Small Business Financial Planning: How To Set Business Goals

Entrepreneurs often have big dreams and lots of excitement about what their idea will bring to the world. But turning that vision into a real, thriving business requires resources—and most of the milestones along the way, from production to marketing to early mistakes, cost money.

On the surface, financial planning may sound dry or even overwhelming, but it’s foundational. 

“If you don’t have the money to execute your vision, then your vision is already dead in the water,” says Jamil Bhuya, who co-founded digital design agency Otherhalf Studio with his wife and business partner, Jaz Fenton. The couple has spent more than a decade in various entrepreneurial pursuits, learning firsthand how a solid financial plan can reveal opportunities and help you avoid costly pitfalls.

Read on to learn from their experience, along with how to create a financial plan for your own small business.

What is a small business financial plan?

A small business financial plan is a document that serves as a road map for a company’s financial growth. It details the current financial situation, articulates financial goals, and lays out how the business will achieve those goals.

Some people conflate financial plans with budgets, but the terms are not interchangeable. A financial plan may include a budget, but it also contains additional information such as a balance sheet of the business’s assets and liabilities, a cash flow statement, and an income statement. This data creates an overall picture of the business’s financial health and its ability to achieve longer-term objectives. 

Although creating a financial plan isn’t a must for every business, many small business owners find it a hugely helpful exercise that informs the broader business plan. Assessing your financials forces you to put hard numbers on where you are now and where you hope to be in the future.

For example, if you’re considering expanding into a new market or adding revenue streams, you can’t make informed decisions unless you have a deep understanding of your financials and goals.

Small business financial planning in the real world

Jaz and Jamil each brought hard-won lessons to Otherhalf from their earlier experiences in entrepreneurship. Their stories show how financial planning helps achieve sustainable growth, prepare for major opportunities, and avoid decisions that can strain a business.

Jaz was working as a product designer at Shopify when she launched her business, Yellow Beauty, which began with a single turmeric-based skin care product. 

“It just took off and ended up being a lot bigger than we thought it would,” Jaz says. 

To her surprise, apparel retailer Anthropologie contacted her with an offer to stock the product in its stores. This was a huge opportunity and an equally huge challenge. Supply orders, inventory costs, and financial unknowns piled up as Yellow Beauty strained to fulfill the purchase order. 

Yellow Beauty ended up deeply in debt and was unable to innovate fast enough to stay in Anthropologie and other major retailers. Though the company survived, Jaz says she would have done things differently, including better planning rather than relying on early momentum.

Jamil, too, learned from building the fast-casual restaurant chain Burgers N’ Fries Forever (BFF). In 2022, his investor and partner told him there was no cash left. The business had expanded too quickly and burned through its financial reserves, leaving BFF seven figures in debt. 

Jamil had to fire his chief operating officer, suspend his own salary, and collect unemployment benefits. As he worked to shore up the company, he began actively networking with the goal of selling the business. He attended a golf tournament for restaurateurs, where he met the person who introduced him to BFF’s eventual buyer. 

“We thought success means growth,” Jamil says. “But another definition of success could have been to keep one restaurant and have way more cash. Opening a restaurant creates a lot of cash drain, and we might have been totally successful and happy with just one.”

These experiences shaped how Jaz and Jamil approached building Otherhalf. This time, they created a comprehensive financial plan before diving in, giving them the road map they lacked in earlier ventures. 

As Jamil puts it: “Success is tied to ego, and financial planning is tied to metrics; the two don’t always like to play along. Financial planning helps you define what you’re really trying to do, and how you’ll achieve it. Without those guardrails, you might end up making bad long-term decisions.”

How to create a financial plan for a small business

1. Set overall business goals
2. Build a financial plan and projections
3. Plan for worst-case scenarios

The financial planning process will look slightly different for every business, but most entrepreneurs follow the same core steps when developing their plan.

1. Set overall business goals

Set business goals to serve as benchmarks for measuring success. Start simple and broad by thinking about why you started your company and what you ultimately hope to achieve. 

Then, consider what true success means to you: 

• Are you a graphic designer looking to replace your current income so your side hustle can become your full-time gig? 

• Have you created a product that you dream of seeing on big-name sites and shelves? 

• Do you hope to build and sell your company someday? 

Your answers will shape the financial goals you set. For example, how much revenue you need to generate, how quickly you need to grow, and how you will prioritize spending in your financial plan.

Next, break this long-term objective into shorter-term milestones. Set SMART goals that are specific, measurable, attainable, relevant, and time-bound. For example, you might aim to make $14,000 in quarterly sales, acquire 2,000 new customers next year, or increase site conversions by 10% this month.

Jaz recommends setting realistic business goals that align with your broader life goals. “Grow as big as possible” isn’t the right objective for everyone. Jaz and Jamil, for example, want Otherhalf to be a successful, thriving business—but they also want to enjoy their life together and the work they do for their clients.

“You’re starting this business to give yourself freedom, not to put yourself in jail,” Jaz says. “It’s easy to fall into vanity: ‘I want us to be in that big store.’”

When building Otherhalf, they took a different approach, asking themselves, “What do we want our real lives to actually look like?”

2. Build a financial plan and projections

Your financial plan breaks down and forecasts your business’s key financial metrics—such as sales, revenue, profit, and operating expenses—if applicable. A solid financial plan typically contains at least three major components:

• Balance sheet. A financial statement that shows all of a business’s assets, liabilities, and owner’s equity. 

• Cash flow statement. A record of money received (cash inflow) and paid (cash outflow) during a given period.

• Income statement. A profit and loss statement that details your company’s income and costs over a specific period.

The plan will also include financial projections for the three financial statements above, as well as additional details like funding requirements and a break-even analysis. Projections help you estimate how your business might perform in different scenarios so you can plan ahead and manage cash flow more effectively.

When creating revenue projections, first-time founders typically use a mix of simple inputs such as:

• Past sales data (if available)

• Performance of comparable businesses

• Reasonable month-over-month growth assumptions 

These estimates don’t need to be perfect—your early projections are just a starting point that you will refine as real sales data comes in.

Jamil recommends conducting market research to find typical benchmarks in your industry, such as profit margins and profit and loss ratios. 

“These will help anchor you when creating your plan,” he explains. “For example, a restaurant’s cost of goods is very different from beauty brands or an agency. At a restaurant, labor will be about a third of your costs—but in an agency, it’ll be closer to 50% sometimes. That made Otherhalf very different from what we’ve done before.” 

You can often find benchmark data through industry associations, trade groups, accounting and consulting firm reports, or annual industry trend summaries.

Keep in mind that sound financial management is continuous and requires revisiting and adjusting as your business evolves, including periodic resource allocation decisions. Timing varies based on your business size and level of growth, but a good rule of thumb is to review your goals and projections yearly, your forecasts and benchmarks quarterly, and your budget and spending monthly.

3. Plan for worst-case scenarios

Building a financial plan isn’t just about outlining best-case goals—it also means preparing for the challenges that can derail them. Cautious optimism helps entrepreneurs stay grounded when budgeting and forecasting.

“Always build in a contingency when you’re budgeting because whatever you think something should cost, that’s probably too low,” Jamil says. “In any case, chances are you’re going to make mistakes—and when you’re starting a business, mistakes cost money.” 

Jaz says the pair moves very slowly in expanding Otherhalf, with an eye for reducing risk. For example, they often bring new hires on as freelancers or on three-month contracts to assess fit before committing to full-time salaries. Perhaps most importantly, Jaz and Jamil ensure their business decisions align with their broader goals for Otherhalf.

“You have to constantly ground yourself and re-ask: ‘Why am I doing this thing? And how much money do I have to burn if this doesn’t work?’” Jaz says. “You made your plan for a reason. Don’t let the excitement get ahead of you and your plan.”