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Telework vs telecommute vs remote work: Similar or Different?
The concept of telework, also known as remote work or working from home, has a long history. People have been working from home or remotely for centuries, but the term "telework" was first coined in the 1970s.
In the early days of telework, the main drivers were cost savings for employers and the desire for workers to have more flexible schedules. With the advent of the internet and the widespread availability of computers and other technologies, telework has become increasingly popular in recent years.
Today, telework is often seen as a way to improve work-life balance, increase productivity, and reduce carbon emissions by reducing the need for commuting. It has also become an important option for businesses to consider during times of crisis, such as the COVID-19 pandemic.
Employees can log in from any location and start their work. This may be the local coffee shop, a shared office in a distant city, or even a studio apartment in another country.
Now more than ever, thanks to advances in virtual communication and project management tools, many workers prefer working at least one day a week remotely. But some people would prefer to have a job that would permit them to do so entirely from the comfort of their own homes (or elsewhere).
It can be difficult to know which remote work model is best for you among the many possible options. You could, for instance, prefer a position that allows you considerable autonomy but requires little interaction with others in the workplace, or you might prefer to combine elements of both the work-from-home and office-based lifestyles.
To help you decide which model is best, we'll compare telework with telecommuting and remote work.
The impact of remote working on workers and organisations
The COVID-19 pandemic has had a major impact on the way people work, with many people around the world being required to work from home in order to slow the spread of the virus. This shift to remote work has happened very quickly, and many businesses and organizations have had to rapidly adapt to this new way of working.
One of the main changes brought about by the pandemic is the increased use of technology to facilitate remote work. Many companies that previously did not allow or encourage remote work have had to implement systems and technologies, such as video conferencing tools and collaboration software, to enable their employees to work remotely. There has also been a significant increase in the use of online communication and collaboration platforms, such as Slack and Microsoft Teams, to help teams stay connected and productive.
Data on remote and hybrid working from UK parliament show that:
- -2019, around 1 in 10 (12%) of the of the UK workforce had worked at least one day from home in the previous week and around 1 in 20 (5%) reported working mainly from home.
- -This increased substantially during the pandemic, to a peak of around half of workers (49%) in Great Britain (GB) working at least one day from home in June 2020; 11% of the workforce worked at least one day from home and 38% worked from home exclusively.
- -As pandemic restrictions have been lifted, these numbers have gradually decreased again, but remain higher than pre-pandemic numbers. In September 2022, around 1 in 5 (22%) of the GB workforce had worked at least one day from home in the previous week and around 1 in 8 (13%) worked from home exclusively.
The COVID-19 pandemic has also highlighted the need for businesses to be more flexible and adaptable, as well as the importance of having contingency plans in place for unexpected disruptions. Many companies that were previously resistant to the idea of remote work have now come to see the benefits and may continue to allow or encourage remote work even after the pandemic ends.
What is remote work?
A remote employee is someone who is employed by a company, but works outside of a traditional office environment.
Work from anywhere, or remote work, is a flexible work arrangement that allows employees to perform their duties from any location with reliable internet access.
While they may not be physically located in the workplace, remote workers often maintain tight ties with their colleagues.
It's also possible that remote workers and their managers will only ever virtually interact with one another. Last but not least, remote workers might gain by having more leeway in terms of when and how they get in and get their work done. Because of the mobility it affords, working remotely is a popular choice for people who are frequently on the go, such as travelers, students, and others who cannot commit to regular office hours. This freedom of choice also appeals to outdoor enthusiasts and hikers who got used to combining work and active rest. If you have a few holiday days to spare, you can visit popular destinations depending on your preferences. Consulting the trekking experts from Bookatrekking.com might help you choose a route to give you new positive impressions and rest from the routine workflow.
There are several factors that define remote work, including:
- Location: Remote work allows employees to work from any location, as long as they have a reliable internet connection and the necessary equipment and resources. This could be from home, a co-working space, or any other location of their choosing.
- Flexibility: Remote work allows employees to have more control over their schedule and work environment, as long as they are able to meet the requirements of their job.
- Technology: Remote work relies on technology and communication tools to stay connected with colleagues and complete tasks. This includes things like video conferencing software, collaboration platforms, and project management tools.
- Autonomy: Remote work requires employees to be self-motivated and able to manage their own time and work independently.
Working from home allows you to design a workspace that best suits your needs and preferences.
It also lets remote workers fit their jobs around other activities like school, travel, and family obligations.
What is telework?
Remote work and telework refer to the same concept, which is working outside of a traditional office setting. The terms are often used interchangeably to refer to the practice of working from any location, as long as the necessary equipment and resources are available and a reliable internet connection is present.
Employees that participate in telework are able to complete their work even when they are not physically present at the office. This could mean using a different location than the main workplace, such as a coffee shop, a library, or a shared office.
A teleworker is different from a remote employee because they are rarely required to be physically present at the workplace. In contrast to a distant employee, a teleworker is typically located close to the main office.
Writing, researching, reading, data analysis, computer work, telemarketing, etc., are all examples of occupations and jobs that lend themselves well to remote participation.
Overall, both terms refer to the practice of working from a location other than a traditional office setting, and they can be used interchangeably
What is telecommuting?
Workers who normally report to an office can also take advantage of the option of "commuting" to their jobs by working from home. It usually means that workers in one place can do a portion of their duties from another.
It's the best of both worlds, giving workers a break from the office's stresses while giving them access to the advantages of a physical, shared workspace.
The off-site location can be anywhere, from the employee's house to another office. An ideal location would shorten the time it takes to get to and from work daily.
Employers can select how many days a week or a month their workers can telecommute. Making a good decision for everyone involved requires considering the company's and its workers' needs. Some industries and processes may benefit most from having employees telecommute part-time, while others may find that having them work remotely full-time is the best solution.
The attractiveness of telecommuting stems from the fact that it permits workers to maintain a connection to their regular work environment while also providing them with the freedom to work from anywhere.
This is an example of the more general phenomenon known as "hybrid work," which entails working from home and commuting to an office.
Remote vs. telework: What will work better for your workforce?
While there may appear to be no distinction between remote work and telework, there are important distinctions. It's up to you to decide if remote or telework is feasible, given your personal preferences, family obligations, work obligations, and geography.
That being said, there are some potential benefits and challenges to both remote work and telework.
Some possible benefits of remote work include:
- Increased flexibility and autonomy for employees, allowing them to choose their own work environment and schedule
- Potential cost savings for both employees and employers, as there is no need to commute or pay for office space
- Improved work-life balance for employees
However, there are also some challenges to remote work that should be considered, such as:
- The need for strong communication and collaboration tools to stay connected with colleagues
- The possibility of feeling isolated or disconnected from the team
- The need for self-discipline and self-motivation to work effectively without the structure of a traditional office setting
Telework, on the other hand, may involve some different benefits and challenges.
Some possible benefits of telework include:
- The ability to work from any location, as long as there is a reliable internet connection and the necessary equipment
- Potential cost savings for both employees and employers
- Improved work-life balance for employees
Ultimately, the decision of whether to implement remote work or telework should be based on the specific needs and circumstances of the workforce and the organization. It may be helpful to conduct a thorough analysis of the potential benefits and challenges to determine which approach is the best fit.
Those who are full-time carers or parents may find that telework is a good fit because it allows them to be connected to their jobs from wherever they happen to be. Conversely, digital nomads might thrive in a more isolated environment.
Remote work vs telecommuting: What will be better for your business?
There are several elements to think about before deciding on a course of action in order to determine which employment choices would ultimately set you and your organization up for success.
Get started by taking stock of what you and your organization require.
Employee satisfaction and retention
Over 75% of workers in the United States want the option to work remotely at least once a week, per research from Global Workplace Analytics. Fewer than half of the respondents stated they would look for new employment if their company did not offer flexible work choices in the wake of the pandemic. If this applies to your organization, find out what your employees want to see as a choice.
Cost effectiveness
According to research by Global Workplace Analytics (using data from U.S. businesses), companies can save an average of $11,000 annually for every part-time telecommuter. It's estimated that workers can save $600 - $6,000 annually by putting in just half their time at the office. Setup and equipment costs for employees to work remotely and comfortably should also be factored in.
Employee productivity
If you're considering a job allowing you to work from home, map out a routine that maximizes your productivity. Locate potential sources of disruption to establish what environmental variables would most favorably affect production (e.g., focus, creativity, collaboration). Remember that certain of your onsite staff may need help working in an appropriate remote setting. Telecommuting and remote work can be productive, but only if the individual, the task, and the organization all work together.
Think about company culture
It takes deliberate effort, but fostering a work climate conducive to employees working from home is possible. Consider how important it is for your team's productivity that they can communicate, collaborate, and be motivated with one another face-to-face. It's possible that newer and younger recruits will require more one-on-one training and mentoring at first.
Considering these considerations, figure out what parts of your company's job could be performed outside of the office. Most likely, they'll fit into one of the types mentioned above of remote jobs.
The next step is to determine whether or not employees who are physically located close to the site location are required to do the work or if any of the tasks can be completed remotely.
If workers need to be on-site occasionally to complete their tasks, consider allowing them to telecommute instead.
If you want to attract top talent from all over the world, cut down on overhead, and rapidly expand your business, working with remote employees, contractors, or freelancers is a great option to explore. Find out more about the concept of a global workforce and the potential benefits it might provide by reading about it.
What are the advantages of telecommuting?
Many office workers find the option to work from home to be enticing, but the advantages of telecommuting extend beyond the workers themselves. Businesses can benefit significantly from a well-thought-out and carried-out remote work policy.
Since there have been so many opportunities to research the phenomenon, it is reasonable to assume that the pandemic was a significant factor in businesses' decisions to implement telecommuting programs. Many of the following advantages of working from home were already well-known before the present crisis, while others have emerged very recently.
Increase in productivity
Even though employees seem to slack off when they aren't being watched, studies, polls, and anecdotes demonstrate otherwise. From what we saw in the data presented in the preceding chapter, it is clear that remote workers outperform their in-house colleagues when it comes to output.
So why has productivity risen so dramatically? Those who work from home have more flexibility to set their own schedules and work in the most productive way. They are spared the usual office-related distractions and annoyances.
Improvement in business continuity
The influence on business continuity is yet another advantage of telecommuting that COVID-19 has highlighted. Telework has been a lifesaver during this pandemic. Many folks talk about returning to work, but many of us are already at it. Twenty years ago, this would never have been possible.
The pandemic will be remembered for the havoc it wreaked on society. Companies that value continuity in the face of disruptions and want to cultivate a culture that draws and retains top people recognize the value of a well-executed telecommuting initiative.
The ability to hire from a wider talent pool
Companies that allow their employees to work remotely no longer have to compete with one another for the best local talent or shoulder the high cost of relocating employees. When companies can advertise to a larger and more diverse pool of potential candidates, they have a better chance of finding and hiring the best person for the job, wherever they may be. This is a step toward achieving a more equitable and inclusive workplace.
Provide better work-life balance to employees
Telecommuting's appeal lies in the flexibility it offers workers, which is why many people are drawn to it. Telecommuting allows employees to work when they are at their most productive, take breaks when needed, and still take care of their families and other personal obligations. Providing such leeway typically leads to a more positive work-life balance, content workers, and increased output.
Telecommuting's benefits include not having to deal with traffic on the way to and from work and having greater freedom over one's daily routine. A telecommuting worker can take a break from their desk during the day to do things like exercise or eat lunch at home.
What are the benefits of teleworking?
Teleworking can offer many advantages, such as increased flexibility and convenience for both employer and employee. Having employees work remotely can reduce overhead costs, maximize productivity, and increase employee morale. Remote employees are also less likely to take time off from work since they do not have to come into the office every day, which results in enhanced job satisfaction.
Furthermore, when working remotely, employees do not have to worry about commuting or dealing with in-person distractions like conversations around the water cooler that distract from work goals.
Employee teleworking also reduces stress levels since both employers and employees enjoy greater freedom in setting their own hours and locations. Finally, having a remote workforce can equip businesses with talented individuals who may live too far away or relocate often to make regular office attendance possible.
Decrease distractions
As a result of fewer interruptions, remote teams can produce higher-quality work. Workers can focus for long stretches on a single project when necessary rather than being constantly interrupted by coworkers. Slack, like other asynchronous chat systems, allows users to easily jump in and out of conversations as needed, simulating some of the casual "water cooler chats" that remote employees may miss.
Increase the quality of work
Telecommuting improves not only productivity but also the quality of output. According to Adobe, the use of technology to encourage innovation in the workplace is on the rise.
Reduce stress level
There are several different ways in which telecommuting might help you feel less stressed. Not only do workers not have to deal with the stress of a long commute or public transportation delays, but they also have the freedom to design their ideal office space.
Working from home allows people to stay near to their families and friends, which is a huge stress reliever.
Eliminate travel fatigue
The stresses of business travel, such as delays, cancellations, illness, and jet lag, can wear a person down over time. By eliminating the need to meet physically, businesses can save money on travel expenses and boost output through virtual meetings.
Instead of wasting time waiting in airport lines or relying on unreliable in-flight Wi-Fi to get work done, meetings can be a natural extension of the workplace.
Maximize productivity
Those working from home report more positive emotions and loyalty to their employers. Society for Human Resource Management research shows that remote teams are more productive, with workers putting in an extra three hours a day on average.
What are the advantages of remote working?
Remote working is becoming increasingly popular due to the many advantages it offers. By eliminating the need for a commute and allowing employees to work from any location, remote work can reduce stress levels, increase employee engagement and satisfaction, and save employers money in overhead expenses.
Employers also benefit from having access to a global talent pool as they are no longer constrained by geographical limitations when hiring. Furthermore, research indicates that remote teams tend to be more productive than in-person teams as members can avoid distractions, set their own hours, and have access to better tools and resources when working remotely.
All of these advantages make remote working an attractive option for both employers and employees alike.
Promote inclusivity
Since employees of remote businesses need not be physically located near their headquarters, they tend to be more racially and ethnically diverse. Those who may have trouble finding employment at a brick-and-mortar establishment now have more options thanks to the rise of remote work.
Working and caring responsibilities must be balanced, especially for those with disabilities, those providing care for others, and stay-at-home parents.
Since not everyone can afford to or desires to reside in a major city, working remotely increases one's chances of interacting with people from various economic, geographical, and cultural backgrounds.
Bring more opportunities
One of the major advantages of working from home is having more options available to you. It's easier for remote workers to find work than it is for office workers who are limited by where their offices are located.
You don't have to uproot your life and move to a big city only to find decent-paying work if you prefer rural or small-town living.
Allow working from anywhere
Those who work completely remotely can settle down wherever they like. Some people who work from home can afford to uproot their lives and become "digital nomads," able to work from wherever in the world.
Working for a remote company that requires you to be in a certain country or time zone doesn't prevent you from relocating to a place where living expenses are lower or where the quality of life is prioritized over commute times. Working from home is convenient for people who constantly relocate, such as military spouses.
You won't have to leave your house very often as a remote worker. As an alternative to sitting in a cubicle all day, you may, for example, work from your local coffee shop while visiting relatives or even in the great outdoors.
Improve work-life balance
You can generally set your own hours for working from home, provided that your tasks are finished by the allotted time.
If you're the kind of person who does their best work at odd hours, the freedom to choose your own hours is invaluable. Some people are morning people, while others are night owls. You recognize the value of a customizable work schedule, whether you're a morning person or a night owl.
Having the ability to manage your time is also quite helpful when unexpected things pop up. Working from home makes it easier to manage your personal life, such as getting the kids to school, doing the laundry, going to the gym, or having a break.
How can a modern intranet facilitate remote work?
Creating a remote workforce that doesn't hurt morale or output is possible with the help of your organization's intranet. In truth, a powerful, cohesive, and cooperative staff is guaranteed by the skillful use of the company's Intranet. As businesses learn how to maximize their remote workers' efficiency, effectiveness, and happiness, they must maintain a flexible, open-minded approach to experimentation and change.
The ability to support work through mobile devices is a key feature of the modern remote worker. Especially among young professionals, there is a blurring of the lines between work and life, and many choices for remote work because they would rather live the nomadic lifestyle of a digital nomad than be tied to a specific location. Access to vital company data, no matter where your employees may be, requires a robust and secure mobile Intranet.
As more and more companies implement telecommuting policies, the nature of employment itself will evolve. Maintaining a competitive advantage requires businesses to adapt to the changing demands of their employees to keep their teams at peak performance and morale. Organizations can bring together their distributed workforce by utilizing intranets and extranets as a central hub for communication and collaboration.
Wrapping
This article has explained the differences between telework, telecommute, and remote work. The term "telecommuting" refers to working away from the office but maintaining a physical location. What we call "remote work" encompasses any job that can be done away from an office.
The majority of telecommuting takes place in the comfort of the employee's home, but the practice is by no means restricted to that setting.
Any location that allows for using the necessary equipment to complete the operation is suitable for remote workers.
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Setting up a new business is no walk in the park, and when it comes to financial support small business owners often struggle to find the help they truly need.
A good question is whether you are confident your small business can survive its first five years—or even the first year. According to the U.S. Bureau of Labor Statistics, 1 in 5 small businesses fail within the first year, often due to poor financial planning and lack of strategic support.
Starting a business in 2025 means navigating a rapidly evolving economy, rising costs, and tighter competition. While passion and innovation are essential, your financial plan will ultimately determine your success.
Even the most exciting ideas can fall apart without a clear strategy for managing cash flow, expenses, and funding.
This article will guide you through building a brilliant financial plan tailored for small business success in 2025.
Whether launching a new venture or refining your current operations, you'll learn how to align your budget with your goals, forecast more accurately, and gain the financial stability needed to grow.
With the right plan, you'll gain investor confidence, make smarter decisions, and future-proof your business for the challenges ahead.
What is a Financial Plan for a Business?
What is a financial plan for a business? It's a strategic tool that helps determine whether a business idea is financially viable and provides a roadmap to maintain long-term financial health.
A financial plan is a crucial part of any business plan, offering clarity and direction as the business evolves. It typically includes three core financial statements: the income statement, the balance sheet, and the cash flow statement.
Each of these sections comes with a brief explanation or analysis to help interpret the numbers.
Together, they provide insight into profitability, liquidity, and overall financial stability—key metrics every business needs to track.
Who Needs a Financial Plan?
Financial planning isn't just for the wealthy—it's a valuable tool for anyone looking to take control of their financial future.
Regardless of your income or life stage, having a structured financial plan helps you set clear objectives, stay focused, and feel confident about your path.
A personalized financial plan offers more than just guidance—it acts as a roadmap to help you navigate major life events and unexpected changes.
Whether saving for a home, preparing for retirement, or adjusting to new financial responsibilities, a solid plan ensures you're making informed decisions.
You'll find financial planning especially beneficial if you're:
- Buying your first home or upgrading your current one
- Experiencing a significant change in income or expenses
- Starting or growing a family
- Thinking ahead to retirement and long-term savings
- Organizing your assets through estate or legacy planning
A proactive approach to your finances helps you reach your goals and builds resilience, allowing you to adapt to life's curveballs with greater ease and security.
Understanding the Role of a Financial Plan in Business Success
If you're starting a new business and wondering what a financial plan is, it's more than just budgeting—it's a strategic roadmap that outlines how your business will manage income, control costs, and reach long-term financial goals.
A financial plan brings clarity and control to your operations by linking daily decisions to your company's vision.
The importance of financial planning for small businesses cannot be overstated. According to the U.S. Bureau of Labor Statistics, around 20% of small businesses fail within the first year, often due to poor financial management.
A solid financial plan can help avoid this fate by providing insight into cash flow, funding needs, and operational priorities.
So, what is a financial plan example?
It could include projected income statements, balance sheets, cash flow forecasts, expense breakdowns, and growth targets. These documents serve internal strategy and inspire confidence among lenders, investors, and stakeholders.
A good financial plan helps businesses:
- Manage cash flow more efficiently to avoid shortfalls
- Set realistic goals and map out scalable growth strategies
- Present a strong, credible financial position to stakeholders
Ultimately, a financial plan enables small businesses to stay agile, make informed decisions, and achieve lasting success—even in uncertain economic environments.
Why Is a Financial Plan Important to Your Small Business?
A solid financial plan not only boosts your confidence in managing your business but also gives you clearer insights into how to allocate resources effectively.
It reflects a commitment to responsible spending and demonstrates your company's ability to meet its financial responsibilities.
With a financial plan, you can assess how specific decisions may impact revenue and identify when it's appropriate to use reserve funds.
Also, a financial plan is a powerful asset when presenting your business to potential investors. It highlights how your organization manages expenses, generates income, and plans for growth.
Most importantly, it provides a clear picture of your current financial position and outlines what's needed—through sales or investment—to achieve key financial goals.
Financial Plan for Beginners?
1. Develop a Sales Forecast
A critical component of any business financial plan is the sales forecast—an estimate of the revenue your business expects to generate over the next three years.
Start by building a spreadsheet that outlines each quarter of your fiscal year. Include key columns for product or service names, unit prices, units expected to be sold, and projected revenue.
If your business is already up and running, review past sales reports to identify seasonal trends or growth patterns you can use to inform future projections.
For startups without existing sales data, begin by calculating your cost of production per item or service. From there, estimate how much you plan to sell based on market research, competitor benchmarks, or industry demand.
Not confident in your manual forecasting skills? There are plenty of tools and software solutions available that can help you automate and refine your sales projections with greater accuracy.
A sales forecast estimates your future revenue and is crucial for building a solid financial plan.
Here's how to create one:
- Set up a spreadsheet to track products, prices, and projected sales.
- Use past sales data to identify trends (if your business is already operating).
- Estimate unit sales and pricing based on market research for new businesses.
- Forecast monthly revenue for the first year, then annually for Years 2 and 3.
- Use tools like QuickBooks or LivePlan to improve accuracy.
- Compare your forecast to industry benchmarks to ensure it's realistic.
This helps demonstrate your business's potential profitability to investors and lenders.
A well-prepared sales forecast isn't just for internal planning—it also builds confidence with potential investors or lenders.
It demonstrates that your business has a clear growth trajectory and can generate consistent revenue, making it more attractive for financial backing.
2. Outline Your Business Expenses
After completing your sales forecast, the next step is to create a detailed breakdown of your business expenses.
This section shows investors that your business can realistically afford to produce its products or services and maintain profitability. Ideally, your total expenses should remain below your projected revenue.
Start by identifying all your business costs and categorizing them into fixed and variable expenses:
- Fixed costs remain consistent throughout the year—examples include rent, insurance, and salaries.
- Variable costs fluctuate depending on operations and sales volume, such as marketing, shipping, or raw materials.
While some costs like production or rent may be straightforward, others—like taxes or maintenance—may require estimation.
Your expense forecast helps assess financial feasibility and ensures you're planning for both predictable and unexpected costs.
3. Build a Cash Flow Statement
A cash flow statement outlines the movement of money into and out of your business over a specific period.
It's a key component of your financial plan, as it shows whether your company generates enough income to cover its operating expenses and obligations.
The goal is to maintain positive cash flow, which means more money is coming into the business than going out. This signals healthy financial management and ensures you can pay bills, invest in growth, and handle unexpected costs.
To create a cash flow statement:
- Use historical profit and loss records to calculate incoming revenue and outgoing expenses.
- If you're a startup, make realistic projections using your estimated sales and known expenses.
- Always account for potential payment delays from clients or vendors. Adding a buffer for late invoices helps you avoid cash shortfalls.
Being conservative and realistic in your estimates helps you prepare for real-world financial conditions.
A clear cash flow projection gives investors confidence in your business's financial stability and helps you stay in control of your financial health.
4. Create an Income Projection Forecast
An income projection, a profit and loss forecast, provides a forward-looking snapshot of your business's expected revenue, costs, and net profit over a specific period. It's a crucial part of your financial plan, especially when presenting to investors or lenders who want to understand your business's long-term viability and profitability.
This document includes your projected sales, the direct costs of producing those goods or services, and your estimated operating expenses. The result is a forecast of your expected net income—essentially showing whether your business will be profitable.
If your business is already up and running, focus your forecast on the upcoming year.
For new ventures, consider projecting income over two to three years to demonstrate sustainability and growth potential.
To build an accurate forecast:
- Use sales forecasts and expense estimates as the foundation.
- Base your projections on industry trends and historical data, if available.
- Factor in seasonal variations, economic conditions, and potential business developments.
- Consider using financial forecasting software or consulting a financial advisor for added accuracy.
A well-prepared income forecast builds credibility and can significantly improve your chances of securing funding or investor interest.
Download the free financial projections template excel for a great starting poin.t
5. Build a Forecasted Balance Sheet
A forecasted balance sheet offers a snapshot of your company's projected financial position by outlining what it owns (assets) and what it owes (liabilities).
This document is essential for investors, lenders, and stakeholders to evaluate your business's financial stability and net worth over time.
Assets represent everything your business owns that has value, such as cash, inventory, accounts receivable, equipment, real estate, and intellectual property. Liabilities include financial obligations like loans, taxes, unpaid wages, or outstanding vendor payments.
To create your forecasted balance sheet:
- Start by listing all expected assets, including cash balances, office equipment, inventory, property, and receivables.
- Next, outline projected liabilities, such as credit lines, loan repayments, outstanding invoices, or payroll obligations.
- Subtract total liabilities from total assets to calculate your projected equity or net worth.
A positive balance sheet—where assets outweigh liabilities—demonstrates financial health and signals to investors that your business is solvent and capable of meeting its obligations.
Conversely, if liabilities exceed assets, it may raise red flags about your ability to manage debt.
Having a clear and realistic balance sheet projection not only builds credibility but also helps you plan for future capital needs and operational investments effectively.
Here is a simple balance sheet template excel, feel free to use this financial projections template excel.
6. Identify Your Break-Even Point
Understanding your break-even point is crucial for evaluating the financial viability of your business. It represents the level of sales needed to cover all your expenses—where your total revenue equals total costs. Only after crossing this threshold will your business begin generating profit.
Determining your break-even point gives you a clear financial target and helps you make informed pricing, budgeting, and investment decisions. It also reassures potential investors that your business can become self-sustaining within a reasonable timeframe.
To calculate your break-even point, subtract your variable costs from the unit selling price, then divide your total fixed costs by that result. The formula looks like this:
Break-Even Point = Fixed Costs / (Unit Price – Variable Cost per Unit)
For example, if your fixed costs are $100,000, and each unit you sell brings in $50 in profit after covering variable costs, you'd need to sell 2,000 units to break even.
Most successful businesses break even within two to three years. If your projections show it may take significantly longer—say five years or more—it could signal the need to reassess your business plan or reduce operating costs.
Also consider including an exit strategy in your financial plan. This helps mitigate risks and outlines a path to minimize losses should your business not perform as expected.
7. Plan for Contingencies + (contingency plan template word)
Every business faces unexpected challenges—from sudden market downturns and supply chain disruptions to equipment failure or economic shifts.
That's why it's essential to build contingency planning into your financial strategy.
A contingency plan includes setting aside a financial buffer (often referred to as an emergency fund) to cover unforeseen expenses without derailing your operations. Many financial experts recommend having three to six months of operating costs set aside as a safeguard.
Beyond savings, consider preparing alternative revenue streams or flexible cost-reduction strategies you can implement quickly if revenue drops. This might include renegotiating vendor contracts, scaling back non-essential spending, or leveraging credit lines responsibly.
A solid contingency plan increases investor confidence and gives your team peace of mind—knowing you're prepared for the unexpected.
It's not just about weathering storms, but staying agile and resilient enough to pivot when necessary, keeping your business on track for long-term success. Download out free contingency plan template word.
5 Steps of Financial Planning
1. Define Your Financial Goals
Start by asking yourself: Where do I want to be in 5, 10, or even 20 years? Whether owning a home, retiring early, travelling the world, or funding your child's education, having a clear vision helps shape your financial plan.
Break down your aspirations using the S.M.A.R.T. method:
- Specific: Clearly state what you want (e.g., "Save for a down payment on a house").
- Measurable: Assign a number or milestone (e.g., "Save $30,000 in 3 years").
- Attainable: Make sure the goal is realistic based on your income and expenses.
- Relevant: Focus on what matters most to you and your long-term lifestyle.
- Time-Based: Set a target date for each goal to stay accountable.
Use a digital notebook or spreadsheet to list and categorize your goals into short-term (1–2 years), mid-term (3–5 years), and long-term (5+ years). This will help you prioritize where to start saving and how much to allocate monthly toward each goal.
A great way to boost your financial literacy is through online MBA finance programs. These programs offer practical, flexible education tailored to real-world business needs. Whether you're planning for growth or just managing your first year of revenue, sharpening your financial skills gives you a competitive edge and a better shot at long-term stability.
2. Assess Your Risk Tolerance
Understanding your risk tolerance is essential when creating a financial plan that suits your lifestyle and goals.
Risk tolerance is your comfort level with investment ups and downs—how much loss you're willing to accept in pursuit of higher returns.
Your tolerance depends on factors such as:
- Your age – Younger individuals can typically handle more risk since they have time to recover from market fluctuations.
- Your financial goals – Short-term goals often require safer investments, while long-term goals may benefit from more growth-focused strategies.
- Your income and savings – The more financial stability you have, the more flexibility you may feel when taking risks.
- Current economic conditions—Inflation, interest rates, and political stability can all affect how much risk you're comfortable with.
Use an online risk tolerance quiz or calculator to get a quantified score. This helps align your investments with your comfort level and expected returns.
Consider this score when choosing between conservative options like bonds, balanced mutual funds, or higher-risk investments like stocks or crypto.
Understanding your risk tolerance ensures your financial strategy is realistic, sustainable, and aligned with your peace of mind—even when markets fluctuate.
3. Analyze Your Cash Flow
A solid financial plan starts with knowing exactly where your money is going.
Cash flow analysis tracks the money coming into your accounts (income) and what's going out (expenses). This step helps you identify spending patterns and areas for improvement.
Start by reviewing your last 3–6 months of bank statements.
Categorize your spending into:
- Essential expenses - Rent or mortgage, utilities, groceries, insurance, transportation.
- Discretionary expenses - Dining out, subscriptions, shopping, entertainment.
Once categorized, subtract your total expenses from your income to see your net cash flow.
Use budgeting apps like YNAB, Mint, or Excel templates to automate your tracking. Set a monthly review reminder to stay accountable.
After this analysis, you may find non-essential costs that can be reduced or eliminated. Even small changes—like cutting unused subscriptions or reducing takeaway meals—can free up cash for savings, investments, or emergency funds.
Understanding your cash flow gives you control over your finances, prevents overspending, and ensures your financial plan is based on accurate, real-world data.
4. Protect Your Assets
Protecting what you own is a critical part of any strong financial plan.
Start by calculating your net worth—the total value of your assets (home, car, savings, investments) minus your liabilities (loans, credit card debt). This gives you a clear picture of what needs protection.
Once you understand your financial standing, evaluate your insurance coverage:
- Homeowners or renters insurance for property and personal belongings.
- Auto insurance with sufficient liability coverage.
- A Personal Liability Umbrella Policy (PLUP) for extra protection in case of major claims or lawsuits.
- Life insurance—either term (for affordable temporary coverage) or permanent (whole, universal, or variable universal life), depending on your long-term needs and family situation.
- Long-term care insurance to protect your retirement savings from healthcare-related expenses later in life.
Review your insurance policies annually or when your life circumstances change (e.g., marriage, new home, children).
Speak with an independent insurance advisor to ensure you're neither underinsured nor overpaying.
With the proper protection in place, you're shielding your financial future from unexpected events—and giving yourself peace of mind.
5. Evaluate Your Investment Strategy
Your investment strategy should align with your financial goals, timeline, and risk tolerance.
Begin by identifying your approach:
- Active Investing involves hands-on management, frequent trading, and efforts to outperform the market. This strategy demands time, expertise, and often higher fees.
- Passive Investing focuses on long-term growth by tracking market indexes (like the S&P 500), often through ETFs or index funds. It typically involves lower costs and less frequent trading.
- Define your investment goals - Are you saving for retirement, a home, or college tuition?
- Consider your time horizon - The longer your timeline, the more risk you may be able to take.
- Evaluate your current portfolio - Is it diversified? Are your investments aligned with your goals?
- Rebalance your portfolio regularly to maintain your desired asset allocation.
If you're unsure which path suits you best, consult with a financial advisor or consider a hybrid approach, where part of your portfolio is passively managed and another part actively managed.
Choosing the right strategy is not just about returns—it's about aligning your investments with your life goals and peace of mind.
Key Challenges Small Businesses Face When it Comes to Financial Planning
- Unpredictable Cash Flow - Many small businesses experience irregular income streams, especially in the early stages. This makes it difficult to forecast revenue and plan for future expenses. Late payments from clients or seasonal fluctuations can leave businesses scrambling to cover costs.
- Limited Resources and Budget - Small businesses often lack dedicated financial experts or advanced tools. With limited time, staff, and money, financial planning is either put on hold or handled by someone without formal training in accounting or finance.
- Lack of Financial Literacy - Many small business owners are passionate about their product or service but may not fully understand financial statements, forecasting, or budgeting. This can lead to poor decision-making and prevent the business from growing sustainably.
- Difficulty Accessing Capital - Securing loans or investment requires detailed financial plans and projections. Small businesses that struggle to create professional financial documents may find it hard to gain the trust of investors or lenders.
- Overestimating Revenue, Underestimating Expenses - A common trap is being overly optimistic. Overestimating how much revenue will come in and underestimating how much things cost can result in shortfalls and missed targets.
- Economic and Market Volatility - Changes in interest rates, inflation, or supply chain disruptions can derail financial forecasts. Small businesses are more vulnerable to external shocks, making contingency planning even more important.
- Scaling Without a Plan - Rapid growth without financial controls can be just as dangerous as stagnation. Businesses that grow quickly may overextend themselves, take on too much debt, or fail to manage increased operational costs.
Best Tools and Resources for Small Business Financial Planning
Here's a list of some of the best tools and resources for small business financial planning, including top-rated financial planning apps that help manage budgets, cash flow, forecasting, and more:
#1. QuickBooks
Best for: Accounting & financial reporting
A go-to tool for small businesses, QuickBooks helps with expense tracking, payroll, invoicing, and generating financial statements. It also offers forecasting tools and integrates with many other apps.
Why it's great: Easy to use, scalable, and trusted by millions of businesses.
#2. Xero
Best for: Online accounting & collaboration
Xero is a cloud-based accounting software ideal for small businesses that want real-time collaboration with bookkeepers and accountants.
Why it's great: User-friendly interface, strong financial reporting features, and great for managing cash flow.
#3. Wave
Best for: Free accounting and invoicing
Wave offers free invoicing, accounting, and receipt scanning tools. It's perfect for solopreneurs and freelancers just starting out with financial planning.
Why it's great: No monthly fee, intuitive layout, and ideal for basic financial needs.
#4. LivePlan
Best for: Creating business plans & financial forecasting
LivePlan helps businesses build professional business plans and financial projections. It's a great tool if you're pitching to investors or lenders.
Why it's great: Pre-built templates, industry benchmarks, and easy forecasting features.
#5. PlanGuru
Best for: Advanced forecasting & budgeting
PlanGuru is designed for in-depth financial analytics and 3–10 year forecasts. It's more advanced than most small business tools and ideal for growing companies.
Why it's great: Budgeting, forecasting, and reporting all in one platform with powerful analytics.
Wrapping up
Financial planning isn't just for big corporations—it's the secret weapon that helps small businesses thrive.
When you take the time to understand your costs, stay informed, monitor your cash, and invest in solid systems, you set your business up for long-term success. The earlier you start building that financial foundation, the stronger your business becomes.
You don't need to be a financial wizard to make smart choices.
You just need the right mindset, some good habits, and a commitment to staying proactive. With these ten steps in place, you'll be ready to lead your business with clarity, confidence, and control.
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Jill Romford
I am a digital nomad, lover of exploring new places and making friends.
I love to travel and I love the internet. I take pictures of my travels and share them on the internet using Instagram.
Traveler, entrepreneur, and community builder. I share my insights on digital marketing and social media while inspiring you to live your fullest life.
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