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Creating a Financial Plan for Your Small Business and Understanding Merchant Cash Advances

By The Switch365 Team (03/06/2024)

Small business owner doing their financial planning on a laptop

A well-crafted financial plan is essential for the success of any small business. It helps manage finances, make informed decisions, and secure funding. This guide outlines the steps to create a comprehensive financial plan tailored to your business needs.

Importance of a Financial Plan

A financial plan provides a roadmap for your business, outlining financial goals, strategies to achieve them, and tools to measure progress. It helps in:

  • Budgeting: Allocating resources effectively.

  • Forecasting: Predicting future financial performance.

  • Funding: Attracting investors or securing loans.

Steps to Create a Financial Plan

  • 1. Define Your Goals:

    • • Identify short-term and long-term financial objectives.

    • • Ensure goals are specific, measurable, achievable, relevant, and time-bound (SMART).

  • 2. Analyse Financial Statements:

    • • Review past financial statements, including income statements, balance sheets, and cash flow statements.

    • • Identify trends and areas for improvement.

  • 3. Develop Financial Projections:

    • • Create detailed projections for revenue, expenses, and cash flow.

    • • Use historical data and market research to inform projections.

  • 4. Budgeting and Forecasting:

    • • Establish a budget that aligns with your financial goals.

    • • Monitor actual performance against the budget and adjust as needed.

  • 5. Risk Management:

    • • Identify potential financial risks and develop strategies to mitigate them.

    • • Consider insurance, diversifying income streams, and maintaining a cash reserve.

  • 6. Plan for Funding Needs:

    • • Determine if additional funding is required.

    • • Explore funding options such as loans, investments, or grants.

Supporting Cash Flow with Merchant Cash Advances

Maintaining a healthy cash flow is crucial for small businesses, and sometimes traditional funding options may not be the best fit. This is where a Merchant Cash Advance (MCA) can support your financial plan.

What is a Merchant Cash Advance?

A Merchant Cash Advance is a type of financing where businesses receive a lump sum of cash in exchange for a percentage of future sales. This can be particularly beneficial for businesses with fluctuating revenue, as repayments are tied to sales volume.

Benefits of Using an MCA for Cash Flow

  • Quick Access to Funds: MCAs provide fast access to capital, usually within a few days, which can be essential for covering immediate expenses.

  • Flexible Repayment: Repayments are based on a percentage of daily or weekly sales, making it easier to manage during slower periods.

  • No Collateral Required: MCAs are unsecured, so no assets are needed as collateral.

How an MCA Fits into Your Financial Plan

  • Bridging Gaps: Use MCAs to bridge cash flow gaps during slow seasons or to cover unexpected expenses.

  • Growth Opportunities: Invest in growth opportunities, such as purchasing inventory or expanding operations, without waiting for traditional loan approval.

  • Manage Expenses: Ensure you have enough working capital to cover operational expenses, payroll, and other critical costs.

Tools and Resources

Utilise financial planning software and resources to streamline the process. Tools like QuickBooks, Xero, and financial planning templates can help you manage and monitor your financial plan effectively. We also recommend visiting the FSB – Federation of Small Businesses , who offer a wealth of support and resources for small businesses. If you are interested in exploring Merchant Cash Advance as part of your Financial Plans for your business then give our friendly team a call on 0345 365 4 365 or visit our MCA page for more information.