The plan provides the route map, anticipates the obstacles, risks and opportunities and provides a blueprint for a coherent and useful chart of accounts.

The exercise of planning will reveal to what you should track and measure in your Profit and Loss accounts. A word of advice – using small business accounting software is an easier option than spreadsheets or day books to record financial transactions in your chart of accounts.

Forecasting financial activity will identify the key numbers you should track and measure.

Payroll is a typical Fixed Expense. These are payments the business has committed to pay and are most often not related to sales.

Fixed expenses must be accurately tracked and anticipated to avoid serious problems in a business. This is where small business accounting software can really help.

Variable expenses are different in as much as they should be related to activities that will generate sales such as marketing, the purchase of products or services to be resold or used in the business to generate income.

The key variable expense that businesses fail to track correctly is tax repayment. Misjudging this can lead not just to financial suprises but pressure you don’t need when you are trying to manage your business.

The Profit and Loss presents the picture of Sales Income, Fixed and Variable Expenses. The Balance sheet reports the financial positions that occur as a result of the financial activity.

So my advice is you start your financial planning in the Profit and Loss and it should be apparent what Balance sheet Accounts you’ll need and what the expected financial positions or balances will be when.