This is the first of a three-part series on creating a 5-year strategic financial plan for your business.
Most business owners are focused on today, and for good reason—you have to make sales and pay the bills. But to truly grow your company, you need a clear vision for the future. This isn't about creating a perfect, super-detailed budget. It's about drawing a simple roadmap that will guide your decisions for the next five years.
Step 1: Sketch a High-Level P&L
Think of this as a simple sketch of your business's financial future. We'll create a basic Profit & Loss (P&L) statement with six columns. The first column is your current year forecast (Year 0), and the next five are for Years 1 through 5.
Keep it simple. The main lines you'll include are:
Revenue: All the money you bring in from sales.
Cost of Goods Sold (COGS) / Cost of Services (COS): The direct costs to make your products or provide your services.
Gross Profit: Revenue minus your COGS/COS.
Operating Expenses: All other costs of running the business, like rent, salaries, and marketing.
Net Income: Your final profit after all expenses are paid.
Our plan focuses on revenue growth as the main way to become more profitable, not cutting costs.
Step 2: Set Your Big Growth Goals
This is where you get to dream big and set targets for the future. To get ideas, look at the financial reports of public companies in your industry. You can find them online. They often show what a successful business looks like at a larger scale.
Revenue Growth: Set a bold goal. How much bigger do you want your business to be in five years? Aim to be at least 2x or 3x your Year 0 revenue by Year 5. If your business makes $1 million this year, your goal could be to make $2 million or $3 million in five years. This big goal will drive everything else you plan.
Gross Profit Target: This is your Gross Profit as a percentage of your Revenue. As your business gets bigger, it should get more efficient. Your goal is for this percentage to increase by Year 5.
Net Income Target: This is your final profit as a percentage of Revenue. This number shows how profitable your business really is. Your goal is for this percentage to increase over the five years. While your Operating Expenses will grow, they should do so at a slower rate than your revenue, making your profit margin higher.
Step 3: Forecast for Capital and Depreciation
To grow your business, you'll need to invest in it. This means forecasting for capital expenses (CapEx).
Capital Expenses: These are major purchases you'll need to make to grow, like buying new equipment or software. Estimate what these big investments will be over the next five years.
Depreciation: The value of this new equipment goes down over time. This is called depreciation, and it's counted as a business expense on your P&L. It's a non-cash cost that helps lower your taxable income, so it's important to include in your plan.
By following these steps, you'll have the first draft of your 5-year financial plan. It's a powerful tool that helps you stop just reacting to what happens and start actively shaping your future.
Next time, we’ll show you how to start filling in the numbers and connect them to real actions you can take to make your vision a reality.