1. Review your strategic plan

Financial planning should start with your company’s strategic plan. You should think about what you want to accomplish at the start of a new year and ask yourself a series of questions:

• Do I need to expand?
• Do I need more equipment?
• Do I need to hire more staff?
• Do I need other new resources?
• How will my plan affect my cash flow?
• Will I need financing? If yes, how much?

Then, determine the financial impact in the next 12 months, including spending on major projects.

2. Develop financial projections

Create monthly financial projections by recording your anticipated income based on sales forecasts and anticipated expenses for labour, supplies , overhead, etc.. (Businesses with very tight cash flow may want to make weekly projections.) Now, plug in the costs for the projects you identified in the previous step.

For this job, you can use simple spreadsheet software or tools available in your accounting software. Don’t assume sales will convert to cash right away. Enter them as cash only when you expect to get paid based on prior experience.

Also prepare a projected income (profit and loss) statement and a balance sheet projection. It can be useful to include various scenarios—most likely, optimistic and pessimistic—for your projections to help you to anticipate the impacts of each one.

It may be a good idea to seek advice from your accountant when developing your financial projections. Be sure to go over the plan together, as it is you, and not your accountant, who will be seeking financing and who will be explaining the plan to your banker and investor.

3. Arrange financing

Use your financial projections to determine your financing needs. Approach your financial partners ahead of time to discuss your options. Well-prepared projections will help reassure bankers that your financial management is solid.

4. Plan for contingencies

What would you do if your finances suddenly deteriorated? It’s a good idea to have emergency sources of money before you need them. Possibilities include maintaining a cash reserve or keeping lots of room on your line of credit.

5. Monitor

Through the year, compare actual results with your projections to see if you’re on target or need to adjust. Monitoring helps you spot financial problems before they get out of hand.

6. Get help

If you lack expertise, consider hiring an expert to help you put together your financial plan.