How to write a financial plan for a bakery business

You may need to produce a business plan for your new bakery business. In addition, when seeking loans or investments, you’ll probably need to include a financial plan in your application paperwork or pitch. At first, this can sound a bit complicated, but anyone can put a financial plan together. 

Make sure that you are well prepared to produce a financial plan. This guide covers all of the main points you need to consider:

• What is a financial plan?
• Profit and loss statement
• Balance sheet
• Cash flow statement
• Sales forecast

A financial plan is an accurate and relevant way of proving your business is viable. If you can be transparent about the financials of your venture, investors and lenders might find it more attractive. Trust is a crucial element when securing funding, but evidence confirms it. 

A financial plan is evidence that backs up the rest of your business plan. When it comes to setting up your bakery, it is existential. If you want to open a physical store and use expensive equipment, you need a source of finance to get going. 

You should include an income statement if your business has already started trading and you want to secure extra finance using your financial plan. An income statement summarises all of your revenue, costs and expenses for a specific time (usually a month, a quarter or a year). 

The income statement aims to explain the profit or loss within the period. To do that, you take your expenses from your revenue, and if you have a positive figure, that is your profit; if it’s negative, that is your loss.

Your revenue is product sales minus the cost of goods, which gives you a gross profit.

The expenses can include fixed or non-fixed costs:

• Fixed costs — remain the same regardless of the products sold (rent, wages, insurance, accountant fees, marketing).
• Variable cost — costs that may change depending on the number of products sold (advertising campaign which could increase your sales, utilities if more electricity is needed to produce more cakes, for example).

Investors or lenders may also be interested in a figure known as gross profit margin. A percentage is calculated by taking the cost of goods sold away from the product sales, then dividing by the product sales. This figure indicates how profitable your products are.

A balance sheet is a way of showing investors or lenders that your bakery business is financially healthy. The sheet covers assets, liabilities and equity for your business.

Assets are divided into:

• Current assets — available for use within a year (cash, accounts, supplies, inventory)
• Non-current assets — need to be kept for longer than a year (long-term investments, property, equipment)

Liabilities are divided into:

• Current liabilities — must be settled within a year (accounts payable, wages, taxes, accrued expenses)
• Non-current liabilities — can be paid beyond a year (long-term loans)

Equity is either:

• Owner’s equity — the amount that the venture would pay back to the owner of the assets were all sold, and it paid off its debts.
• Retained earnings — the amount that remains for the business after expenses

The assets are what the business owns; the liabilities and equity are what it owes. A balance sheet with an equalling figure for total assets and total liabilities + equity is crucial for lenders and investors. A balance sheet should show that business assets owned were paid for with the liabilities and equity it owes. 

A cash flow statement shows the cash coming in and out of business within a specific timeframe (usually a month, quarter or year). Its purpose is to indicate whether the net cash flow has increased or decreased. 

The statement looks at three activities:

• Core activities (operating) — (cash from selling, paying suppliers, wages, interest, taxes) add together, leaving you with a figure for net operating activities.
• Outside core activities (investing) — (buying long-term assets, selling long-term assets) this leaves you with a figure for net investing activities.
• Funding the business — (proceeds of long-term debt, payments of long-term debt, owner’s funds invested, owner’s takings) this leaves you with a figure for net funding activities.

At the beginning of the period you choose, you have the cash you started with and the date. Then, you must add or take away all of the figures for the net operating activities, net investing activities and net funding activities. You are totalling a figure for the end of the period. 

With the period from the beginning and the end, you can minus whichever is greater. If you have less cash now than you did beforehand, you can calculate how much your cash flow has decreased. If you have more cash now than you did beforehand, you will learn how much it has increased.

Another essential thing included in your financial plan is a sales forecast. A sales forecast is especially crucial if your business is not yet up and running, so you cannot put together a profit and loss or cash flow statement. Instead, it is a prediction of your future sales.

Beyond convincing investors and lenders to give you funding, it is also helpful for planning. For example, it allows you to organise staffing if you need to hire employees, or to plan the production process. 

Your sales forecast must be as accurate as possible. For a new business, this will mean doing some market research. For example, knowing what your competitors are charging for similar products could help you choose a reasonable price; you can then work out the projected figures if you expect a certain number of sales.

Financial planning or control can be stressful and time-consuming when starting a bakery business. That’s why thousands of business owners use the Countingup app to make their financial admin easier. 

Countingup is a business current account with built-in accounting software that allows you to manage all your financial data in one place. With features like automatic expense categorisation, invoicing on the go, receipt capture tools, tax estimates, and cash flow insights, you can confidently keep on top of your business finances wherever you are. 

You can also share your bookkeeping with your accountant instantly without worrying about duplication errors, data lags or inaccuracies. Seamless, simple, and straightforward! 

Start your three-month free trial today. 

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