your business performance.
• Sales price: The price you’ve chosen for your service or product.
• Sales volume: This can mean service volume or unit sales, depending on your business type.

For more information, you can read our in-depth guide to running a break-even analysis. 

4. Create a sales forecast

A sales forecast is an estimation of future business performance. When starting a new business, it’s important to create a realistic and achievable sales forecast. 

Factors to consider include:

• Historical sales data
• Market trends 
• Industry conditions
• Customer behaviour and demand
• Pricing strategy
• Marketing
• Competition
• Economic factors
• Production and inventory levels
• Sales team performance
• New products or market expansion

To learn more, take a look at the QuickBooks guide to creating a realistic sales forecast.

5. Cash flow projections

Understanding your cash flow is an essential part of running a stable business. When it comes to projecting cash flow, there are a few key steps to follow:

• Start with your opening cash balance: This is how much cash you have at the start of the period (usually month or quarter).
• Estimate cash inflows: This should include sales revenue, loans or investments, and any other income. 
• Estimate cash outflows: This should include expected outgoings like operating expenses, cost of goods sold, loan repayments, and tax.
• Calculate net cash flow: Subtract total outflows from total inflows to see whether you have a positive or negative cash flow.
• Calculate ending cash balance: Add the net cash flow to the opening cash balance to get the ending cash balance for the period. This will become the opening balance for the next period.

Remember to account for seasonal or irregular changes and be sure to monitor and adjust your cash flow projections regularly. 

6. Create a budget and plan for emergencies

The values in your business budget will depend on many factors, including your sales revenue and income. But, regardless of your company’s size and profit margins, there are a few key steps every business should take when creating a business budget. These include:

• Calculating all forms of income
• Subtracting your fixed costs (or fixed expenses)
• Subtracting your variable expenses
• Preparing for emergency and one-time expenses - a general rule of thumb is to set aside 3-6 months of operating expenses 
• Creating a profit and loss statement

To learn more, check out our full guide for creating a small business budget.   

7. Plan for taxes

How much tax you have to pay depends on factors like your business structure, income, and activities. Here are some common taxes businesses in Australia should be aware of:

• Income Tax: Sole Traders must lodge an individual tax return including business income. Companies must lodge a company tax return and pay a flat company tax rate (25% for small businesses with a turnover under $50 million and 30% for businesses above this threshold).
• Goods and Services Tax (GST): Businesses with an annual turnover of $75,000 or more (or $150,000 for non-profits) must register for GST and lodge Business Activity Statements to the ATO monthly, quarterly, or annually.
• Pay-As-You-Go (PAYG) Withholding: If you have employees, you must withhold tax from their wages and pay it to the ATO. Meanwhile, Sole Traders and companies earning above a certain amount may need to prepay income tax.
• Superannuation Guarantee (SG) Contributions: Employers must pay superannuation (11.5% as of 2025) of employees’ wages into their super fund. Sole traders are not required to do so, but they can contribute to their own super for tax benefits.
• Fringe Benefits Tax (FBT): If you provide non-cash benefits like company cars, gym membership, and so on to employees, you need to lodge an FBT return.
• Payroll Tax: This varies by state and territory but, generally, large companies paying wages exceeding a certain amount need to pay payroll tax.
• Capital Gains Tax (CGT): This applies when selling business assets. Individuals or sole traders holding the asset for over 12 months can be eligible for a 50% reduction and some small business concessions may also apply.
• Industry-Specific Taxes: For example, an excise tax applies to businesses dealing in fuel, alcohol, and tobacco. Import duties and customs tax also apply if you’re importing goods.

Failure to pay the appropriate taxes could result in fines and penalties as well as cause problems for your cash flow. So, if you’re unsure about your tax obligations, consult a taxation expert and contact the Australian Taxation Office for small business advice.

8. Review and adjust your plan regularly

Having a financial plan is essential to your business’s success, but you also need to adjust your plan to accommodate factors like economic changes, market trends, price fluctuations, and more.

To make sure that your financial plan is always up to date, review it monthly, quarterly, and annually. Don’t be afraid to make calculated adjustments when necessary.

When to create a financial plan

Creating a financial plan for your business is always a good idea. However, it’s particularly useful to create a financial plan at certain points, including:

• At startup/before launching
• At the beginning of each financial year
• When seeking funding or applying for loans
• Ahead of any major business changes like expansion or restructuring
• When market conditions change

Common mistakes to avoid when making a financial plan

We’ve covered what to do when creating a financial plan. So now let’s look at what not to do.

Common mistakes to avoid when putting together your small business financial plan include:

• Not setting clear - and realistic - financial goals
• Ignoring cash flow management
• Underestimating expenses 
• Overestimating revenue projections
• Not updating the plan regularly
• Not having an emergency fund 
• Forgetting about taxes and superannuation
• Relying too much on debt
• Ignoring key financial indicators
• Not seeking professional advice 

It’s great to be ambitious, but your financial plan needs to be realistic and backed by data. If you avoid these mistakes and put together a robust and considered financial plan that you update regularly, you’ll be setting yourself up for success.

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