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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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• Creating a Small Business Financial Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

Are You Retirement Ready?

Table of contents, financial plan overview.

A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.

For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ensure sustainable growth.

The strength of a financial plan lies in its ability to offer a clear roadmap for businesses.

Especially for small businesses that may not have a vast reserve of resources, prioritizing financial goals and understanding where every dollar goes can be the difference between growth and stagnation.

It lends clarity, ensures informed decision-making, and sets the stage for profitability and success.

Understanding the Basics of Financial Planning for Small Businesses

Role of financial planning in business success.

Financial planning is the backbone of any successful business endeavor. It serves as a compass, guiding businesses toward profitability, stability, and growth.

With proper financial planning, businesses can anticipate potential cash shortfalls, make informed investment decisions, and ensure they have the capital needed to seize new opportunities.

For small businesses, in particular, tight financial planning can mean the difference between thriving and shuttering. Given the limited resources, it's vital to maximize every dollar and anticipate financial challenges.

Through diligent planning, small businesses can position themselves competitively, adapt to market changes, and drive consistent growth.

Core Components of a Financial Plan for Small Businesses

Every financial plan comprises several core components that, together, provide a holistic view of a business's financial health and direction. These include setting clear objectives, estimating costs , preparing financial statements , and considering sources of financing.

Each component plays a pivotal role in ensuring a thorough and actionable financial strategy .

For small businesses, these components often need a more granular approach. Given the scale of operations, even minor financial missteps can have significant repercussions.

As such, it's essential to tailor each component, ensuring they address specific challenges and opportunities that small businesses face, from initial startup costs to revenue forecasting and budgetary constraints.

Setting Clear Small Business Financial Objectives

Identifying business's short-term and long-term financial goals.

Every business venture starts with a vision. Translating this vision into actionable financial goals is the essence of effective planning.

Short-term goals could range from securing initial funding and achieving a set monthly revenue to covering startup costs. These targets, usually spanning a year or less, set the immediate direction for the business.

On the other hand, long-term financial goals delve into the broader horizon. They might encompass aspirations like expanding to new locations, diversifying product lines, or achieving a specific market share within a decade.

By segmenting goals into short-term and long-term, businesses can craft a step-by-step strategy, making the larger vision more attainable and manageable.

Understanding the Difference Between Profitability and Cash Flow

Profitability and cash flow, while closely linked, are distinct concepts in the financial realm. Profitability pertains to the ability of a business to generate a surplus after deducting all expenses.

It's a metric of success and indicates the viability of a business model . Simply put, it answers whether a business is making more than it spends.

In contrast, cash flow represents the inflow and outflow of cash within a business. A company might be profitable on paper yet struggle with cash flow if, for instance, clients delay payments or unexpected expenses arise.

For small businesses, maintaining positive cash flow is paramount. It ensures that they can cover operational costs, pay employees, and reinvest in growth, even if they're awaiting payments or navigating financial hiccups.

Estimating Small Business Startup Costs (for New Businesses)

Fixed vs variable costs.

When embarking on a new business venture, understanding costs is paramount. Fixed costs remain consistent regardless of production levels. They include expenses like rent, salaries, and insurance . These are predictable outlays that don't fluctuate with business performance.

Variable costs , conversely, change in direct proportion to production or business activity. Think of costs associated with materials for manufacturing or commission for sales .

For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.

One-Time Expenditures vs Ongoing Expenses

Startups often grapple with numerous upfront costs. From purchasing equipment and setting up a workspace to initial marketing campaigns, these one-time expenditures lay the foundation for business operations.

They differ from ongoing expenses like utility bills, raw materials, or employee wages that recur monthly or annually.

For a small business owner, distinguishing between these costs is critical. One-time expenditures often demand a larger chunk of initial capital, while ongoing expenses shape the monthly and annual budget.

By categorizing them separately, businesses can strategize funding needs more effectively, ensuring they're equipped to meet both immediate and recurrent financial obligations.

Funding Sources for Small Businesses

Personal savings.

This is often the most straightforward way to fund a startup. Entrepreneurs tap into their personal savings accounts to jumpstart their business.

While this method has the benefit of not incurring debt or diluting company ownership, it intertwines the individual's personal financial security with the business's fate.

The entrepreneur must be prepared for potential losses, and there's the evident psychological strain of putting one's hard-earned money on the line.

Loans can be sourced from various institutions, from traditional banks to credit unions . They offer a substantial sum of money that can be paid back over time, usually with interest .

The main advantage of taking a loan is that the entrepreneur retains full ownership and control of the business.

However, there's the obligation of monthly repayments, which can strain a business's cash flow, especially in its early days. Additionally, securing a loan often requires collateral and a sound credit history.

Investors, including angel investors and venture capitalists , offer capital in exchange for equity or a stake in the company.

Angel investors are typically high-net-worth individuals who provide funding in the initial stages, while venture capitalists come in when there's proven business potential, often injecting larger sums. The advantage is substantial funding without the immediate pressure of repayments.

However, in exchange for their investment, they often seek a say in business decisions, which might mean compromising on some aspects of the original business vision.

Grants are essentially 'free money' often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors.

The primary advantage of grants is that they don't need to be repaid, nor do they dilute company ownership. However, they can be highly competitive and might come with stipulations on how the funds should be used.

Moreover, the application process can be lengthy and requires showcasing the business's potential or alignment with the specific goals or missions of the granting institution.

Preparing Key Financial Statements for Small Businesses

Income statement (profit & loss).

An Income Statement , often termed as the Profit & Loss statement , showcases a business's financial performance over a specific time frame. It details revenues , expenses, and ultimately, profits or losses.

By analyzing this statement, business owners can pinpoint revenue drivers, identify exorbitant costs, and understand the net result of their operations.

For small businesses, this document is instrumental in making informed decisions. For instance, if a certain product line is consistently unprofitable, it might be prudent to discontinue it. Conversely, if another segment is thriving, it might warrant further investment.

The Income Statement, thus, serves as a financial mirror, reflecting the outcomes of business strategies and decisions.

Balance Sheet

The Balance Sheet offers a snapshot of a company's assets , liabilities , and equity at a specific point in time.

Assets include everything the business owns, from physical items like equipment to intangible assets like patents .

Liabilities, on the other hand, encompass what the company owes, be it bank loans or unpaid bills.

Equity represents the owner's stake in the business, calculated as assets minus liabilities.

This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise.

In contrast, mounting liabilities or dwindling assets could be red flags, signaling the need for intervention and strategy recalibration.

Cash Flow Statement

While the Income Statement reveals profitability, the Cash Flow Statement tracks the actual movement of money.

It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.

For small businesses, maintaining positive cash flow is often more vital than showcasing profitability.

After all, a business might be profitable on paper yet struggle if clients delay payments or unforeseen expenses emerge.

By regularly reviewing the Cash Flow Statement, small business owners can anticipate cash crunches and strategize accordingly, ensuring seamless operations irrespective of revenue cycles.

Small Business Budgeting and Expense Management

Importance of budgeting for a small business.

Budgeting is the financial blueprint for any business, detailing anticipated revenues and expenses for a forthcoming period. It's a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges.

For small businesses, a meticulous budget is often the linchpin of stability, ensuring they operate within their means and avoid financial pitfalls.

Having a well-defined budget also fosters discipline. It curtails frivolous spending, emphasizes cost-efficiency, and sets clear financial boundaries.

For small businesses, where every dollar counts, a stringent budget is the gateway to financial prudence, ensuring that funds are utilized judiciously, fostering growth, and minimizing wastage.

Strategies for Reducing Costs and Optimizing Expenses

Bulk purchasing.

When businesses buy supplies in large quantities, they often benefit from discounts due to economies of scale . This can significantly reduce per-unit costs.

However, while bulk purchasing leads to immediate savings, businesses must ensure they have adequate storage and that the products won't expire or become obsolete before they're used.

Renegotiating Vendor Contracts

Regularly reviewing and renegotiating contracts with suppliers or service providers can lead to better terms and lower costs. This might involve exploring volume discounts, longer payment terms, or even bartering services.

Building strong relationships with vendors often paves the way for such negotiations.

Adopting Energy-Saving Measures

Simple changes, like switching to LED lighting or investing in energy-efficient appliances, can lead to long-term savings in utility bills. Moreover, energy conservation not only reduces costs but also minimizes the environmental footprint, which can enhance the business's reputation.

Embracing Technology

Modern software and technology can streamline business processes. Automation tools can handle repetitive tasks, reducing labor costs.

Meanwhile, data analytics tools can provide insights into customer preferences and behavior, ensuring that marketing budgets are used effectively and target the right audience.

Streamlining Operations

Regularly reviewing and refining business processes can eliminate redundancies and improve efficiency. This might mean merging roles, cutting down on unnecessary meetings, or simplifying supply chains. A leaner operation often translates to reduced expenses.

Outsourcing Non-core Tasks

Instead of maintaining an in-house team for every function, businesses can outsource tasks that aren't central to their operations.

For instance, functions like accounting , IT support, or digital marketing can be outsourced to specialized agencies, often leading to cost savings and access to expert skills.

Cultivating a Culture of Frugality

Encouraging employees to adopt a cost-conscious mindset can lead to collective savings. This can be fostered through incentives, regular training, or even simple practices like recycling and reusing office supplies.

When everyone in the organization is attuned to the importance of cost savings, the cumulative effect can be substantial.

Forecasting Small Business Revenue and Cash Flow

Techniques for predicting future sales in a small business, past sales data analysis.

Historical sales data is a foundational element in any forecasting effort. By reviewing previous sales figures, businesses can identify patterns, understand seasonal fluctuations, and recognize the effects of past initiatives.

This information offers a baseline upon which to build future projections, accounting for known recurring variables in the business cycle .

Market Research

Understanding the larger market dynamics is crucial for accurate forecasting. This involves tracking industry trends, monitoring shifts in consumer behavior, and being aware of potential market disruptions.

For instance, a sudden technological advancement can change consumer preferences or regulatory changes might impact an industry.

Local Trend Analysis

For small businesses, localized insights can be especially impactful. Observing local competitors, understanding regional consumer preferences, or noting shifts in the local economy can offer precise data points.

These granular details, when integrated into a larger forecasting model, can enhance prediction accuracy.

Customer Feedback

Direct feedback from customers is an invaluable source of insights. Surveys, focus groups, or even informal chats can reveal customer sentiments, preferences, and potential future purchasing behavior.

For instance, if a majority of loyal customers express interest in a new product or service, it can be indicative of future sales potential.

Moving Averages

This technique involves analyzing a series of data points (like monthly sales) by creating averages from different subsets of the full data set.

For yearly forecasting, a 12-month moving average can be used to smooth out short-term fluctuations and highlight longer-term trends or cycles.

Regression Analysis

Regression analysis is a statistical tool used to identify relationships between variables. In sales forecasting, it can help understand how different factors (like marketing spend, seasonal variations, or competitor actions) relate to sales figures.

Once these relationships are understood, businesses can predict future sales based on planned actions or expected external events.

Understanding the Cash Cycle of Business

The cash cycle encompasses the time it takes for a business to convert resource investments, often in the form of inventory, back into cash.

This involves the processes of purchasing inventory, selling it, and subsequently collecting payment. A shorter cycle implies quicker cash turnarounds, which are vital for liquidity.

For small businesses, a firm grasp of the cash cycle can aid in managing cash flow more effectively.

By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking.

Ultimately, understanding and optimizing the cash cycle ensures that a business remains liquid and agile.

Preparing for Seasonality and Unexpected Changes

Seasonality affects many businesses, from the ice cream vendor witnessing summer surges to the retailer bracing for holiday shopping frenzies.

By analyzing historical data and market trends, businesses can prepare for these cyclical shifts, ensuring they stock up, staff appropriately, and market effectively.

Small businesses, often operating on tighter margins , need to be especially vigilant. Beyond seasonality, they must also brace for unexpected changes – a local construction project obstructing store access, a sudden competitor emergence, or unforeseen regulatory changes.

Building a financial buffer, diversifying product or service lines, and maintaining flexible operational strategies can equip small businesses to weather these unforeseen challenges with resilience.

Securing Small Business Financing and Capital

Role of debt and equity financing.

When businesses seek external funding, they often grapple with the debt vs. equity conundrum. Debt financing involves borrowing money, typically via loans. While it doesn't dilute ownership, it necessitates regular interest payments, potentially impacting cash flow.

Equity financing, on the other hand, entails selling a stake in the business to investors. It might not demand regular repayments, but it dilutes ownership and might influence business decisions.

Small businesses must weigh these options carefully. While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch.

Equity financing, although relinquishing some control, might bring aboard strategic partners, offering expertise and networks in addition to funds.

The optimal choice hinges on the business's financial health, growth aspirations, and the founder's comfort with sharing control.

Choosing Between Different Types of Loans

A staple in the lending arena, term loans offer businesses a fixed amount of capital that is paid back over a specified period with interest. They're often used for significant one-time expenses, such as purchasing machinery, real estate , or even business expansion.

With predictable monthly payments, businesses can plan their budgets accordingly. However, they might require collateral and a robust credit history for approval.

Lines of Credit

Unlike term loans that provide funds in a lump sum, a line of credit grants businesses access to a pool of funds up to a certain limit.

Businesses can draw from this line as needed, only paying interest on the amount they use. This makes it a versatile tool, especially for managing cash flow fluctuations or unexpected expenses. It serves as a financial safety net, ready for use whenever required.

As the name suggests, microloans are smaller loans designed to cater to businesses that might not need substantial amounts of capital. They're particularly beneficial for startups, businesses with limited credit histories, or those in need of a quick, small financial boost.

Since they are of a smaller denomination, the approval process might be more lenient than traditional loans.

Peer-To-Peer Lending

A contemporary twist to the traditional lending model, peer-to-peer (P2P) platforms connect borrowers directly with individual lenders or investor groups.

This direct model often translates to quicker approvals and competitive interest rates as the overheads of traditional banking structures are removed. With technology at its core, P2P lending can offer a more user-friendly, streamlined process.

However, creditworthiness still plays a pivotal role in determining interest rates and loan amounts.

Crowdfunding and Alternative Financing Options

In an increasingly digital age, crowdfunding platforms like Kickstarter or Indiegogo have emerged as viable financing avenues.

These platforms enable businesses to raise small amounts from a large number of people, often in exchange for product discounts, early access, or other perks. This not only secures funds but also validates the business idea and fosters a community of supporters.

Other alternatives include invoice financing, where businesses get an advance on pending invoices, or merchant cash advances tailored for businesses with significant credit card sales.

Each financing mode offers unique advantages and constraints. Small businesses must meticulously evaluate their financial landscape, growth trajectories, and risk appetite to harness the most suitable option.

Small Business Tax Planning and Management

Basic tax obligations for small businesses.

Navigating the maze of taxation can be daunting, especially for small businesses. Yet, understanding and fulfilling tax obligations is crucial.

Depending on the business structure—whether sole proprietorship , partnership , LLC , or corporation—different tax rules apply. For instance, while corporations are taxed on their earnings, sole proprietors report business income and expenses on their personal tax returns.

In addition to income taxes, small businesses may also be responsible for employment taxes if they have employees. This covers Social Security , Medicare , federal unemployment, and sometimes state-specific taxes.

There might also be sales taxes, property taxes, or special state-specific levies to consider.

Consistently maintaining accurate financial records, being aware of filing deadlines, and setting aside funds for tax obligations are essential practices to avoid penalties and ensure compliance.

Advantages of Tax Planning and Potential Deductions

Tax planning is the strategic approach to minimizing tax liability through the best use of available allowances, deductions, exclusions, and breaks.

For small businesses, effective tax planning can lead to significant savings.

This might involve strategies like deferring income to a later tax year, choosing the optimal time to purchase equipment, or taking advantage of specific credits available to businesses in certain sectors or regions.

Several potential deductions can reduce taxable income for small businesses. These include expenses like rent, utilities, business travel, employee wages, and even certain meals.

By keeping abreast of tax law changes and actively seeking out eligible deductions, small businesses can optimize their financial landscape, ensuring they're not paying more in taxes than necessary.

Importance of Hiring a Tax Professional or Accountant

While it's feasible for small business owners to manage their taxes, the intricate nuances of tax laws make it beneficial to consult professionals.

An experienced accountant or tax consultant can not only ensure compliance but can proactively recommend strategies to reduce tax liability.

They can guide businesses on issues like whether to classify someone as an employee or a contractor, how to structure the business for optimal taxation, or when to make certain capital investments.

Beyond just annual tax filing, these professionals offer year-round counsel, helping businesses maintain clean financial records, stay updated on tax law changes, and plan for future financial moves.

The investment in professional advice often pays dividends , saving businesses from costly mistakes, penalties, or missed financial opportunities.

Regularly Reviewing and Adjusting the Small Business Financial Plan

Setting checkpoints and milestones.

Like any strategic blueprint, a financial plan isn't static. It serves as a guiding framework but should be flexible enough to adapt to evolving business realities.

Setting regular checkpoints— quarterly , half-yearly, or annually—can help businesses assess whether they're on track to meet their financial objectives.

Milestones, such as reaching a specific sales target, launching a new product, or expanding into a new market, offer tangible markers of progress. Celebrating these victories can bolster morale, while any shortfalls can serve as lessons, prompting strategy tweaks. F

or small businesses, where agility is an asset, regularly revisiting the financial plan ensures that the business remains aligned with its overarching financial goals while being responsive to the dynamic marketplace.

Using Financial Ratios to Monitor Business Health

Financial ratios offer a distilled snapshot of a business's health. Ratios like the current ratio ( current assets divided by current liabilities ) can shed light on liquidity, indicating whether a business can meet short-term obligations.

The debt-to-equity ratio , contrasting borrowed funds with owner's equity, offers insights into the business's leverage and potential financial risk.

Profit margin , depicting profitability relative to sales, can highlight operational efficiency. By consistently monitoring these and other pertinent ratios, small businesses can glean actionable insights, understanding their financial strengths and areas needing attention.

In a realm where early intervention can stave off major financial setbacks, these ratios serve as vital diagnostic tools, guiding informed decision-making.

Pivoting Strategies Based on Financial Performance

In the ever-evolving world of business, flexibility is paramount. If financial reviews indicate that certain strategies aren't yielding anticipated results, it might be time to pivot.

This could involve tweaking product offerings, revising pricing strategies, targeting a different customer segment, or even overhauling the business model.

For small businesses, the ability to pivot can be a lifeline. It allows them to respond swiftly to market changes, customer feedback, or internal challenges.

A robust financial plan, while offering direction, should also be pliable, accommodating shifts in strategy based on real-world performance. After all, in the business arena, adaptability often spells the difference between stagnation and growth.

Bottom Line

Financial foresight is integral for the stability and growth of small businesses. Effective revenue and cash flow forecasting, anchored by historical sales data and enhanced by market research, local trends, and customer feedback, ensures businesses are prepared for future demands.

With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.

As businesses contemplate external financing, the decision between debt and equity and the myriad of loan types, should be made judiciously, keeping in mind the business's health, growth aspirations, and risk appetite.

Furthermore, diligent tax planning, with professional guidance, can lead to significant financial benefits. Regular reviews using financial ratios allow businesses to gauge their performance, adapt strategies, and pivot when necessary.

Ultimately, the agility to adapt, guided by a well-structured financial plan, is pivotal for businesses to thrive in a dynamic marketplace.

Creating a Small Business Financial Plan FAQs

What is the importance of a financial plan for small businesses.

A financial plan offers a structured roadmap, guiding businesses in making informed decisions, ensuring growth, and navigating financial challenges.

How do forecasting revenue and understanding cash cycles aid in financial planning?

Forecasting provides insights into expected income, aiding in budget allocation, while understanding cash cycles ensures effective liquidity management.

What are the core components of a financial plan for small businesses?

Core components include setting objectives, estimating startup costs, preparing financial statements, budgeting, forecasting, securing financing, and tax management.

Why is tax planning vital for small businesses?

Tax planning ensures compliance, optimizes tax liabilities through available deductions, and helps businesses save money and avoid penalties.

How often should a small business review its financial plan?

Regular reviews, ideally quarterly or half-yearly, ensure alignment with business goals and allow for strategy adjustments based on real-world performance.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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How to Write a Financial Analysis

Know what to include in important section of business plan

Alyssa Gregory is an entrepreneur, writer, and marketer with 20 years of experience in the business world. She is the founder of the Small Business Bonfire, a community for entrepreneurs, and has authored more than 2,500 articles for The Balance and other popular small business websites.

Financial Analysis of a Business Plan

Assumptions, know the ground rules, use visuals, check your math.

The financial analysis section of a business plan should contain the data for financing your business for the present, what will be needed for future growth, and an estimation of your operating expenses.

The financial analysis section of your business plan may be the most challenging for you to complete on your own, but it also could be the deal-maker or deal-breaker when you are searching for funding.

Because of the structured, in-depth financial data required for this section, you should consult your accountant or other trusted and qualified financial professional before writing this section .

The financial analysis section should be based on estimates for new businesses or recent data for established businesses. It should include these elements:

• Balance sheet : Your assumed and anticipated business financials, including assets , liabilities, and equity.
• Cash-flow analysis : An overview of the cash you anticipate will be coming into your business based on sales forecasts, minus the anticipated cash expenses of running the business.
• Profit-and-loss analysis : Your income statement that subtracts the costs of the business from the earnings over a specific period of time, typically a quarter or a year.
• Break-even analysis : Demonstrates the point when the cost of doing business is fully covered by sales.
• Personnel-expense forecast : The expenses of your team, as outlined in a management summary section .

Completing a financial analysis section for a business that hasn't been started yet requires some assumptions. However, these aren't guesses. What you expect from the business needs to be based on detailed research and data.

Go back to the other sections of your business plan and write down any financial assumptions you made while drafting those sections. You then can use those assumptions in your financial analysis section. The most important factor is ensuring that the data in the financial analysis section is consistent with the assumptions made in other sections of your business plan.

There may be no section of your business plan where you need help as much as you do with your financial analysis section. The assumptions, forecasting, and specific numbers can be complicated and generally difficult to wrap your head around, especially if you don’t have a financial background. This financial information, though, is exactly the data your audience will be looking for.

You can avoid the stress and uncertainty by getting help from a qualified financial professional early in the process.

When it comes to the financial analysis of your business plan, have a basic idea of what each element should include, where the data comes from, and what the numbers mean. This stands even if you have help developing the financial analysis section because you will be the one left to explain and expand on the financial data in face-to-face situations.

GAAP (generally accepted accounting principles ), a collection of rules, procedures, and conventions that define accepted accounting practices should be followed throughout this section.

Use graphs and charts in the financial analysis section to illustrate the financial data , just as you should in other sections of your business plan that include extensive data, numbers, statistics, and trends. Put the most important visuals in the financial analysis, with the supporting graphics included in the Appendix.

A quick way to lose the attention of a potential investor is by having flawed calculations or numbers that are not backed up. Double and triple check all of your calculations and figures, and have a third-party do the same to ensure everything adds up.

You also should avoid including any figures that are not explained, backed up and otherwise researched extensively, especially when it comes to assumptions you've made. Use data from current and past markets and financial situations to substantiate your numbers.

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What is financial reporting definition, importance, and types.

As a business owner, you understand that success can only truly be a success when it’s indicated by measurable, comparable, and accurate figures. Financial reporting is one of the most important parts of this process. It’s used to manage the success of your business, stay on track for your goals and milestones, and help you when making important decisions in the future. 

Financial reporting provides financial information about businesses that is useful to investors and other users in making decisions. Financial reporting uses financial statements and reports to disclose financial data that indicate the economic health of a company over a specific period of time. The information is vital for management to make decisions about the company’s future and provides information to capital providers like creditors and investors about the profitability and financial stability of the company.

Key Takeaways

A strong financial reporting system will help guide you and your business to new heights—provided it’s done the right way. Here’s what you need to know:

• The four main financial statements include a balance sheet, an income statement, a statement of cash flows, and a statement of changes in equity (or a statement of shareholders’ equity).
• Financial reporting isn’t just required by law; it’s essential to ensure the growth and long-term success of your company.
• Financial reporting is intended to help track a business’s income, cash flow, profitability, and overall viability in the long run—but it needs to be done correctly.
• The goal of financial reporting is to present financial information that is complete, accurate, comparable, verifiable, understandable, and timely.
• Publicly traded U.S. companies are required by law to follow GAAP (generally accepted accounting principles) in their financial reporting.

This article will also review the following areas:

Types of Financial Reports

Why is financial reporting important, benefits of financial reporting, what is the purpose of financial reporting, what does financial reporting include.

Frequently Asked Questions

As a business owner, you’re likely to work in a few different formats of financial reporting, depending on your specific needs and goals at that moment. Here are a few of the most common and most important types of financial statements:

Balance Sheet

Think of a balance sheet as a snapshot of your business’s financial health at a specific date. These are often considered one of the most essential financial reports since they clearly present your business’s, and shareholder’s equity, providing a clear, overall perspective on your business’s financial status. A classified balance sheet distinguishes current and noncurrent assets and liabilities.

Income Statement

Also sometimes called a Profit & Loss Report, an income statement is a common tool to help you obtain information about your company’s revenues, expenses, gains, and losses during a particular period. Unlike the balance sheet, which provides information about a company’s financial position on a given date (for example, as of December 31, 20xx), the income statement summarizes the changes in shareholder’s equity that occurred during a period (year, quarter). Since this report focuses on profit-generating activities, it can be a very useful tool for potential investors and creditors. 

Statement of Cash Flows

This type of statement is used to analyze how much cash is generated by the business and where it is spent. This statement shows changes in cash during the period. It is often used by business owners in need of insight into their business’s insolvency and liquidity. It can be used to track and manage spending as well as to help in securing loans and other funding. 

Statement of Shareholders’ Equity 

This statement is intended to help business owners keep track of any changes in retained earnings after dividends are released to shareholders. Its purpose is to report changes in shareholders’ accounts during the period from investments by owners, distributions to owners, net income, and other comprehensive income. This is invaluable for providing insight to those supporting the business financially. It also provides more in-depth insight into a company’s performance thanks to reporting on equity withdrawals and dividend payments. 

Notes to Financial Statements

Notes to financial statements (also called financial disclosures) refer to any other notes and information provided alongside financial statements. These notes allow other readers to better read and interpret the information provided in statements as well as evaluate the firm’s performance. The notes usually include a summary of significant accounting policies (accounting methods, depreciation methods, and inventory measurement methods, like LIFO or FIFO). For instance, a note to financial statements will often state the ‘basis for accounting’ (whether cash or accrual accounting methods were used). Other notes will explain how figures were calculated in detail, providing greater reliability and accountability to your reports.

When done properly, financial reporting offers many benefits to all who are involved with a business. With that said, however, the main goal of financial reporting is to provide insight and information to stakeholders, business owners, partners, and other important roles. Using the information gained from financial reporting, these parties can make more informed decisions for the good of the business and their investments.

Financial statements provide various important financial information that helps investors, creditors, and analysts evaluate a company’s financial performance. A lot of the financial information in financial reports is also required by law or by accounting standard practices.

Financial reporting helps management communicate important business events and transactions, as well as past successes and future expectations of the business.

Here are a few reasons why financial reporting is important to your business:

1. Ensuring Tax Compliance (and Optimizing Liability)

The most important reason to use financial reports is that you have to and are required by law to do so. The Internal Revenue Agency uses these reports to make sure you’re paying your fair share of taxes.

Businesses that make a lot of profit have to pay quite a lot of taxes. Accurate financial reporting helps reduce their tax burden and helps them ensure that all their resources are not depleted in a short amount of time.

2. Showing Financial Condition to Potential Investors

Potential investors want to know how well the company is doing before they invest. Investors, creditors, and other capital providers rely on a company’s financial reporting to gauge the safety and profitability of their investments. Stakeholders want to know where their money went and where it is now. Financial statements like the balance sheet address provide detailed information about the company’s asset investments and outstanding debt and equity components. Investors and creditors can use this information to better understand the company’s position and capital mix.

3. Evaluating Operations at Scale Over Longer Periods of Time

The information on a balance sheet is a snapshot of a company’s assets and liabilities at the end of a financial period. However, a balance sheet doesn’t show what operational changes might have occurred to cause changes in the financial condition of a company. Operating results during the period are also something investors need to consider. A change statement, such as an income statement , shares results about sales, expenses, and profit or losses during the period. Using the income statement, investors can both evaluate a company’s past income performance and assess future cash flow.

4. Examining and Analyzing Cash Flow

A company’s profits are reported in the income statement but provide no direct information on the company’s cash changes. A company incurs cash inflows and outflows during a period from operating activities and non-operating activities, namely investing and financing. Cash from all sources, not only revenue from operations, is what pays investors back. That’s why a cash flow statement is an important statement for an investor to review. The cash flow statement shows the changes in cash during a period of time. By reviewing this statement, investors can know if a company has enough cash to pay for expenses and purchases.

5. Examining and Distributing Information on Shareholder Equity

The statement of shareholders’ equity is important to equity investors. It shows the changes to various equity components like retained earnings during a period. Shareholder equity is a company’s total assets minus its total liabilities and represents a company’s net worth. Steady growth in a business’s shareholders’ equity because of increasing retained earnings , as opposed to expanding the shareholder base, means higher investment returns for current equity shareholders.

6. Help with Business Decision-Making, Planning, and Forecasting

When a business needs to make a decision, analyzing financial statements is crucial. Managers can look at the value of the assets that a business currently holds and decide if they can afford to purchase more to expand business operations. Conversely, when the value of assets is severely depreciated, managers can decide if they need to be sold off.

7. Mitigate Financial Reporting Errors

Accurate financial reporting can help businesses catch costly mistakes and inter errors early on in the process. There is no better way to detect illegal financial activities than through discrepancies found in financial statements. Through a reconciliation process, errors that have been made can be found. Companies spend a lot of time reconciling their books of accounts and verifying each journal entry, so they can find if an accounting error has occurred or if anyone has tampered with any part of the business.

Still wondering about the benefits of setting up a strong financial reporting system for your business? While it can lead to additional administrative work, good financial reporting offers countless benefits to your business as well. These include:

• Optimized debt management
• Real-time insights and tracking for quick business decisions
• Identification and forecasting of business trends
• Managing liabilities and keeping them in check with assets
• Greater ease of access and communication of important financial records
• Cash flow insights and analysis
• Providing useful information to current and potential investors and creditors
• Internal controls to prevent fraudulent activities

The main objective behind financial reporting is to provide business owners, shareholders, and other decision-makers with all of the information they need to make the best choices for the company. Financial reporting affects everything from cash flow to dividends and should account for all streams of profit and loss to ensure a complete, useful picture. 

Generally, financial reporting provides information about the results of operations, financial position, and cash flows of a business. Readers review the statements to decide the allocations of resources.

Financial reporting is a way of following standard accounting practices to give an accurate depiction of a company’s finances, including:

The process of producing statements that disclose a business’s financial status to management, investors, and the government is known as Financial Reporting.

Financial reporting includes:

• External financial statements (e.g., income statement, statement of comprehensive income, balance sheet, statement of cash flows, and statement of stockholders’ equity)
• Notes to the financial statements
• Communications regarding quarterly earnings and related information (often via press releases and conference calls)
• Quarterly and annual reports to stockholders
• Financial information and reports posted on a business’s website
• Financial reports to governmental agencies, including quarterly and annual reports to the Securities and Exchange Commission (SEC)
• Documentation pertaining to the issuance of common stock and other securities

Financial reporting can be a complex system to put into place, but it’s nevertheless essential to running a successful business. Though each and every company has a slightly different system to meet its unique reporting needs, you’ll find much in common from business to business. 

If you’re searching for a tool to help make financial reporting simpler for your business, FreshBooks is here to help. Our cloud-based accounting services are ideal for the quick, easy filing of important financial information, and reports such as your cash flow statement, income statement, and more can be generated within just a couple of clicks. Save yourself the time, money, and margin for error that comes with hand-creating these essential financial reports— click here to try FreshBooks for free and see firsthand the difference it can make for your company’s financial health. 

FAQs on Financial Reporting

More questions on setting up your financial reporting system, tracking financial performance, or tools for the perfect financial statement? Here are answers to some of the most commonly asked questions. 

Is financial reporting the same as accounting?

No. While both financial reporting and accounting tend to deal with the same information, these are two very different (but interconnected processes). Financial reporting focuses on compiling and organizing financial information, whereas accounting refers to interpreting, analyzing, and making decisions based on that information to ensure a business’s financial health. 

What is a financial reporting example?

Financial reporting can be internal (e.g., profit and loss statements provided to your accountant) or external (e.g., holding a press release or conference to announce annual/quarterly earnings to stockholders). If your company has shareholders, you’ll likely be doing a fair amount of both kinds of financial reporting. 

Who prepares financial statements?

A company’s management is responsible for the integrity and neutrality of financial statements and needs to sign off on them. Typically, business directors will prepare financial reports. In a rigorous system, these statements would then pass through an auditor (or an audit committee), who is responsible for ensuring the information is accurate and free of any errors or discrepancies.

Also Read: How to Make Financial Statement for Small Business

How do I become a financial reporting analyst?

Reporting analysts are expected to have a minimum educational level of a bachelor’s degree in business, accounting, finance, information management, or a related major. You’ll also need demonstrable experience and a strong working knowledge of the financial analysis process. Lastly, it’s important that you know and follows the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).

What are financial reporting skills?

Certain skills can be a big help in creating better, more accurate financial reports. These include knowledge of reading and analyzing financial statements, generating reports with the help of tools like Excel or accounting software like FreshBooks , and familiarity and compliance with the Generally Accepted Accounting Principles, or GAAP, as well as the International Financial Reporting Standards (IFRS).

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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.  

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.  

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses. 

Why it matters 

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers. 

Through the financial section, you can:

• Forecast your business’s future finances
• Budget for expenses (e.g., startup costs)
• Get financing from lenders or investors
• Grow your business

• Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
• Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section. 

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup. 

Your financial section should detail:

• Business expenses 

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses. 

Take a look at some common business expenses you may need to include in the financial section of business plan:

• Licenses and permits
• Cost of goods sold 
• Rent or mortgage payments
• Payroll costs (e.g., salaries and taxes)
• Utilities 
• Equipment 
• Supplies 
• Advertising 

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs). 

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes). 

How much do you anticipate earning from sales each month? 

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance. 

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period. 

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions. 

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements. 

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses. 

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover. 

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment). 

Back up your funding request by emphasizing your financial projections. 

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc. 

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it. 

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!

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What Are Financial Statements?

How financial statements work.

• Balance Sheet
• Income Statement
• Cash Flow Statement
• Changes in Shareholder Equity
• Comprehensive Income

Nonprofit Financial Statements

• Limitations

The Bottom Line

• Corporate Finance
• Financial statements: Balance, income, cash flow, and equity

Financial Statements: List of Types and How to Read Them

• Valuing a Company: Business Valuation Defined With 6 Methods
• Valuation Analysis
• Financial Statements CURRENT ARTICLE
• 6 Basic Financial Ratios
• 5 Must-Have Metrics for Value Investors
• Earnings Per Share (EPS)
• Price-to-Earnings Ratio (P/E Ratio)
• Price-To-Book Ratio (P/B Ratio)
• Price/Earnings-to-Growth (PEG Ratio)
• Fundamental Analysis
• Absolute Value
• Relative Valuation
• Intrinsic Value of a Stock
• Intrinsic Value vs. Current Market Value
• Equity Valuation: The Comparables Approach
• 4 Basic Elements of Stock Value
• How to Become Your Own Stock Analyst
• Due Diligence in 10 Easy Steps
• Determining the Value of a Preferred Stock
• Qualitative Analysis
• Stock Valuation Methods
• Bottom-Up Investing
• Ratio Analysis
• What Book Value Means to Investors
• Liquidation Value
• Market Capitalization
• Discounted Cash Flow (DCF)
• Enterprise Value (EV)
• How to Use Enterprise Value to Compare Companies
• How to Analyze Corporate Profit Margins
• Return on Equity (ROE)
• Decoding DuPont Analysis
• How to Value Private Companies
• Valuing Startup Ventures

Financial statements are reports compiled by businesses that detail the company's financial activities and health. Financial statements are often audited by government agencies and accountants to ensure accuracy and for tax, financing, or investing purposes.

The primary financial statements of for-profit businesses include the balance sheet, income statement, statement of cash flow, and statement of changes in equity. Nonprofit entities use a similar set of financial statements, though they have different names and communicate slightly different information.

Key Takeaways

• Financial statements provide governments, investors, executives, and lenders with a picture of a company's financial activities and profitability.
• Statements required by Generally Accepted Accounting Principles (GAAP) are the balance sheet, the income statement, and the statement of cash flows.
• The balance sheet provides an overview of assets, liabilities, and shareholders' equity as a snapshot in time.
• The income statement reports a company's revenues and expenses, including a company's profit figure called net income.
• The cash flow statement (CFS) tracks how a company uses its cash to pay its debt obligations and fund its operating expenses and investments.

Investopedia / Julie Bang

A business's financial data is used by internal and external parties to analyze that company's performance and make predictions about the likely direction of its stock price. One of the most important sources of reliable and audited financial data is the annual report , which contains the firm's financial statements.

The financial statements are used by investors, market analysts, and creditors to evaluate a company's financial health and earnings potential. The three major financial statement reports are the balance sheet, income statement, and statement of cash flows.

Not all financial statements are created according to the same accounting rules. The rules used by U.S. companies are called Generally Accepted Accounting Principles, while the rules often used by international companies are International Financial Reporting Standards (IFRS). Additionally, U.S. government agencies use a different set of financial reporting rules.

Understanding the Balance Sheet

A company's balance sheet provides an overview of the company's assets, liabilities, and shareholders' equity at a specific time and date. The date at the top of the balance sheet tells you when this snapshot was taken; this is generally the end of its annual reporting period. Below is a breakdown of the items in a balance sheet.

• Cash and cash equivalents  are liquid assets, which may include Treasury bills and certificates of deposit.
• Accounts receivable   are the money owed to the company by its customers for the sale of its products and services.
• Inventory is the goods a company has on hand, intended to be sold as a course of business. Inventory may include finished goods, work in progress that is not yet finished, or raw materials on hand that have yet to be worked.
• Prepaid expenses are costs paid in advance of when they are due. These expenses are recorded as an asset because their value has not yet been recognized; should the benefit not be recognized, the company would theoretically be due a refund.
• Property, plant, and equipment (PPE) are capital assets owned by a company for its long-term benefit. This includes buildings used for manufacturing or heavy machinery used for processing raw materials.
• Investments are assets held for speculative future growth. These aren't used in operations; they are simply held for capital appreciation.
• Trademarks, patents, goodwill, and other intangible assets can't physically be touched but have future economic (and often long-term benefits) for the company.

Liabilities

• Accounts payable are the bills due as part of a business's operations. This includes utility bills, rent invoices, and obligations to buy raw materials.
• Wages payable are payments due to staff for time worked.
• Notes payable are recorded debt instruments that record official debt agreements, including the payment schedule and amount.
• Dividends  payable are dividends that have been declared to be awarded to shareholders but have not yet been paid.
• Long-term debt can include a variety of obligations, including sinking bond funds, mortgages, or other loans that are due in their entirety in more than one year.

Short-term debt is recorded as a current liability separate from long-term debt.

Shareholders' Equity

• Shareholders' equity is a company's total assets minus its total liabilities.  Shareholders' equity (also known as stockholders' equity ) represents the amount of money that would be returned to shareholders if all of the assets were liquidated and all debts paid off.
• Retained earnings  are part of shareholders' equity; this is the amount of net earnings that were not paid to shareholders as dividends.

Example of a Balance Sheet 

Below is a portion of ExxonMobil Corporation's  (XOM)  balance sheet for fiscal year 2023, reported as of Dec. 31, 2023.

• Total assets were $376.3 billion.
• Total liabilities were $163.8 billion.
• Total equity was $212.5 billion.
• Total liabilities and equity were $376.6 billion, which equals the total assets for the period.

Understanding the Income Statement

Unlike the balance sheet, the income statement covers a range of time, generally either a year or a quarter. The income statement provides an overview of revenues, expenses, net income, and earnings per share during that time.

The main purpose of the income statement is to convey details of profitability and the financial results of business activities; however, it can be very effective in showing whether sales or revenue is increasing when compared over multiple periods, which provides valuable information about the success of operations to executive and management.

Investors can also see how well a company's management is controlling expenses to determine whether a company's efforts in reducing the cost of sales might boost profits over time.

Revenue falls into three categories: operating revenue, non-operating revenue, and other income.

Operating revenue is the revenue earned by selling a company's products or services. The  operating revenue for an auto manufacturer would be realized through the production and sale of autos. Operating revenue is generated from the core business activities of a company.

Non-operating revenue is the income earned from non-core business activities. These revenues fall outside the primary function of the business. Some non-operating revenue examples include income from:

• Interest earned on cash in the bank
• Renting out property
• Strategic partnerships like royalty payment receipts
• Advertisement displays located on the company's property

Other income is the revenue earned from other activities. Other income could include gains from the sale of long-term assets such as land, vehicles, or a subsidiary.

Primary expenses are incurred during the process of earning revenue from the primary activity of the business. Expenses include:

• The cost of goods sold (COGS)
• Selling, general and administrative expenses (SG&A)
• Depreciation or amortization
• Research and development (R&D).

Typical expenses include employee wages, sales commissions, and utilities such as electricity and transportation.

Expenses that are linked to secondary activities include interest paid on loans or debt. Losses from the sale of an asset are also recorded as expenses.

Example of an Income Statement

Below is a portion of ExxonMobil Corporation's income statement for fiscal year 2023, reported as of Dec. 31, 2023.

• Total revenue was $344.6 billion.
• Total costs were $291.8 billion.
• Net income or profit was $36 billion.

Understanding the Cash Flow Statement

The cash flow statement (CFS) shows how cash is earned and spent by a company. The cash flow statement complements the balance sheet and  income statement .

The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how money is being spent. The CFS also provides insight as to whether a company is on a solid financial footing.

The cash flow statement contains three sections that report on the various activities for which a company uses its cash.

Operating Activities 

The operating activities on the CFS include any sources and uses of cash from running the business and selling its products or services. Cash from operations includes any changes made in:

• Cash accounts receivable
• Depreciation
• Accounts payable

These transactions also include wages, income tax payments, interest payments, rent, and cash receipts from the sale of a product or service.

Investing Activities

Investing activities include any sources and uses of cash from a company's investments in its long-term future, including changes in equipment, assets, or investments related to cash from investing. This includes:

• The purchase or sale of an asset
• Loans made to vendors or received from customers
• Payments related to a merger or acquisition
• Purchases of fixed assets such as property, plant, and equipment (PPE)

Financing Activities

Cash from financing activities includes the cash from investors or banks, as well as the cash paid to shareholders. Financing activities include:

• Debt issuance
• Equity issuance
• Stock repurchases
• Dividends paid
• Debt repayments

The cash flow statement reconciles the income statement with the balance sheet in three major business activities.

Example of a Cash Flow Statement

Below is a portion of ExxonMobil Corporation's cash flow statement for fiscal year 2023, reported as of Dec. 31, 2023. We can see the three areas of the cash flow statement and their results.

• Operating activities generated a positive cash flow of $55.4 billion.
• Investing activities generated cash outflows of -$19.3 billion for the period. Additions to property, plant, and equipment made up the majority of cash outflows, which means the company invested in new fixed assets.
• Financing activities generated cash outflows of -$34.3 billion for the period. Dividends paid out to shareholders and acquisitions of common stock comprised most of the cash outflows.

Understanding the Statement of Changes in Shareholder Equity

The statement of changes in equity tracks total equity over time. This information ties back to a balance sheet for the same period; the ending balance on the change of equity statement equals the total equity reported on the balance sheet. Investors use this information to understand the profitability of a company and its stock.

The formula for changes to shareholder equity will vary from company to company; in general, there are a couple of components:

• Beginning equity : This is the equity at the end of the last period that simply rolls to the start of the next period.
• (+) Net income : This is the amount of income the company earned in a given period. The proceeds from operations are automatically recognized as equity in the company, and this income is rolled into retained earnings at year-end.
• (-) Dividends : This is the amount of money that is paid out to shareholders from profits. Instead of keeping all of a company's profits, the company may choose to give some profits away to investors.
• (+/-) Other comprehensive income : This is the period-over-period change in other comprehensive income. Depending on transactions, this figure may be an addition or subtraction from equity.

In ExxonMobil's statement of changes in equity, the company also records activity for acquisitions, dispositions, amortization of stock-based awards, and other financial activities. This information is useful for analyzing how much money is being retained by the company for future growth as opposed to being distributed externally.

Understanding the Statement of Comprehensive Income

An often less utilized financial statement, the statement of comprehensive income summarizes standard net income while also incorporating changes in other comprehensive income (OCI). Other comprehensive income includes all unrealized gains and losses that are not reported on the income statement.

This financial statement shows a company's total change in income, even gains and losses that have yet to be recorded in accordance with accounting rules. Investors and lenders can use this information to get a more detailed and comprehensive picture of a company's financial health.

Examples of transactions that are reported on the statement of comprehensive income include:

• Net income (from the statement of income)
• Unrealized gains or losses from debt securities
• Unrealized gains or losses from derivative instruments
• Unrealized translation adjustments due to foreign currency
• Unrealized gains or losses from retirement programs

In the example below, ExxonMobil has over $1 billion of net unrecognized income. Instead of reporting just $36 billion of net income, ExxonMobil reports $37.3 billion of total income when considering other comprehensive income.

Nonprofit organizations record financial transactions across a similar set of financial statements. However, nonprofit organizations do not have shareholders and do not pay out profits. As a result, they use different financial statements to report their activities, income, and expenses.

These financial reports are used by:

• Donors, to assess a nonprofit's activities before donating
• Internal or auditors, to ensure that funds raised by a nonprofit are being well spent
• Government agencies, to ensure that a nonprofit is compliant with all legal and tax requirements

Statement of Financial Position

This is the equivalent of a for-profit entity's balance sheet. The largest difference is nonprofit entities do not have equity positions. Any residual balances after all assets have been liquidated and liabilities have been satisfied are called "net assets."

Statement of Activities

This is the equivalent of a for-profit entity's statement of income. This report tracks the changes in operation over time, including the reporting of donations, grants, event revenue, and expenses to make everything happen.

Statement of Functional Expenses

This report is specific to nonprofit entities. The statement of functional expenses reports expenses by entity function (often broken into administrative, program, or fundraising expenses). This information is distributed to the public to explain what proportion of company-wide expenditures are related directly to the nonprofit's mission.

Statement of Cash Flow

This is the equivalent of a for-profit entity's statement of cash flow. Though the accounts listed may vary due to the different nature of a nonprofit organization, the statement is still divided into operating, investing, and financing activities.

Limitations of Financial Statements

Although financial statements provide a wealth of information on a company, they do have limitations. The statements are often interpreted differently, so investors often draw divergent conclusions about a company's financial performance.

For example, some investors might want stock repurchases , while others might prefer to see that money invested in long-term assets. A company's debt level might be fine for one investor, while another might have concerns about the level of debt for the company.

When analyzing financial statements , it's important to compare multiple periods to determine any trends and compare the company's results to its peers in the same industry.

Lastly, financial statements are only as reliable as the information fed into the reports. Too often, it's been documented that fraudulent financial activity or poor control oversight have led to inaccurate financial statements intended to mislead users. Even when analyzing audited financial statements, there is a level of trust that users must place in the validity of the report and the figures being shown.

External auditors assess whether a company's financial statements have been prepared according to standardized accounting rules. This ensures that all companies are reporting their finances in the same way, which allows investors, lenders, and others to more easily understand their reports. External auditors also ensure that these financial statements are accurate with no misstatements or omissions, whether accidental or deliberate.

What Are the Main Types of Financial Statements?

The three main types of financial statements are the balance sheet, the income statement, and the cash flow statement. These three statements together show the assets and liabilities of a business, revenues, and costs, as well as its cash flows from operating, investing, and financing activities.

What Are the Benefits of Financial Statements?

Financial statements show how a business operates. They provide insight into how a business generates revenues, what those revenues are, what the cost of doing business is, how efficiently it manages its cash, and what its assets and liabilities are. Financial statements show how well or poorly a company is managed.

How Do You Read Financial Statements?

Financial statements are read in several different ways. First, financial statements can be compared to prior periods to understand changes over time better. Financial statements can also be compared between competitors in the same industry to see the differences in their business operations and profits. By comparing financial statements to other companies, analysts can get a better sense of which companies are performing the best and which are lagging behind the rest of the industry.

What Is GAAP?

Generally Accepted Accounting Principles (GAAP) are the rules by which publicly-owned United States companies must prepare their financial statements. These are the guidelines that explain how to record transactions, when to recognize revenue, and when expenses must be recognized. International companies may use a similar but different set of rules called International Financial Reporting Standards (IFRS).

Financial statements are the ticket to the external evaluation of a company's financial performance. The balance sheet reports a company's financial health through its liquidity and solvency, while the income statement reports its profitability. A statement of cash flow ties these two together by tracking sources and uses of cash. Together, these financial statements provide a picture of a business's financial standing that is used by management, investors, governments, and lenders.

U.S. Securities and Exchange Commission. " Exxon Mobile Corporation Form 10-K for the Fiscal Year Ended Dec. 31, 2023 ."

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The 6 Most Useful Financial Documents for Small Businesses

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The day you opened your doors, you had an inkling of how much paperwork doing business would entail—from signing building leases to tracking customer receipts. But unless you were already familiar with bookkeeping basics , you might not have known just how crucial the right financial documents are to your success.

How so? Because the right financial information helps you check your business’s temperature. Are you running too hot, burning through cash too fast? Or is your business too cold, leaving you with fewer sales than you need to turn a net profit? The documents we list below will help you find out. Keep reading to learn what these documents are, how they work, and how they can help you keep your business in the black.

Six most useful financial documents for small businesses

• Income statement
• Cash flow statement
• Balance sheet
• Accounts receivable aging report
• Business plan
• Budget report

If you're searching for accounting software that's user-friendly, full of smart features, and scales with your business, Quickbooks is a great option.

1. Income statement

An income statement lists your revenue and expenses to indicate if your business is profitable or not—which is why an income statement is your business’s most important document.

To create an income statement, list all your sources of revenue (e.g., income from property you lease or money made from sales). Next, list your direct costs, or all the money you invest directly in creating your product or selling your service. When you subtract direct costs from revenue, you end up with your gross profit .

• Profit and loss statement (P&L)
• Statement of income
• Statement of operations
• Revenue statement

2. Cash flow statement

A cash flow statement documents how cash is flowing into and out of your business in three main categories: operations, investments, and financing. The statement shows which parts of your business are creating the most cash and which areas are spending the most cash.

Cash flow statements are useful for calculating upcoming budgets. For instance, if you have a negative cash flow, meaning you’re spending more money than you’re making, the statement clearly identifies places for you to cut back in next month’s budget.

Plus, if you’re looking for investors, the cash flow statement clearly shows if your business is profitable or not—which can impact who wants to invest and how much. And if the documents reveal you're likely to lose money, you might decide you need a small business loan until profit rolls in someday.

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3. Balance sheet

A balance sheet shows you if your assets balance with your liabilities at a specific moment in time. In other words, the document relies on a fundamental accounting equation:

Assets = Liabilities + Equity

Think of a balance sheet as a snapshot of your business’s financial health—on one side of the sheet, you list your (tangible and intangible) assets, and on the other side, you list your liabilities (like debts owed) and equity (the amount you or other shareholders invested in the company). The numbers on both sides of the sheet should be the exact same. If you have more liabilities than you do assets, you’re losing money and need to reevaluate.

And now that we've covered the top three most useful financial documents. we should tell you there are tools to help you manage all these jargon-laced papers. Accounting and bookkeeping software, such as Intuit QuickBooks , can offer a simple point-and-click solution. We recommend comparing some of the best bookkeeping software titles out there to discover the most ideal option for your business.

4. Accounts receivable aging report

The accounts receivable aging report (a.k.a. the A/R aging report or, simply, the aging report) is a list of overdue customer invoices. The aging report covers when a customer’s payment was due, how late the payment is, and how to contact the customer for collection purposes.

5. Business plan

A business plan maps out where your business is, where you hope it’s going, and how you plan to get there. The document can be pretty informal, especially if you just want to use it internally to guide your company’s strategy. But if you want to share your business plan with investors or lenders, you’ll want it to look a little more formal. In particular, it should include information about your business and the details of your financial plan.

6. Budget report

While other financial documents show you where your business stands, a budget report is a future projection based on the financial documents in your repertoire, particularly the cash flow statement and income statement. The numbers in a budget report estimate your projected income and losses over a specific period of time, from a month to several years. A bookkeeper or bookkeeping software can draw up a budget report template that makes the most sense for your unique business.

The takeaway

When you put in the time to assemble and analyze these financial documents, you’re giving yourself the tools to keep your small business on track. Set aside some time each week (at least!) to balance your books, draw up crucial financial reports, and create financial goals for the coming weeks, months, and years.

Need a way to quickly assemble accurate documents? See our page on the best bookkeeping software for small businesses.

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Primarily, these key financial documents are for you, but they’re also the first things other stakeholders will use to evaluate your business’s profitability. For instance, if you want to take out a small-business loan, your lender will always look at your income statement, business plan, and several other documents to boot.

You can draw up most of these documents using a spreadsheet program like Excel or Google Sheets. If you want to save time, accounting software like QuickBooks Online will generate these types of documents for you and help identify trends that could impact your bottom line.

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Imagine a symphony orchestra where each musician plays their own tune without listening to others. The result would be chaotic and dissonant, right? Similarly, in the business world, when decision-making happens in silos and planning processes are disconnected, it’s like having a group of individuals playing their own instruments without any coordination. The harmony is lost, and the organization becomes inefficient, misses opportunities, and struggles to keep up with the fast-paced market.

Integrated Business Planning (IBP) addresses these challenges by providing a comprehensive framework that integrates strategic, operational and financial planning, analysis, and reporting to drive better business outcomes.   A retail company experiences a sudden surge in online sales due to a viral social media campaign. Integrated planning incorporates supply chain planning, demand planning, and demand forecasts so the company can quickly assess the impact on inventory levels, supply chain logistics, production plans, and customer service capacity. By having real-time data at their fingertips, decision-makers can adjust their strategies, allocate resources accordingly, and capitalize on the unexpected spike in demand, ensuring customer satisfaction while maximizing revenue.   This blog explores the significance of IBP in today’s modern business landscape and highlights its key benefits and implementation considerations.

Integrated Business Planning (IBP) is a holistic approach that integrates strategic planning, operational planning, and financial planning within an organization. IBP brings together various functions, including sales, marketing, finance, supply chain, human resources, IT and beyond to collaborate across business units and make informed decisions that drive overall business success. The term ‘IBP’ was introduced by the management consulting firm Oliver Wight to describe an evolved version of the sales and operations planning (S&OP process) they originally developed in the early 1980s.

1. Strategic planning

Integrated Business Planning starts with strategic planning. The management team defines the organization’s long-term goals and objectives. This includes analyzing market trends, competitive forces, and customer demands to identify opportunities and threats. Strategic planning sets the direction for the entire organization and establishes the foundation for subsequent planning roadmap.

2. Operational planning

Operational planning focuses on translating strategic goals into actionable plans at the operational level. This involves breaking down the strategic objectives into specific targets and initiatives that different departments and functions need to execute.

For example, the sales department might develop a plan to enter new markets or launch new products, while the supply chain department focuses on inventory optimization and ensuring efficient logistics. The key is to align operational plans with the broader strategic objectives to ensure consistency and coherence throughout the organization.

3. Financial planning

Financial planning ensures that the organization’s strategic and operational plans are financially viable. It involves developing detailed financial projections, including revenue forecasts, expense budgets, and cash flow forecasts. By integrating financial planning with strategic and operational planning, organizations can evaluate financial profitability, identify potential gaps or risks, and make necessary adjustments to achieve financial targets.

 4. Cross-functional collaboration

A fundamental aspect of IBP is the collaboration and involvement of various functions and departments within the organization. Rather than working in isolation, departments such as sales, marketing, finance, supply chain, human resources, and IT come together to share information, align objectives, and make coordinated decisions.

5. Data integration and analytics

IBP relies on the integration of data from different sources and systems. This may involve consolidating data from enterprise resource planning (ERP) systems, customer relationship management (CRM) systems, supply chain management systems, and other relevant sources. Advanced analytics and business intelligence tools are utilized to analyze and interpret the data, uncovering insights and trends that drive informed decision-making.

6. Continuous monitoring and performance management

The Integrated Business Planning process requires continuous monitoring of performance against plans and targets. Key performance indicators (KPIs) are established to measure progress and enable proactive management. Regular performance reviews and reporting enable organizations to identify deviations, take corrective actions, and continuously improve their planning processes.

By integrating strategic, operational, and financial planning organizations can unlock the full potential of IBP and drive business success and achieve their goals.

Enhanced decision-making

IBP facilitates data-driven decision-making by providing real-time insights into various aspects of the business. By bringing together data from various departments, organizations can develop a holistic view of their operations, enabling them to make better-informed decisions.

Improved alignment

By aligning strategic objectives with operational plans and financial goals, IBP ensures that every department and employee is working towards a common vision. This alignment fosters synergy and drives cross-functional collaboration.

Agility and responsiveness

In the rapidly changing business landscape, agility is crucial. IBP allows organizations to quickly adapt to market shifts, demand fluctuations, and emerging opportunities. By continuously monitoring and adjusting plans, businesses can remain responsive and seize competitive advantages.

Optimal resource allocation

Integrated Business Planning enables organizations to optimize resource allocation across different functions. It helps identify bottlenecks, allocate resources effectively, and prioritize initiatives that yield the highest returns, leading to improved efficiency and cost savings.

Risk management

IBP facilitates proactive risk management by considering various scenarios and identifying potential risks and opportunities. By analyzing data and conducting what-if analyses, companies can develop contingency plans and mitigate risks before they materialize.

Implementing an effective IBP process requires careful planning and execution that may require substantial effort and a change of management, but the rewards are well worth it. Here are some essential strategic steps to consider:

1. Executive sponsorship

Establish leadership buy-in; gain support from top-level executives who understand the value of Integrated Business Planning and can drive the necessary organizational changes. Leadership commitment, led by CFO, is crucial for successful implementation.

2. Continuous improvement

Continuously monitor and adjust; implement mechanisms to monitor performance against plans and targets. Regularly review key performance indicators (KPIs), conduct performance analysis, and generate timely reports and dashboards. Identify deviations, take corrective actions, and continuously improve the planning processes based on feedback and insights.

3. Integration of people and technology

To foster cross-functional collaboration, the organization must identify key stakeholders, break down silos, and encourage open communication among departments. Creating a collaborative culture that values information sharing and collective decision-making is essential.

Simultaneously, implementing a robust data integration system, encompassing ERP, CRM, and supply chain management systems, ensures seamless data flow and real-time updates. User-friendly interfaces, data governance, and training provide the necessary technological support. Combining these efforts cultivates an environment of collaboration and data-driven decision-making, boosting operational efficiency and competitiveness.

4. Technology

Implement advanced analytics and business intelligence solutions to streamline and automate the planning process and assist decision-making capabilities. These solutions provide comprehensive functionality, data integration capabilities, scenario planning and modeling, and real-time reporting.

From a tech perspective, organizations need advanced software solutions and systems that facilitate seamless data integration and collaboration to support IBP. Here are some key components that contribute to the success of integrated business planning:

1. Corporate performance management

A platform that serves as the backbone of integrated business planning by integrating data from different departments and functions. It enables a centralized repository of information and provides real-time visibility into the entire business.

2. Business intelligence (BI) tools

Business intelligence tools play a vital role in analyzing and visualizing integrated data from multiple sources. These tools provide comprehensive insights into key metrics and help identify trends, patterns, and opportunities. By leveraging BI tools, decision-makers can quickly evaluate financial performance, make data-driven business decisions and increase forecast accuracy.

3. Collaborative planning and forecasting solutions

Collaborative planning and forecasting solutions enable cross-functional teams to work together in creating and refining plans. These planning solutions facilitate real-time collaboration, allowing stakeholders to contribute their expertise and insights. With end-to-end visibility, organizations can ensure that plans are comprehensive, accurate, and aligned with business strategy.

4. Data integration and automation

To ensure seamless data integration, organizations need to invest in data integration and automation tools. These tools enable the extraction, transformation, and loading (ETL) of data from various sources. Automation streamlines data processes reduces manual effort and minimizes the risk of errors or data discrepancies.

5. Cloud-based solutions

Cloud computing offers scalability, flexibility, and accessibility, making it an ideal choice for integrated business planning. Cloud-based solutions provide a centralized platform where teams can access data, collaborate, and make real-time updates from anywhere, at any time. The cloud also offers data security, disaster recovery, and cost efficiencies compared to on-premises infrastructure.

6. Data governance and security

As organizations integrate data from multiple sources, maintaining data governance and security becomes crucial. Establishing data governance policies and ensuring compliance with data protection regulations are vital steps in maintaining data integrity and safeguarding sensitive information. Implementing robust data security measures, such as encryption and access controls, helps protect against data breaches and unauthorized access.

IBM Planning Analytics  is a highly scalable and flexible solution for Integrated Business Planning. It supports and strengthens the five pillars discussed above, empowering organizations to achieve their strategic goals and make better data-driven decisions. With its AI- infused advanced analytics and modeling capabilities, IBM Planning Analytics allows organizations to integrate strategic, operational, and financial planning seamlessly. The solution enables cross-functional collaboration by providing a centralized platform where teams from various departments can collaborate, share insights, and align their plans. IBM Planning Analytics also offers powerful data integration capabilities, allowing organizations to consolidate data from multiple sources and systems, providing a holistic view of the business. The solutions’s robust embedded AI predictive analytics uses internal and external data and machine learning to provide accurate demand forecasts. IBM Planning Analytics supports continuous monitoring and performance management by providing real-time reporting, dashboards, and key performance indicators (KPIs) that enable organizations to track progress and take proactive actions.  As the business landscape continues to evolve, embracing Integrated Business Planning is no longer an option but a necessity for organizations. To succeed in this dynamic environment, businesses need an integrated approach to planning that brings all the departments and data together, creating a symphony of collaboration and coordination.

Learn more about IBM Planning Analytics

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Richland Source

North Central Ohio's Independent Local News

Passing the torch: How to maximize your business succession plan

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This story is part of an ongoing series exploring north central Ohio's workforce trends and how different organizations, including businesses and schools, are adapting to current challenges. Thanks to our presenting sponsor, Gorman-Rupp Company for its ongoing support of trusted independent local journalism.

MANSFIELD — Jake Penwell spent more time at the funeral home than the average teenager.

The Shelby native was just 14 years old when he got a part-time job at Turner Funeral Home. After school, his parents would drop him off or his employers would pick him up.

By the time he could drive himself to work, Penwell knew he’d be taking over one day.

“The Turners were always very forthcoming,” he said. “They wanted me to own the funeral home.”

Penwell continued working for the Bob and Catherine Turner, learning every aspect of the business. He went to college, obtained his funeral director’s and embalmer’s license in 2013 and bought the funeral home five years later.

This month, the business officially took on a new name — Penwell Funeral Home.

To this day, Penwell calls himself the product of a good succession plan.

“They just took me under their wing. They taught me everything,” Penwell said. “They wanted me to be successful as much as I wanted to be successful.”

Good succession planning ensures a business owner can comfortably retire and the enterprise can continue operating under new leadership.

Barrett Thomas, director of economic development for the Richland Area Chamber, recommended business owners start thinking about succession at least five to 10 years before they aim to retire.

Waiting until the last minute may mean accepting a less-than-stellar offer or having no time to groom a successor.

Sam Van Cura of Total Performance said he’s seen several local business close for that reason.

“Good will is a big part of selling a company and good will has to do with name recognition,” he said.

“It’s worth a lot of money when you sell a business, but it’s worth nothing if you don’t have a succession planned. I just feel sorry for people that work their whole lives, build up a business and don’t get to sell it.”

A strong succession plan benefits other employees and gives entrepreneurs the chance to get the highest return on the investment.

But the impact also ripples beyond the people earning a paycheck.

Want to learn more?

The Richland Area Chamber is hosting a BOSS (Business Owners Sharing Solutions) session on succession planning on September 25 from 7:30 to 9:30 a.m. Speakers will include Mark Dorman of Succession Plus, Scott King of The Gorman-Rupp Company, Kristine Lindeman of Alumni Roofing Co. and Jake Penwell of Penwell Funeral Home. The event will be moderated by Carl Fernyak of Richland Source and Carrousel Properties. For information and tickets, click here .

Strong succession strengthens communities

When small businesses continue to operate for generations, it benefits not just customers, but employees and communities at-large.

“We’ve seen the results of businesses that leave the community,” said Jessica Gribben, an economic development manager at the Richland Area Chamber.

“Either the (owner) retires, has no plan and the business ceases to exist, or ownership transfers outside of the community.”

While a business may survive financially with a non-local owner, the benefits small businesses bring to a community often diminish.

“Things tend to just leave the community — that wealth, decision-making, philanthropy, jobs — all those things,” Gribben said.

Planning ahead can help prepare small businesses for a smooth transition between owners, but Gribben and other experts say it’s easy for entrepreneurs to put succession planning on the back burner or ignore it entirely.

“They don’t want to think about life after they’re out of their business. Maybe they don’t think their business can run without them or they’re so invested, it’s part of them. So it’s just a really hard topic,” Gribben said.

For others, it’s simply a challenge of finding the time.

“It’s not easy. It takes a lot of resources to do it well,” Thomas said.

“You need your accountant, your lawyer and your financial planner all together to work on this thing, and that is expensive to get time from all of those people. When it’s not the primary thing you’re trying to get done, it’s tough to dedicate that much time to it.”

Nevertheless, business owners and experts repeatedly told Richland Source that planning ahead is worth the time investment.

“A lot of businesses are sold at the end with no plan and and maybe out of just complete exhaustion, maybe frustration,” Penwell said.

“Businesses can always be sold. But I think successful business transactions happen because there’s a plan ahead of time.”

We asked several area business owners for advice on how they navigated this transition.

If you’re selling your business to an employee, hand over responsibilities gradually

Jay Miller has worked for DRM Productions for 18 years, working his way up from software engineer to CEO.

An eighth-generation entrepreneur, Miller realized by his mid-20s that he wanted to be his own boss. It was something he discussed early on with DRM founders Bob Jones and Dave Damron.

“When I came on board here at DRM, Dave and Bob were kind of towards the end of their careers,” Miller said.

The trio ultimately decided to map out the company’s succession plan years in advance — Jones would retire first, followed by Damron five years later.

“I couldn’t afford to pay (Miller and his business partner, Jonathon Pierce) what they were probably worth at the time,” Damron recalled.

“So I said, over five years, you can have one quarter of the business, and then after that, they could buy out (the rest) from Bob and I over time. We did it slowly, and so they knew the business.”

According to plan, Miller and Pierce took over DRM Productions in 2019 — each with a decade of experience at the company under their belt.

Put other companies leaders in the forefront

Chaz and Austin Schroeder have been the co-owners of Black River Group for just under two years.

But the brothers and third-generation business owners were primed to take over long before their father and his business partner retired.

“Probably nine to 10 years before we actually took full control and bought them out, we were basically stepping in and assuming the majority of their role overseeing and running the entire company,” Schroeder said.

Giving future successors more responsibility leads to a smoother transition within the company and for customers. It also reduces stress for the business owner.

“If you start planning and putting people in place to take over for you, then you get to go on vacation, you get to have more time outside of that office,” Thomas said.

“You also get the benefit of knowing if you get hit by a beer truck, then there’s someone to take over.”

Prepare on more than just a business level

Conversations around succession often focus on keeping the business running. Dorman said sellers should also be thinking about what the sale means for their own lives, both financially and personally.

“It can be very, very emotional. You’re detached from your professional community, all your contacts, your networks, your relationships — particularly for men,” he said.

“Oftentimes, their whole identity and sense of self is wrapped up in their business and next thing you know, nobody needs them anymore.”

If you can’t fathom retirement, consider scaling back instead

One major obstacle to succession planning is that a business owner genuinely enjoys their work and doesn’t want to give it up completely.

Thomas suggested that business owners who feel this way find a middle ground. It’s possible to stay involved without staying in charge.

Bob and Catherine Turner continued to work at the funeral home for more than a year after they sold it to Penwell. Damron still helps out at DRM Productions with big projects.

“Rick Taylor of Jay Industries is doing the same thing,” Thomas said. “He’s not the CEO of Jay Industries anymore. That’s Paul Boggs.”

“I asked Paul, ‘What’s Rick doing? And he said, ‘Whatever Rick wants … he’s still involved, still knows all the things and gets to go do the parts that make him happy.'”

Other quick tips

• Don’t assume a potential successor wants the job. If you think they’d be a good fit, start a conversation about their goals.
• Don’t assume you know what your business is worth. “I’ve seen a lot of business owners who thinks their business is worth $5 million and then they get a business valuation and it’s $2.1 million,” Thomas said.
• Don’t string a successor along. If you tell someone you want to sell them your business, give them a relative timeframe and do your best to stick to it.

Thanks to Gorman-Rupp Company , Spherion , North Central State College , Ashland County Community Foundation and The Ohio State University Mansfield for their generous support of trusted independent local journalism.

Katie Ellington Serrao Staff Reporter

Staff reporter at Richland Source since 2019. I focus on education, housing and features. Clear Fork alumna. Always looking for a chance to practice my Spanish. Got a tip? Email me at [email protected]. More by Katie Ellington Serrao

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Harris plans to tax unrealized stock gains — but only for people worth $100 million

Vice President Kamala Harris' endorsement of a Biden administration plan that includes a tax on stock holdings that have grown in value has emerged in recent weeks as a talking point among conservative pundits and Trump supporters who argue it amounts to socialism or even communism.

Under the current system, the federal government only taxes profits from stock investments — commonly known as capital gains — once a stock is sold. The plan backed by Harris would impose a levy on stock holdings as their value increases, whether they’re cashed in or not.

There is, however, a catch. The proposal backed by Harris would only apply to a narrow — and very wealthy — slice of the population: people whose net worth is at least $100 million. That's about 10,660 people in the U.S., according to one estimate .

Currently, no such tax exists — something that many advocates across the political spectrum, though mostly progressive-leaning ones, believe should be rectified. By most estimates, the top 1% has approximately 40% of their wealth tied up in unrealized capital gains.

The lack of taxes on capital gains has been considered by some economists and tax experts as a loophole for the wealthy.

Because taxes are imposed only when stocks are sold, the wealthy have deployed a strategy popularly called " buy, borrow, die ," which involves buying assets and borrowing against the value of those assets to buy even more assets. This a tax-free action, which allows for the assets to be passed on to heirs, who end up paying no taxes on the assets. Ultimately, over the lifetime of the ownership of a given asset, no tax is paid.

That the tax would be applied only to the ultra-wealthy — and only to "tradable" assets, thus excluding real estate or shares in private startups — has done little to stymie conservative opposition to the plan, and some on the right have seized on it to argue that Harris would be bad for business.

The right-leaning CATO Institute has said such a plan "raises deeper questions about individual property rights, financial privacy, and due process."

Former presidential candidate and venture capitalist Vivek Ramaswamy posted a video to X on Wednesday from a recent appearance on CNBC in which he railed against the plan.

" A few weeks ago, I started pointing out that Kamala Harris wants to tax *unrealized* capital gains," he wrote in the post on X. "The main objection I heard was 'she’ll never actually do this.' Now, we’re seeing it’s one of her signature economic policy proposals."

Ramaswamy's post was reposted by Elon Musk, one of the wealthiest people in the world. Notably, Musk at one point planned to purchase X by borrowing against the value of his Tesla holdings before turning to a slightly more conventional loan from Wall Street banks to make the acquisition.

Other objections to the Biden and Harris proposal include that the value on unrealized assets can decline by as much, or just as soon, as they've increased — meaning someone will have paid a tax on value it never even took advantage of if the stock market tanks.

However, Biden's proposal addresses this in part by assessing the tax over five years.

Jeff Huggett, a member of the Patriotic Millionaires group, wrote that average American workers experience the same kind of fluctuation in their financial lives, yet are still expected to pay tax each year on their earnings.

"The same should be expected of anyone who makes a killing on Wall Street," Huggett wrote in a blog post in July .

A new series of legal roadblocks have also been thrown up in a recent Supreme Court's decision that revolved around the government's taxing power. While the majority opinion in Moore v. United States, written by Justice Brett Kavanaugh and joined by the court's three Democratic appointees plus Chief Justice John Roberts, did not explicitly bar a wealth tax, many read the decision — as well as a concurring opinion by Justice Amy Coney Barrett and a dissent by Justice Clarence Thomas — as teeing up a way for future opponents of such a tax to bar its implementation.

Harris' plan would most likely face difficulty passing Congress: Biden couldn't get the proposal passed even when he enjoyed slim majorities in the House and Senate in the first part of his term.

Yet as a matter of fiscal prudence, Harris' proponents also point out that GOP nominee Donald Trump's budget plan, which revolves around extending his 2017 tax cuts, has been projected by the University of Pennsylvania's Wharton School of Business to add $5.8 trillion to the deficit over the next decade — nearly five times more than the $1.2 trillion increase estimated for Harris.

Biden has called his administration's proposal a “billionaire minimum income tax” and has sought a rate of 25%. The Committee for a Responsible Federal Budget has estimated it would raise as much as $503 billion over 10 years. While that would be just a fraction of the $5 trillion in tax increases Biden has proposed, his administration has described it as not only financially prudent but morally necessary.

“Preferential treatment for unrealized gains disproportionately benefits high-wealth taxpayers and provides many high-wealth taxpayers with a lower effective tax rate than many low- and middle-income taxpayers,” a Treasury Department document on the proposal stated. “Preferential treatment for unrealized gains also exacerbates income and wealth disparities, including by gender, geography, race, and ethnicity.”

Rob Wile is a Pulitzer Prize-winning journalist covering breaking business stories for NBCNews.com.

Goldman to lay off a few hundred employees in annual talent review, source says

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China's weak factory PMI raises pressure for consumer stimulus

China's manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled for orders, an official survey showed on Saturday, pressuring policymakers to press on with plans to direct more stimulus to households.

Understanding retirement calculators

How to use a retirement calculator, benefits of using a retirement calculator, accurate retirement calculator: plan your future with ease.

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• Retirement calculators provide a rough estimate of how your invested savings will grow over time.
• Our retirement calculator tracks your retirement savings progress and shows if you might fall short.
• Compare the estimated retirement funds with the amount you will need by your desired retirement age.

Taking advantage of the compound growth, tax advantages, and investment opportunities provided by the best retirement plans is the first step in building long-lasting wealth. But how do you know if you've contributed enough to support yourself during your golden years?

Business Insider's free retirement calculator offers free estimates to help you plan accordingly based on personal details like your life expectancy, income, expected expenses, and estimated retirement age.

Here is how you can use an online retirement calculator and the information you need to generate an accurate estimate. 

Retirement Calculator

Use insider’s calculator to see if you’re on your way to a comfortable retirement by answering a few questions about yourself, your savings, and how long you expect to keep working..

70% of pre-retirement income

*Need is based on covering 70% of your annual pre-retirement income and a life expectancy of 100 years.

What is a retirement calculator?

Retirement calculators are free online planning tools that estimate how your invested savings will grow based on personal and economic factors. 

"If you start investing in your retirement plans in your early 20s, the more likely you'll have a larger pool of money to support you in retirement than if you start saving and contributing to retirement accounts later in life," says Chloe Wolhforth, financial planner and senior managing director at Angeles Investments . 

Business Insider's retirement calculator, above, is designed to track your savings progress with detailed retirement projections. It's based on the idea that Americans generally spend less as they age and can sustain a 30- to 40-year retirement on 70% of their pre-retirement income. 

The calculator generates two important numbers:

• The amount you will have by your desired retirement age. By providing your current savings rate and retirement account balances, the retirement calculator can estimate how much money you'll have in savings or investments by retirement. 
• The amount you will need by your desired retirement age. Using your current income and expected salary increases, the retirement calculator can estimate how much money you'll need in savings or investments by retirement. 

How much you'll need to retire may be more or less than the 70% rule of thumb, depending on your lifestyle. For a more accurate estimate of how much you can expect to spend in retirement, consult a financial advisor . 

Why you need a retirement calculator

The best retirement calculators estimate how much you need to save for your future using personal and financial information. A general rule of thumb is that the earlier you start saving, the better.

Investing your savings and accumulating compound interest is the best way to grow long-term wealth. Now is the time to start if you're not already contributing to a retirement savings plan like a 401(k) or IRA. 

Inflation is considered when calculating retirement savings. But remember, a retirement calculator can't predict the future, and the actual inflation rates may vary. It can't predict market crashes, failed investments, or future financial hardships. It is only one of many financial planning tools you need to ensure a comfortable retirement. 

Input your personal and financial information

For the retirement calculator, we define a comfortable retirement as living on 70% of your pre-retirement income. However, the calculator is customizable. If you're able, incorporate as many specific details as possible. 

Here's what you'll need to input:

• Personal information: Current age and the age at which you expect to retire. 
• Current retirement balance: The total retirement savings across all your accounts, including 401(k)s and IRAs .
• Current household income: Your annual gross income (the amount you earn before taxes).
• Rate of savings: How much money you save toward retirement each month. You can enter this as a dollar amount or a percentage of your income.

The following inputs are pre-filled, but you can change some to customize your retirement calculation further.

• Expected annual salary increases: How much do you expect your salary to increase each year? The calculator's default is 2%.
• Anticipated monthly spending in retirement: We assume you'll spend 70% of your pre-retirement income (the amount you're projected to earn right before you retire), but you can change that number if you expect to spend more or less.
• Life expectancy: How long do you expect to live? The default calculation uses a life expectancy of 100 years.
• Investment returns: We assume your savings are invested and earn a 5% annual rate of return. If your retirement savings aren't invested, you may be missing out on earnings through capitalizing on compound interest. 

Analyze the results of the retirement calculator

Don't be discouraged if the retirement calculator shows you fall short of your financial target. There's still time to adjust your savings rate or investment strategy to meet your goal. 

Increasing your income is one of the most effective ways to catch up on retirement savings. If you cannot score a raise in your current position, consider switching jobs for a higher salary or better benefits, such as a more generous 401(k) match, or investing in stocks and similar assets.

Other strategies you can consider are maxing out your 401(k), contributing to a Roth or traditional IRA , or working with a financial advisor to boost your savings further. 

"Investing is a critical part of growing wealth. It is important to invest savings that you have identified as long-term so your assets can grow over time," Wolhforth says. 

Above all, be flexible. As you approach retirement, consider taking a part-time job, waiting to claim Social Security benefits, downsizing your home, or relocating to a more affordable city. 

Using a retirement calculator to see where you stand provides several perks. Here are some of the benefits of retirement calculators:

• Snapshot of your future: A rough estimate of how much money you'll need to retire by a certain age is better than having no estimate.
• Identify shortfalls: The calculator shows if you might fall short of your financial goal, allowing you to plan for a higher savings rate or find supplementary income sources.  
• See your options: By adjusting the calculator's inputs — such as changing your savings rate or your planned retirement age — you can see how your overall plan is affected.

"Depending on when you want to retire, your employment, your tax status, and other considerations, a blend of multiple accounts may be suitable," says Jordan Gilberti, senior financial planner at Facet. 

FAQs about retirement calculators

The accuracy of a retirement calculator can vary, but it is always a rough estimate. Online calculators cannot predict economic shifts or financial hardships that may impact invested funds. Retirement calculators provide estimates based on your inputs, but their accuracy depends on the data you provide and the assumptions used. 

The information you need to use a retirement calculator includes details about your current savings, income, retirement age, expected expenses, and similar data. Retirement calculators also adjust estimations based on predicted inflation and compound growth. 

A retirement calculator can help you save more by revealing whether your current contributions and investment strategy are on track. Based on your estimated retirement age and preferred lifestyle, you can better gauge how long your savings will last. It helps to set realistic goals and adjust your retirement saving strategies accordingly. 

Many free retirement calculators are reliable financial planning tools using standard financial models. However, retirement calculators only provide estimates, so the generated rate of return may not always be accurate. If you're worried about coming short, consider consulting a financial advisor to help grow your retirement savings. 

You should use a retirement calculator on an annual basis or whenever your financial situation changes. It is a good idea to recalculate your estimated retirement savings if you change your salary deferral rate, have increased income, or are considering withdrawing from your retirement savings to afford other expenses. 

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Postal Service Overhaul Runs Into Challenges

Louis DeJoy, the postmaster general, defended the 10-year plan to stabilize the agency’s finances, although he acknowledged that officials had faced initial challenges.

The U.S. Postal Service is trying to shore up its finances, but its 10-year modernization plan is running into challenges. Credit... Video by Kendrick Brinson

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By Madeleine Ngo

Reporting from Washington

• Aug. 29, 2024

More than three years ago, the U.S. Postal Service unveiled a sweeping 10-year plan meant to steer the organization out of a financial crisis. The plan, which included consolidating locations, raising prices and lengthening promised delivery times, was meant to stabilize an agency that had lost $87 billion over the past 14 years.

That effort has run into major obstacles. Early attempts to modernize the delivery network temporarily led to worse service in areas like Atlanta and Richmond, Va., where the agency has rolled out new regional processing and distribution centers.

The Postal Service’s long-term financial viability also remains in doubt. Revenue is up , but expenses have climbed, in large part because inflation has surged in recent years and driven up labor expenses. The agency has also called for administrative action that would adjust its pension costs, which has not occurred. At the same time, the Postal Service is grappling with declining mail volume .

In early 2021, Postal Service management initially projected that it would break even by fiscal year 2023. Instead, the agency, which is supposed to be self-sustaining, lost $6.5 billion that year and is projected to lose an additional $6.3 billion this fiscal year.

Lawmakers have pushed back on the changes, in part because of complaints about mail service in their districts. In May, a bipartisan group of 26 lawmakers sent a letter to the agency’s leaders expressing concern about the decline in on-time delivery in regions where there have been major changes. The lawmakers also called on the agency to pause changes to its processing network until its regulator fully studied their potential impact.

In response, Louis DeJoy, the postmaster general, said the agency would pause some of the changes until January and move forward with others that were underway.

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Supreme Court rebuffs Biden administration plea to restore multibillion-dollar student debt plan

FILE - The Supreme Court is seen at sundown in Washington, Nov. 6, 2020. (AP Photo/J. Scott Applewhite, File)

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WASHINGTON (AP) — The Supreme Court on Wednesday kept on hold the latest multibillion-dollar plan from the Biden administration that would have lowered payments for millions of borrowers, while lawsuits make their way through lower courts.

The justices rejected an administration request to put most of it back into effect. It was blocked by the 8th U.S. Circuit Court of Appeals.

In an unsigned order, the court said it expects the appeals court to issue a fuller decision on the plan “with appropriate dispatch.”

The Education Department is seeking to provide a faster path to loan cancellation, and reduce monthly income-based repayments from 10% to 5% of a borrower’s discretionary income. The plan also wouldn’t require borrowers to make payments if they earn less than 225% of the federal poverty line — $32,800 a year for a single person.

Last year, the Supreme Court’s conservative majority rejected an earlier plan that would have wiped away more than $400 billion in student loan debt.

Cost estimates of the new SAVE plan vary. The Republican-led states challenging the plan peg the cost at $475 billion over 10 years. The administration cites a Congressional Budget Office estimate of $276 billion.

Two separate legal challenges to the SAVE plan have been making their way through federal courts. In June, judges in Kansas and Missouri issued separate rulings that blocked much of the administration’s plan. Debt that already had been forgiven under the plan was unaffected.

The 10th U.S. Circuit Court of Appeals issued a ruling that allowed the department to proceed with a provision allowing for lower monthly payments. Republican-led states had asked the high court to undo that ruling.

But after the 8th Circuit blocked the entire plan, the states had no need for the Supreme Court to intervene, the justices noted in a separate order issued Wednesday.

The Justice Department had suggested the Supreme Court could take up the legal fight over the new plan now, as it did with the earlier debt forgiveness plan. But the justices declined to do so.

“This is a recipe for chaos across the student loan system,” said Mike Pierce, executive director of the Student Borrower Protection Center, an advocacy group.

“No court has decided on the merits here, but despite all of that borrowers are left in this limbo state where their rights don’t exist for them,” Pierce said.

Eight million people were already enrolled in the SAVE program when it was paused by the lower court, and more than 10 million more people are looking for ways to afford monthly payments, he said.

Sheng Li, litigation counsel with the New Civil Liberties Alliance, a legal group funded by conservative donors, applauded the order. “There was no basis to lift the injunction because the Department of Education’s newest loan-cancellation program is just as unlawful as the one the Court struck down a year ago,” he said in a statement.