Retail Financial Plan

The Better the Plan, the Better the Retailer

Financial Plan
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Because the financial plan shows investments, loans, accounts receivables and payables, it is one of the most important parts of a business plan. Without this section, the plan cannot prove the company would be a viable business.

Sometimes confused with the term Business Plan because many people use these two ideas interchangeably, the Financial Plan is focused on the current financial health of your retail store versus a business plan that is focused on your vision for a retail store. This vision, usually articulated in the Executive Summary, is great for procuring financing in the beginning. But the vision's financial plan is displayed in your pro-forma - which is a very different document indeed. A pro-forma explains what you think will happen if everything goes as planned. And, of course, rarely does everything go as planned. 

The best practice is to include the Financial Plan inside your overall Business Plan - especially after you have launched your business. Each year, take a day and review your Business and Financial Plans to see how you did according to plan and what adjustments you need to make for the next year. 

What to Include:

When writing the financial plan, be sure to include the following:

  • Break-even Analysis
  • Profit and Loss Statements
  • Cash Flow projections
  • Balance Sheet
  • Industry ratios
  • Address all possible risks

The financial plan should provide facts and figures showing how fast the business is expected to grow and how that growth will be funded. Reiterate any positive facts in the summary. Keep in mind that it is critical to support the financial plan part of the business plan with documented research. Be sure the numbers add up. If writing a business plan for financing, all assumptions and cash flow projections must make sense to the lender.

Your plan should cover a 5-year period of time. While projecting five years out is both daunting and likely inaccurate given the current state of retail, having this forward of a look into your retail store will be a great help in planning. It also serves as a gauge or barometer of your success to your plan. 

At minimum, at least three years of your financials should be planned and projected. Spend the quality time here. Project years four and five, but use a simple "growth" curve (on both expenses and sales) to predict. But on the first three years, plan for seasonality, changes in economic climate, etc. When I used to make my plans for our stores, I went day by day for the next two years. It was incredibly time consuming, but it did two things for me. 

First, it kept me well informed of my financial needs for the business. It is a common mistake to use the P&L to run your retail store versus a cash flow analysis. Your P&L (profit and loss statement) does not account for your payables each month. So. it's possible to have a P&L that says you are profitable, but still go out of business due to cash flow issues. 

Second, it gave me a measuring tool for my retail store. Honestly, when you first open a store, it's hard to know if it is doing well or not. My first store had a P&L that said we were doing well, but when I compared it to my Business Plan, we were way off. Part of this was due to market conditions, but it made me study the numbers intensely to look for patterns and predictors of issues. 

Each year, lock yourself away for a full day - not in the store, but a secret offsite location to avoid distractions - and then update your Business Plan. analyze the last year and adjust for the coming years always extending out to keep a 5-year view. 

Here is the most important part - the Financial Plan is an ongoing business practice for your success. While the pro-forma was all about prediction, the Financial Plan is showing recent history and trends. I spent considerable time each year doing my sales budget and projections for y Financial Plan, often times, locking myself away for the day to do it. What first was an annual project for me eventually became seasonal. In other words, I would review my Financial Plan and adjust it every season. The more accurate my plan, the better my business. I could control my open to buy, my markdowns. my marketing expenses and most importantly, my cash flow by making adjustments in my plan to compensate for current trends whether positive or negative. 

More: 6 Essential Parts of a Retail Business Plan