What You Should Know About Financial Analysis for Small Business Plans

What You Should Know About Financial Analysis for Small Business Plans


Starting businesses have a lot of potential to make it to the top of the industry. For the most part, those big enterprises and business moguls that we see now also started from humble beginnings. Assessing one’s financial capacity should be given focus when starting a business to determine feasibility.

That’s where financial analysis is important in business: in order to come up with good decisions. Through financial analysis, finance-related elements like business projects, budget, and market performance could be evaluated to determine whether the business will thrive. It serves as a tool for management to come up with strategies to help the business grow.

What Does the Financial Analysis of a Business Plan Include?

There are different things that could be included in a financial analysis, depending on the vastness of the industry and the scope of the business. However, the items below are the common things you will find in a small business plan.

  • Cash flow statement. This refers to the physical currency that is moving in and out of the business.
  • Balance sheet. This is a statement of your assets and liabilities at a particular period of time.
  • Profit and loss analysis. This includes the evaluation of the revenues, costs and expenses in a specific period of time which is necessary for assessing the company’s ability for growth.

Purpose of a Financial Analysis

The evaluation of a company’s financial status is designed in order to provide a considerable type of instrument in defining how the business will perform in the long run.

Since financial analyses involve tapping and looking into the business in a whole new level and at a different perspective outside the borders of the company, risks and threats can then be determined and avoided. In this way, no potential harm can affect the performance of the business. It is important to periodically conduct an assessment on the company’s performance and evaluate the financial position in order to gauge if it is going in an upward or downward direction.

Tips for Writing the Financial Analysis for Business

The growth of a company can be determined by constant evaluation of its performance which could lead to better decision-making. However, the process of assessing the financial status of the business as well as other factors essential for the business is not an easy task. It requires passion and determination in order to succeed. Most financial analysts do not focus on the sources that they can find within the boundaries of the company. Some would go the extra mile in order to look at the business at a different perspective.

  • Compare present and past data. Once you have collated and evaluated the previous data, compare it with the current one. A good financial analysis is done by knowing how to integrate different strategic plans and using them to provide best results.
  • Analyze all the data. As we have discussed a while ago, there are different elements that could be found in a financial analysis. Analyze these elements and try to figure out which factors of the business provide benefit and which ones pose risk.