Creating a mobile app is already a trend due to its accessibility and convenience. The mobile app captures more users, especially the millennials and generation Z, who are the most technology-inclined generations.
A mobile app business needs proper planning to increase the success rate since many tried but failed. You should have enough resources to finance the early operation for promotions and build your name in the mobile app industry.
Building a financial plan before starting your mobile app business will help you properly execute plans. It is disadvantageous having little understanding of the industry and how your business will perform in the future. The financial plan eliminates as many variables and knows the ins and out of your business.
You can find financial model templates here.
We will present below the significant components of a mobile app financial plan to assess its viability.
Table of Contents
4 Major Components in Building a Mobile App Financial Plan
1. Sales Forecast
The first months or years are the development period and extensive marketing of a mobile app business. Sales can start in the first year, but they won’t usually cover all expenses. Ensuring that the business has enough resources to cover expenses is essential for the business to stay afloat and continue improving its products/services.
Proper sales forecasting helps you secure the additional investment and know when the business will break even and eventually make profits.
Revenue for mobile apps comes from paid downloads, subscription services, selling products via in-app purchases, or clicks for advertisements or affiliates.
2. Projecting Expenses
The majority of expenses for a mobile app are software development costs, marketing, and employees’ salaries. Projecting your expenses keeps you prepared both for ordinary and one-time expenses. It can also help you optimize your finances to produce the desired results given the available budget.
3. Personnel Plan
Salaries and benefits constitute a significant portion of your expenses, including the salaries of developers, designers, and other personnel in the development stage. Having a personnel plan will help you source out competent personnel by offering them competitive salaries and benefits.
It is also good to consider sourcing out the mobile app development to focus more on your business’s marketing and management aspects.
- Preparing Financial Statements
Preparing the three financial statements (income statement, cash flow statement, and balance sheet) will play a crucial role in your financial projections.
- Income Statement (Profit & Loss)
Preparing a monthly income statement in the first year projects the monthly timing of sales and expenses. You can forecast through the income statement when the business will start earning.
3. Cash Flow Statement
The cash flow statement assesses your capacity to finance the day-to-day business operation. It will also help you prepare backup funding sources if needed. Cash flows are more realistic in assessing the financial health of your business as it projects the actual business situation and not just the accounting record (in contrast to income statement).
There are three components of the cash flow statement: cash flows for operation, investment, and financing activities. The operating section shows how much cash sales are earned and the operating expenses incurred. For investment, it presents the purchase or sale of fixed assets. At the same time, financing activities include the cash inflows of equity and loan, then cash outflows for the loan repayments, interests’ expense, and distribution of dividends.
4. Balance Sheet
The balance sheet shows the business’s financial position – presenting Assets, Liabilities, and Equity.
Current assets for the mobile app plan are primarily cash and accounts receivable. There is no inventory since sales are generated through paid downloads, subscription services, selling products via in-app purchases, or clicks for advertisement/affiliates.
Liabilities include the current payable of the convertible loans but will end once the loans turn into Equity under long-term commitments.
The owner and few investors primarily finance the mobile app business. The investors are those interested in providing funding through convertible loans.
A mobile app financial plan is a valuable tool in assessing the financial feasibility of your business prospect. It tests different scenarios and variables and assesses if it is worthwhile to continue the project. The easy way to do a financial plan is to use a financial model template design for mobile app businesses like the templates you will find in this website.