Table of Contents

• What a financial plan is not
• Profit is not cash
• The artifact: three sheets, nothing more

  • Sheet 1 — Assumptions
  • Sheet 2 — Simple 12-month P&L
  • Sheet 3 — Cash
• Break-even: the calculation you should know by heart
• Illustrative example: a two-person agency
• Three scenarios: base, bad, good
• Taxes: one line, not a treatise
• What the file is for (if not, it is a PDF)
• Frequently asked questions

  • How do you calculate break-even for a small business?
  • How many financial projections does a small business need?
  • Does a financial plan help if I am a solo freelancer?
• Close the file with a visible rule

What a financial plan is not

Three documents dress up as a plan and are not one.

The Business Model Canvas is not a financial plan. It is a map of how you create and capture value: customer, channel, offer, resources. Useful. Not enough. You can have a flawless canvas and run out of cash in month four. If the model is still fuzzy, work first on how to build a business model. Then come back here and put numbers on it.

The pitch is not a financial plan. It is an eight-minute story for someone else. The plan is the spreadsheet you use to decide whether you hire, whether you drop the price, or whether you ride out three ugly months. Last year’s budget plus 15% is not enough either: that is inertia. If you cannot point to the assumption that, if it fails, sinks you, you are not planning.

A cap table is not a plan either, nor is “what the company is worth.” That shows up when there are partners or investment; if you get there, the dilution effect matters. Today the problem for almost every small business is cruder: not knowing whether next month you can make payroll.

Profit is not cash

Profit is an account. Cash is a fact.

You can invoice 10 and “earn” 2 on paper, and have nothing to pay rent on Friday, because the client pays in 45 days. The other way around: you can collect a large advance, see a fat balance, and have already eaten the margin of a project you have not delivered yet.

That is why the plan has two outputs, not one:

• P&L (profit and loss): does the business, in the month, leave margin after costs and taxes?
• Cash: does more money come in than go out, on the dates it actually moves?

The owner who watches only profit overhires. The one who watches only the bank balance feels rich in January and dry in March.

The artifact: three sheets, nothing more

One spreadsheet. Three tabs. If it does not fit there, you are overcomplicating month one.

Sheet 1 — Assumptions

This sheet has no fancy formulas. It has the levers. Each row is a belief that, if it changes, changes the rest.

Write it in business language:

• Average price per sale or per project.
• Units or projects per month (the number you can actually get, not the TAM number).
• Variable cost per unit (what grows when you sell more: materials, commissions, freelancers, shipping, attributable ads).
• Monthly fixed costs (rent, salaries of the stable team, software, accountant, the owner’s minimum draw if you live off this).
• Days until you get paid (0 if it is cash; 15, 30, 45 if you invoice companies).
• Days until you pay suppliers.
• Taxes as a percentage or an estimated monthly amount. Do not copy your country’s rate from a blog. Put the line, talk to your accountant, leave a conservative number.
• An initial investment, if it applies (fit-out, laptops, starting inventory).

Every assumption has to be explained in one sentence. “We will sell 40 projects because the market is big” is not an assumption. It is a wish. “We close 4 a month because last year we closed 3 and we added a salesperson” is one.

Freeze the assumptions. The P&L and the cash only read from this sheet. If you want to test a scenario, you change a number here; you do not poke loose cells in August.

Sheet 2 — Simple 12-month P&L

Twelve columns, one per month. Minimum rows:

1. Revenue (price × units that month).
2. Variable cost (unit variable cost × units).
3. Contribution margin (1 − 2).
4. Fixed costs.
5. Profit before tax (3 − 4).
6. Taxes (the line; your accountant sets the criterion).
7. Net profit.

If an expense does not change when you sell one more unit, it is fixed. If it changes, it is variable. Wifi is fixed. Packaging is variable. Your owner salary, if you take it every month even when you do not sell, treat it as fixed: if you do not, the P&L will tell you that you “earn” while you are not paying yourself.

The 12 months do not have to be identical. If there is a season, it should show up in the units. Start from units, not from revenue: “5 projects” can be argued; “10,000 in sales” hides the price. Put month 1 with what you already have closed. Raise units only if there is a cause —a channel that already converts, a person on a ramp, a signed renewal—, not “because we are going to run ads.”

Sheet 3 — Cash

Same 12-month grid, another question: when the money moves.

Start from the opening balance (what is in the bank on day 1, not what people “should” owe you).

• Inflows: what you collect that month. If you invoice 10 in March and they pay you in 30 days, those 10 come in in April. Advances come in when they come in, not when the project is “earned.”
• Outflows: salaries, rent, suppliers, taxes when they are paid (not when they accrue), installments, the owner’s draw.
• Net cash for the month = inflows − outflows.
• Ending balance = opening balance + net cash. That ending balance is the next month’s opening.

The number that should keep you up at night is not December’s net profit. It is the lowest balance of the 12 months. If that floor is negative, the plan does not close: you change assumptions, you get a cushion, or the business is unviable with that structure.

A healthy small business looks at this sheet every week and the P&L every month. A plan that is not touched in six months is a PDF.

Break-even: the calculation you should know by heart

Break-even is the volume at which you stop losing. It is not an ambitious goal. It is the floor.

Break-even (units) = fixed costs for the period / (price − unit variable cost)

The denominator is the contribution margin per unit: what is left from each sale to pay the fixed costs and, if anything remains, to earn. If the price does not cover the variable, there is no possible break-even. You are paying to sell.

You can also say it in money: fixed costs / contribution margin %, where the percentage is (price − variable) / price.

If you are below break-even today, the plan is not “grow.” It is reach that unit number, or cut fixed costs, or raise margin. Raising price usually moves more than cutting the office coffee. Hiring someone raises break-even: you have to sell more just to stay even.

Illustrative example: a two-person agency

Everything that follows is an illustrative example. Round numbers, invented, so you can see the math. They are not market rates or real costs in a city.

Assumptions:

• Two people. They sell communication and design projects to small businesses.
• Average price per project: 2,000 (in whatever currency you use; imagine units of your local currency).
• Variable cost per project: 400 (occasional freelancer, stock, ads they advance).
• Contribution margin per project: 2,000 − 400 = 1,600.
• Monthly fixed costs: 6,400. That includes both people’s draw, coworking or internet, software, accountant, a minimum of own ads.
• Collection: 50% on signing, 50% 30 days after delivery. The example P&L recognizes revenue when the deal closes; cash does respect the lag.
• Taxes: a 20% line on profit before tax. Again: illustrative example, not the rate in your country.

Break-even: 6,400 / 1,600 = 4 projects a month.

Four projects cover fixed costs. The fifth is where real profit starts. If they close three, they do not “almost earn”: they lose 1,600 that month, before tax.

P&L for a month with 5 projects (base scenario):

• Revenue: 10,000
• Variable: 2,000
• Contribution margin: 8,000
• Fixed: 6,400
• Profit before tax: 1,600
• Taxes (20% line): 320
• Net profit: 1,280

It looks “fine.” Now cash. If those 5 projects are signed over the month, delivered at the close, and half arrives 30 days later, in month 1 you collect only advances. You can have profit on the P&L and a red balance at the bank. Over 12 months the P&L looks repeated; cash normalizes in month 2 or 3. The risk is the opening quarter, or the month three clients pay in 60 days.

If they drop the price to 1,600 “to get in” and the variable stays at 400, the margin falls to 1,200. Break-even goes from 4 to 6,400 / 1,200 ≈ 5.3 projects. The discount was not marketing. It was raising the bar.

Three scenarios: base, bad, good

A single scenario is a wish with a table format. You build three by changing few assumptions on sheet 1. You do not rewrite the model.

Base. The most likely if the quarter comes out “normal.” In the example: 5 projects, price 2,000, fixed 6,400, 50/50 collection. Small profit, tight cash at the start, breathable later.

Bad. It is not the apocalypse. It is a recognizable quarter: a client falls off, they pay late, or you close 3 instead of 5. At 3 projects: revenue 6,000, variable 1,200, margin 4,800, fixed 6,400, a 1,600 loss before tax. Three months like that eat the cushion of many small businesses. The bad plan tells you how many months you last with the balance you have. If the answer is “one,” you are not in a plan. You are hanging by a thread.

Good. It is not the dream either. It is 7 projects, or the same 5 at a 2,200 price. It is there so you decide in advance what you would do with the extra. First rebuild the cash floor of 2–3 months of fixed costs; then we talk about hiring.

On Monday look at the bad one. If it leaves you without a salary, the plan is not ready to grow: cut fixed costs, shorten collections, or raise the price floor.

Taxes: one line, not a treatise

Leave a row called taxes. Do not try to model VAT, withholdings, and every country’s simplified regime on the same sheet where you are still learning to separate cash from profit. You will be wrong with confidence.

Talk to your accountant and ask for a usable number: “set aside roughly this percentage of profit” or “this monthly amount.” Put it in. If it accrues in one month and is paid in another, the cash sheet should show that.

Do not ignore the line because “we’ll see.” A plan without taxes overestimates the money you can draw. That is not optimism. It is an advance withdrawal from the tax office.

What the file is for (if not, it is a PDF)

Three decisions.

Price. If break-even demands a volume you cannot serve, the price is low or the fixed cost is high. It is not a “more leads” problem.

Hiring. Before you add someone, recalculate break-even. The question is not “can I pay them this month?” It is “how many extra units do I need, every month, so this person does not leave me worse off?”

Cushion. The minimum balance on sheet 3 tells you whether you can sleep. Aim to have, at the floor of the year, at least two months of fixed costs. If the plan depends on “bringing in a partner” to plug month 2, it is not an operating plan: it is a bet.

Frequently asked questions

How do you calculate break-even for a small business?

Divide your monthly fixed costs by what each unit leaves you after paying the variable: fixed / (price − variable cost). The result is how many units you need in order not to lose. If you sell services, the “unit” is the average project or the billable hour, as long as that unit’s variable is well estimated.

How many financial projections does a small business need?

One at 12 months, with three scenarios (base, bad, good), is enough. A longer horizon is theater if you do not yet have six months of history. More cost-center detail is theater if you still mix your personal card with the business one.

Does a financial plan help if I am a solo freelancer?

Yes, and sometimes more. Your “payroll” is you. If you do not set a fixed cost (the draw you live on), the P&L will tell you that you earn in months when you did not pay yourself. Break-even tells you how many projects a month cover your life, taxes, and tools.

Close the file with a visible rule

At the top of the assumptions sheet, write: “If the bad scenario leaves me without cash in fewer than X months, I do not grow: I cut fixed costs, I collect faster, or I raise price.”

That is a basic financial plan. It is not pretty. It tells you, on a Tuesday, whether you can say yes to a discount, to an employee, or to a larger space. The canvas, the pitch, and dilution come later, when the cash floor exists.

Build the three sheets this week. Put ugly numbers, not numbers meant to impress. The only audience that matters is you on the day a client pays late.