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It's good to know in advance whether your business is going to be profitable. A financial plan can help you make things clearer for yourself. Also when you applying for a loan, your bank or financier will want to see you financial plan.
The financial plan
A financial plan is a useful tool for determining whether your business idea is viable. It will demonstrate the costs and what is needed to finance them. And it is useful for convincing financiers to lend you money, and therefore forms the basis for your financial pitch.
Creating a financial plan does not have to be complicated. Base it on your business plan and keep it simple. Targeted market research and a sound marketing plan should be part of your business plan. These will help you create a solid basis for your figures.
It is important that you work out as much of your financial plan as possible yourself. Discussing it with an expert, such as your accountant, can also help you prepare for the next step – approaching financiers or investors for money.
What should a financial plan include?
A financial plan consists of five budgets that detail the minimum requirements for starting your business, the investments you will need to make and how you plan to finance them. This allows you to determine whether your business idea is viable. What turnover do you expect to generate? And will your business be profitable, or not? It also forces you to examine cash flow and whether you will have enough money each month. Answering all these questions in your business plan is the key to your success.
Your investment budget should include a list of the investments you will need to start your business and those that can wait until a later stage. This is an indicator of the minimum amount of money you will need to get started.
Your financial budget should detail how you intend to finance your investment budget. Options include personal capital (equity capital) or loans, e.g. from a bank (borrowed capital), or even a combination of the two.
Your operating budget should show that your business is profitable. This will allow you to estimate your turnover. You can then analyse the costs to keep your business running. Combining these, you can determine whether you will make a profit or a loss.
Cash flow budget
Income and expenditure can fluctuate greatly over a year. Your cash flow forecast should include all income and expenditure over a given period, e.g. per month or per quarter. This will highlight when you will have surplus cash and when you will need extra funds.
Personal expense budget
One option is to determine how much personal capital you have and then base your financial plan on your personal situation. This involves calculating how much money you will need for you and your family, how much you will have to pay in tax and what your operational costs will be. This allows you to work out your minimum turnover to make ends meet.
SME financing institution Qredits has free tools , including templates for a business plan and financial plan.
What do financiers look for?
Financiers look at both 'hard' and 'soft' factors when they analyse a credit application. Hard factors relate directly to your business and the basis upon which you plan to build it. Soft factors relate to you and your qualities as a business owner.
Prepare a good presentation that demonstrates you've familiarised yourself with the financier's use of language and information requirements. Financiers will examine your application based on the following points:
- Business owner assessment. Who is the credit applicant?
- Business owner's qualities and experience
- Quality of the business plan and its financial basis
- Company history, e.g. turnover, gross profit, cash flow, etc.
- Industry or sector. What trends and developments exist within this sector or industry?
- Type of loan. Loan size and duration
- Purpose. What will the lended money be used for?
- Strict budget and financial obligations. Do you have a clear picture of the revenues required to meet both your financial obligations – business and personal alike?
- Cost structure. Do you have a clear picture of your business's costs?
- Repayment capacity. Will you be able to meet your repayment obligations without jeopardising your business?
- Return potential. Do you have a clear picture for your business's future growth?
- Financial structure
- Personal expenditure
- Market analysis by an independent body
- Market research and industry information
- Security. What security can you offer to ensure that you'll be able to repay your financier?
How to write a financial plan
When using the financial plan to convince investors to finance your company, this is where you make your first impression. Prepare a good presentation that demonstrates you have familiarised yourself with the financier's use of language and information requirements. Start with an intro, use tables and visuals and also think of the graphic design.
- Use your own equity to finance the business as well, if you can, as this will help convince financiers and other parties.
- Negotiate the terms and conditions of your financing package. Repayment terms can be just as important as the financing package itself.
- Improve your chances of success by supporting your application with a pitch.
- Determine what financing options exist.
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How to write a financial plan for your business
Steer your business on the road to success with a solid financial plan.
A financial plan gives you a snapshot of the overall health of your business. There are 3 key financial statements that make up a business financial plan. Taking the time to prepare these at the start of your business journey can pay off in the long run.
1. Cash flow statement
Sometimes called cash flow projection, this is one of the most important steps in completing your financial plan. It details your incoming and outgoing cash and helps make sure you have enough money to keep your business running.
Try this simple cash flow formula:
- Determine the period you want to focus on (e.g. the next 3 or 6 months)
- Start with your opening cash balance
- Estimate your incoming cash and expenses for the period
- Subtract the estimated expenses from your income and add it to the opening balance
How to use your cash flow statement
You can look at your cash flow statement from previous years to determine if you’ll have enough to cover your costs, like wages and rent, over the specified period. It’s important to allow for glitches like late payments when projecting your cash flow.
2. Income statement
Also known as profit and loss statement (P&L), this shows you a clear view of your income and expenses, and how these change over a period of time.
What to include in your income statement
What goes into an income statement depends on the type of business. You should at least cover these key areas:
- Cost of goods or services
- Total profit or loss (revenue minus cost of goods/services)
- Operating costs (e.g. rent)
- General expenses (e.g. marketing, advertising, depreciation)
- Operating income (total profit minus expenses)
How to use your income statement
Estimate your sales and expenses on a monthly, quarterly or yearly basis to see whether you can expect to make a profit or loss for each of these periods. This will help you develop sales targets and find ways to grow your business.
3. Balance sheet
Unlike your cash flow statement which looks at the future, and your income statements which looks at the past, your balance sheet is a financial snapshot of your business in the present.
Try this simple balance sheet formula:
- In one column list all your assets (e.g. cash, inventory, buildings)
- On the other side list your liabilities (e.g. accounts payable and loans)
- Subtract your total liabilities from your total assets to determine your equity
How to use your balance sheet
Your balance sheet can help you evaluate the financial health of your business, show your profit at a glance and work out if you’ll have enough resources to run your day-to-day operations.
Take your business financial plan to the next level
To enhance your business financial plan, consider preparing a break-even analysis. This shows you the number of sales needed to cover costs – anything above this number can be counted as a profit.
The break-even point can be useful for analysing the sales, costs and pricing numbers used in your earlier forecasts and judge whether your business idea is feasible. For example, if your break-even point is years away, you may want to revisit your numbers to see if there are any opportunities to make your business more profitable.
Once it’s ready, treat your business plan as a guide to running your business. Remember that it’s a working document, so if your goals and circumstances change, update the plan. If you need help, an accountant could help assess your prospective financial position and ensure you’ve thought through all potential income and expenses.
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9 key benefits of business financial planning
Published on February 3, 2023
Building a business financial plan is never easy. It requires effort, good data, and a fair amount of imagination. And if you’ve never done this before, you’ll likely hit a few roadblocks along the way.
But this post will show you why it’s so valuable, nonetheless.
A good financial plan keeps you focused and on track as the company grows , when new challenges arise, and when unexpected crises hit. It helps you communicate clearly with staff and investors, and build a modern, transparent business.
And there are plenty of other advantages .
We’ll explore nine of our favorites shortly. But first, let’s define exactly what we’re talking about.
What is business financial planning?
Your company’s financial plan is essentially just the financial section of your overall business plan . It applies real financial data and projections to put the rest of your business plan in context.
And crucially, it is forward-looking. While you use existing accounting figures (if you have them already) and experience to create your plan, it’s not simply a copy/paste of your accounting data. Instead, you look at your business goals and define the level of investment you’re willing to make to achieve each of these.
But this doesn’t mean that financial plans are just “made up.” If anything, this section of your business plan is the most grounded in reality.
As Elizabeth Wasserman writes for Inc :
“A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line.
The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business.”
The importance of financial planning in business
This probably won’t come as a surprise to most readers, but financial planning is essential to building a successful business. Your business plan dictates how you plan to do business over the next month, quarter, year, or longer - depending on how far out you plan.
It includes an assessment of the business environment, your goals, resources needed to reach these goals, team and resource budgets, and highlights any risks you might face. While you can’t guarantee that everything will play out exactly as planned, this exercise prepares you for what’s to come.
We’ll look at the precise individual benefits next, but suffice it to say that, without a clear financial plan, you’re basically just hoping for the best .
9 benefits of financial planning for business
So what exactly can you hope to gain from business financial planning? The benefits of business planning are probably endless, but here are nine clear advantages.
1. Clear company goals
This is really the starting point for your whole financial plan. What is the company supposed to achieve in the next quarter, year, three years, and so on?
Early on, you’ll want to establish that there is a real need for your business , and that your business fills this need. This is also known as “product/market fit.” For many startups, the first several years may be devoted to building a product and establishing that product/market fit. So this would be your chief one-to-two year goal, with smaller checkpoints along the way.
Crucially, if this is your key goal, you won’t set lofty sales targets or huge marketing KPIs. What’s the point of investing in sales and marketing for new customers, if the product isn’t ready to sell?
We’ll refer back to your company goals throughout this post, so it’s worth getting a handle on them from the start.
2. Sensible cash flow management
Your financial plan should also set clear expectations for cash flow - the amount coming in and out of the company. In the beginning, you’ll of course spend more than you make. But what is an acceptable level of expense, and how will you stay on track?
As part of this plan, you also need to figure out how you’ll measure cash flow easily. You may not have seasoned finance experts in the team, so can you accurately and efficiently keep track of where your money’s going?
By making your plan now, you can anticipate challenges both in receiving money and spending it , and identify ways to do both more effectively.
3. Smart budget allocation
This is obviously closely related to cash flow management (above) and cost reductions (below). Once you have a clear understanding of the amount of funding you have to spend - whether through sales income or investments - you need to figure out how you’ll actually spend it.
The company has its overall budget - essentially its “burn rate” for each quarter or year. Break this down into specific team budgets (product development, marketing, customer support, etc), and ensure that the amounts dedicated to each reflect their importance.
Budgets give each team their own constraints from within which to build . They know what resources are available to them, and can plan out campaigns and personal or product development accordingly.
At the company level, tracking project or team budgets is always going to be easier than monitoring spending as a whole . Once you break each budget down, it’s relatively straightforward to keep an eye on who’s spending what.
Get our free marketing budget template to help.
4. Necessary cost reductions
Aside from setting out how much you can afford to spend (and on what), a financial plan also lets you spot savings ahead of time. If you’ve already been in business for some time, building your financial plan involves first looking back at what you’ve already spent and how fast you’re currently growing.
As you set out your budget(s) for next year, you’ll refer back to past spending and identify unnecessary or over-inflated costs along the way. And then for next year’s budget, you simply adjust accordingly.
This conscious effort is all part of spend control , the practice of keeping company spending in line with your expectations. Even better, a quarterly or annual review almost always unearths areas where you can save money and put your resources to better use.
Learn more about effective spend control .
5. Risk mitigation
A crucial aspect of the finance team’s role is to help companies avoid and navigate risk - from financial fraud to economic crisis . And while plenty of risks are hard to predict or even avoid, there are plenty that you can see coming.
Your financial plan should make room for certain business insurance expenses, losses through risky inefficiencies, and perhaps set aside resources for unexpected expenses . Particularly during turbulent times, you may in fact create several financial forecasts which show different outcomes for the business: one where revenue is easy to come by, and one or two others where times are tougher.
Again, the point is to have contingency plans in place, and to attempt to determine how your roadmap changes if you grow only 20% next quarter instead of 30% (or 50%) . There’s no reason to go overboard, but you can find risky areas within the business, and also consider your best responses if things go wrong.
6. Crisis management
The first thing that tends to happen in any company crisis is you review and re-build your plans. Which of course means that you must have a clear business plan in the first place . Otherwise, your crisis response is simply to improvise.
As the 2020 financial crisis unfolded, the key refrain we heard from finance leaders was the need to reforecast constantly. Nobody truly knew how long the crisis would last, or how it would impact their business. So companies created new financial plans on a monthly or quarterly basis, at least.
And those with robust and well thought-out financial plans found this process easier. They weren't starting from scratch over and over, and they’d already identified obvious risks and the key levers to pull in response.
7. Smooth fundraising
Let’s shift away from risk entirely now. Whether you’re a brand new startup, a sustainable company that needs a small cash injection, or looking for a significant series-level investment, at some point you’ll likely need funds.
And the first thing any prospective investor or bank will ask you for is your business plan . They want to see how you intend to grow the business, what risks and uncertainties are involved, and how you’ll put their money to good use.
A financial plan that speaks to investors is critical, and the better your history of planning is, the more likely they’ll trust your projections. So whether or not you’re looking for funds today , a business financial plan is an important tool in your chest.
8. A growth roadmap
Finally, your financial plan helps you analyze your current situation, and project where you want the business to be in the future . Again, your wider business plan will do this on a broad level: the markets you’d like to be present in; the number of employees you’ll have; the products or services you hope to sell.
The financial section adds data to these goals, and plugs in your level of investment along the way . For example, if you wish to hire 100 new employees this year, your financial plan will likely need to include recruiters, and a specific budget to find new talent.
Take the time to set out how large you expect the company to be, your expenses with a larger company, and the amount of revenue coming in to compensate. If you’ve raised venture capital to help grow financially , you can probably expect to burn cash faster than you make it - this is normal.
But if you burn through money and can’t reach your growth targets, then you’ll need to re-evaluate your position. So set those growth targets out now, and you’ll be able to assess as you go.
9. Transparency with staff and investors
We already mentioned how necessary your financial plan is for investors. So we won’t dive into them more here.
But the same is true for staff. It is now expected that company executives will be open and honest with staff . Some startups go so far as to publicize their salaries for the world to see.
At the very least, modern employees want to see that the company is in good hands and on the road to success. And when executives can share the financial plan in all-hands meetings, they bring real data to what would otherwise be a business plan lacking in details.
Employees love to see key figures like revenue coming in, costs, and where you are on the road to profitability .
What to include in a business financial plan
We won’t go into too much detail here, but it’s worth giving an idea of what belongs in the typical financial plan.
A three-year financial plan is most common. But whatever the period in question is, your plan should include:
Sales projections : Project your expected sales growth for the near future, as well as the cost of sales . You can break these down in different pricing groups, products, and other important factors.
Expenses & budgets : Most important here are costs - separated into fixed and variable expenses. (Lower fixed costs usually mean lower risk for the business).
Profit & loss statement : Alternatively, you can create a cash flow statement, which achieves a similar outcome. You essentially want to project money in and money out over the next three years.
Assets & liabilities : These will usually be separated from your P&L statement, and will certainly include startup costs and assets for new businesses.
Break-even analysis : Ideally, you’ll be able to identify your break-even point within the coming three years.
Hiring & team structure : This one is not essential, but it makes sense to add as part of your business plan. Who will you need - and when will you acquire them - in order to reach your goals?
For more information - especially on forecasting in uncertain times - read our expert’s guide to startup financial planning .
There’s no time like the present to create your business financial plan
We’ve seen nine excellent reasons to get to work on your company financial plan as soon as possible. As we explored, the financials form a critical part of your overall business plan , without which you’ll have a hard time assessing your performance as a company.
Of course, this exercise requires projection - you can’t just rely on the numbers you have today. But that’s not the same thing as guesswork . Follow best practices and consider all potential outcomes, and you’ll walk away with a clear roadmap to get you to business success in the foreseeable future.
From there, it’s a matter of putting in the work, measuring success, and regularly updating your financial plan.
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Key components of a financial plan
What to include if you plan to pursue funding, financial ratios and metrics, financial plan templates and tools.
How to Write a Small Business Financial Plan
Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.
Thankfully, you don’t need an accounting degree to successfully put your budget and forecasts together. Here is everything you need to include in your financial plan along with optional performance metrics, specifics for funding, and free templates.
A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:
What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.
Subscription sales forecast
While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.
Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.
How to forecast personnel costs
How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.
Profit and loss forecast
Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.
Cash flow forecast
Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.
Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.
Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.
Highlight any risks and assumptions
Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.
Plan your exit strategy
Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.
With all of your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios. While these metrics are entirely optional to include in your plan, having them easily accessible can be valuable for tracking your performance and overall financial situation.
Common business ratios
Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.
Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.
How to calculate ROI
How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).
Download and use these free financial templates and calculators to easily create your own financial plan.
Sales forecast template
Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.
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Financial plan FAQ
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6 Elements of a Successful Financial Plan for a Small Business
Table of contents.
Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business.
For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.
What is a business financial plan, and why is it important?
A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.
A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.
Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources.
Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.
The 6 components of a successful financial plan for business
1. sales forecasting.
You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies .
For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.
Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.
2. Expense outlay
A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll.
Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.
Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.
Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities.
As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.
3. Statement of financial position (assets and liabilities)
Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value.
Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report.
A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.
4. Cash flow projection
You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges.
It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .
A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.
5. Break-even analysis
A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output.
Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.
In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.
6. Operations plan
To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.
It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.
For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider.
Tips on writing a business financial plan
Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead.
A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.
Review the previous year’s plan.
It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.
Collaborate with other departments.
A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools.
Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.
Use available resources.
The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter.
If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.
Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .
Business financial plan templates
Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.
SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help.
SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.
Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.
Diana Wertz contributed to the writing and research in this article.
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Financial planning definition.
Financial planning enables a business to determine how it will afford to achieve its objectives and strategic goals. A business typically sets a vision and objectives, and then immediately creates a financial plan to support those goals. The financial plan describes all of the resources and activities that the company will require—and the expected timeframes—for achieving these objectives.
Financial planning is crucial to organizational success because it compliments the business plan as a whole, confirming that set objectives are financially achievable.
The financial planning process includes multiple tasks, including:
- Confirming the vision and objectives of the business
- Assessing the business environment and company priorities
- Identifying which resources the business needs to achieve its objectives
- Assigning costs business costs centers included in the plan
- Quantifying the amount of equipment, labor, materials, and other resources needed
- Creating and setting a budget
- Identifying any issues and risks with the budget
- Establishing the time period of the plan or planning horizon, either short-term (typically 12 months) or long-term (2 to 5 years)
- Preparing a full financial plan summarizing all key investments, budgets and departmental costs
Generally, the financial partner role includes three areas:
- Strategic financial management;
- Determining financial management objectives; and
- Managing the planning cycle itself.
- Connecting business partners and teams to financial plan
What Is Financial Planning?
Financial planning is the process of assessing the current financial situation of a business to identify future financial goals and how to achieve them. The financial plan itself is a document that serves as a roadmap for a company’s financial growth. It reflects the current status of the business, what progress they intend to make, and how they intend to make it.
Financial plans include budgets, but the terms are not interchangeable. Budgets are just one piece of a financial business plan, which should also include other important information that contribute to a complete picture of a business’ financial health, such as detailed, itemized breakdowns of company assets; typical expenditures; and forecasts of income, cash flow, and revenue.
Typically, business financial plans also focus on specific growth goals and other long-term objectives, as well as potential obstacles to achieving those objectives. A detailed financial planning checklist can identify overlooked opportunities and highlight possible risks that will affect the growth plan.
The comprehensive financial planning process in business is designed to determine how to most effectively use the company’s financial resources to support the objectives of the organization, both short- and long-range, by accurately forecasting future financial results. Financial planning processes are both analytical and informative, balancing the use of data and metrics to predict the future as well as institutional knowledge in departments and teams.
What is Financial Planning and Analysis (FP&A)?
Financial planning and analysis (FP&A) is a group within a company’s finance organization that supports the health of the organization by engaging in several types of activities: budgeting, integrated financial planning, modeling, and forecasting; decision support via reporting on management and performance; and various special projects. FP&A solutions link corporate strategy and execution, enhancing the ability of the finance department to manage performance.
FP&A professionals provide senior management with forecasts of the company’s operating performance and profit and loss for each upcoming quarter and year. These forecasts allow leadership to assess investments and strategic plans for effectiveness and progress. They also enable improved communication between external stakeholders and management.
To map out future goals and plans and evaluate the company’s progress toward achieving its goals, corporate FP&A professionals analyze the company’s operational aspects both quantitatively and qualitatively. FP&A analysts review past company performance, consider business and economic trends, and identify risks and possible obstacles, all to more effectively forecast future financial results for a company.
In contrast to accountants, who are tasked with accurate recordkeeping, consolidations and reporting, financial analysts must analyze and evaluate the totality of a company’s financial activities and map out the financial future of the business. FP&A professionals manage a broad range of financial scenarios and plans, including capital expenditures, expenses, financial statements, income, investments, and taxes.
Budgeting, planning, modeling, and forecasting
The primary responsibility of FP&A is to anchor the company, unite the business and translate plans to actionable & informed results. . So, what is financial planning and analysis, and how does it look in practice?
Senior management creates and drives the strategic plan in a top-down way, setting net income and revenue goals, core strategic initiatives, and other high-level business targets for the company’s next 2 to 10 years. FP&A’s corporate performance management aim is to develop the financial plan needed to achieve the strategic plan created by management.
In the past, financial planning and analysis teams developed annual budgets that remained mostly static and updated annually. However, whether in tandem with a traditional budget or as a replacement altogether, modern FP&A teams are increasingly developing rolling forecasts to cope with stale static budgets. Other important tasks of FP&A teams that are related to the budgeting, planning, and forecasting process include:
- Creating, maintaining, and updating detailed forecasts and financial models of future business operations
- Comparing budgets and forecasts to historical results, and conducting variance analysis to illustrate to management how actual performance and the rolling forecast or budget compare, suggesting ways to improve future performance
- Assessing expansion and growth opportunities based on forecasts and other projections
- Mapping out capital expenditures and investments, and other growth plans
- Generating long-term financial forecasts in the three- to five-year range
Decision support and reporting
FP&A reports variances and forecasts, naturally. However, the team also advises management using that data, offering support on decisions concerning performance improvement, risk minimization, or risk benefit analysis of new opportunities from outside and within the company.
One primary piece of this the FP&A team typically generates is the monthly budget versus actual variance comparison. This report explanations of variances; analysis of historical financials; an updated version of the forecast with opportunities and risks related to the current stage of plan; and Key Performance Indicators (KPIs). Ideally, this report or analysis offers leadership information sufficient to identify ways to meet specific goals or optimize performance, and answer imminent questions of stakeholders. However, the true goal of the budget vs. actual report should be to inform the business around gaps or opportunities that inform the future.
Other ongoing pieces of the FP&A team’s reporting and decision support role include:
- Using key financial ratios such as the current ratio, debt to equity ratio, and interest coverage ratio to gauge the overall financial health of the business
- Identifying which company products, product lines, or services generate the most net profit
- Determining which products, product lines, or services have the highest and lowest profit margins—separate from total profit
- Assessing and evaluating each department’s cost-efficiency in light of the percentage of total company financial resources it consumes
- Collaborating with departments to prepare and consolidate budgets into a single corporate budget
- Preparing other internal reports in support of decision making for executive leadership
Inevitably, the FP&A team works on special projects, depending on the size and needs of the business. For example:
Capital allocation. How much of the organization’s capital should be spent, and on what? Based on factors such as return on investment (ROI) and comparisons with increased stock dividends, different possible investments, and other ways the business could utilize its cash flow, are the company’s current investments and assets the best use of excess working capital?
Market research. What are the sizes and contours of a given market in which the organization may have a competitive advantage? Who are its laggards and leaders, and what potential opportunities does it hold for the company?
M&A. Which potential buy-side support, acquisition targets, integration, and divestiture opportunities exist for the company?
Process optimization. How can the company improve problems of process and workflow inefficiency? How can tools and technology in use by the business speak to and work with each other more effectively?
Ultimately, the FP&A team provides upper management with advice and analysis concerning how to best deploy the organization’s financial resources for optimal growth and increased profitability, while avoiding serious financial risk.
What is Corporate Financial Planning and Analysis?
Corporate financial planning is the process of determining what a company’s financial needs and goals for the future are, and how best to achieve them. Corporate financial planning considers the individual circumstances of the company as well as its broader economic context to determine which activities and investments would be most advantageous and appropriate. Generally, because short-term market trends are more predictable, short-term corporate financial planning involves less uncertainty and more readily adaptable financial plans.
Balanced corporate financial planning should elucidate how the company can achieve its goals and priorities while upholding its values. A financial plan for a corporation achieves at least two aims.
First, it forces management to think about the company’s prospects for business success objectively by basing their analysis on company finances. It also gives lenders and investors a good reason to invest into the business performance, by showing the growth and profit projections. Unrealistic or unbalanced financial plans or plans that understate profits tell investors to reconsider their investment or evaluation.
As a basic matter, three financial statements form the core of a corporate financial plan: income statement, statement of cash flow, and balance sheet. These statements clarify how much profit the business earns, and how much cash actually comes in, compared to the income reflected in accounts receivables. They also detail the relationships between corporate liabilities, corporate assets, and owner equity.
What is the Financial Planning Process?
The financial planning process results in the development of a financial plan, a financial forecast, or both. There are several well-understood steps in this process, and they often come out of sequence, depending on the deliverable or project at hand. However, it’s often simplest to think about these as steps in financial planning as financial planning tips, all of which are parts of a larger, flexible financial planning process.
With that in mind, these key components of financial planning for businesses are, in a sense, a set of best practices for your financial planning checklist.
Project revenue or sales for the next three years in a spreadsheet, or even better, in Planful. You’ll track numbers at least monthly in year one, and quarterly in years two and three.
Ideally you want to include sections that track unit sales, pricing, units times price to calculate sales, unit costs, and units times unit cost to calculate COGS or cost of goods sold, also called direct costs. Calculate gross margin, which is sales less cost of sales, and it’s a useful number for considering a new line of business or a new product expansion.
Here you want to determine the actual cost of making the revenue you have forecasted. Differentiate between fixed costs such as payroll and rent and variable costs such as most promotional and advertising expenses. Lower fixed costs mean less risk; higher fixed costs may signal a need for reduced risk tolerance.
Remember, this is not accountancy, but a forecast, so you will have to estimate things such as taxes and interest. Use run rates or average assumptions whenever possible, and estimate taxes by multiplying estimated profits by estimated tax percentage rate. Then estimate interest by multiplying estimated debts balance by estimated interest rate.
Project cash flow
Project cash flow, or dollars moving in and out of the business, in this statement is based partly on balance sheet items, sales forecasts, and reasonable assumptions.
An existing company should have historical documents to base these forecasts on, such as balance sheets and profit and loss statements from years past. A new business which lacks these historical financial statements can project a cash-flow statement broken down month by month.
Remember to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on when compiling a cash-flow projection so you are not reliant on collecting 100 percent to pay your expenses. Some financial planning platforms build these formulas to make these projections simpler.
The income projection is the company’s pro forma profit and loss statement or P&L, which offers detailed business forecasts for the coming three years. To project income, use expense projections, sales forecasts, and cash flow statement numbers. Sales minus cost of sales equals gross margin. Gross margin minus expenses, interest, and taxes equals net profit.
Compile assets and liabilities
To deal with assets and liabilities that project the net worth of your business at the end of the fiscal year but are not in the profit and loss statement you need a projected balance sheet. Some of these, such as startup assets, are obvious and affect just one part of the process. However, others are less apparent.
For example, although the profit and loss reflects interest, it does not reflect repayment of principle. This means that loans and inventory register only as assets, but only up until you pay for them.
Cope with this by compiling a complete list of assets, equipment, real estate, and an estimate month by month of inventory if the business has it, accounts receivable (money owed to the company), and cash the business will have on hand. Then compile a complete list of liabilities and debts, including outstanding loans.
Conduct breakeven analysis
The breakeven point is when the expenses of the business match volumes or revenue. Undertake this analysis using the three-year income projection. Overall revenue will exceed overall expenses, including interest, within this period of time if the business is viable. Potential investors must engage in this critical analysis to ensure they are investing in a healthy business that is fast-growing and maintains reasonable profit.
Put the plan to work
Many companies work hard to create a financial plan for small business, only to ignore it as soon as it has been created. Placing all of the focus on creating the plan is a major error, because it is a powerful management tool. It is a better practice to compare actual numbers in the profit and loss statement with projections in the financial plan once a month, and use that data to revise future projections.
Compare statements over time
Undertake a financial statement analysis to compare specific items and entire financial statements over time—even the statements of the business to those of other companies. Conduct a ratio analysis to determine the prevailing industry ratios for profitability analysis, liquidity analysis, and debt. Measure the business both against its past performance and other similar businesses by comparing these standard ratios. You can also use the business plans from similar companies as financial plan examples.
Pitch with past plans
Include past financial plans as supplementary documentation of the business’s financial history as the organization applies for a loan or works to attract investment.
Use financial planning software
Obviously, this is a tremendous amount of dynamic information and calculation, making financial planning software a good option for many teams assembling a business plan’s financial section. These digital financial planning tools also enable visual financial projections such as bar graphs and pie charts.
What Should Financial Planning Include?
All business financial plans should include: a profit and loss statement; a cash flow statement; a balance sheet; a sales forecast; a personnel plan; business ratios; and a break-even analysis.
Profit and loss statement
The profit and loss statement is a financial statement that goes by several names, including P&L, income statement, and pro forma income statement. By any name, the profit and loss statement is essentially an explanation of how the business either made a profit or incurred a loss over a specific time period—typically three-months. The table lists all revenue streams and expenses, along with the total net profit or loss.
Depending on the type and structure of the business, there are different formats for profit and loss statements. However, in general, include in the profit and loss statement:
- Revenue or sales
- Cost of sale or cost of goods sold (COGS), although services companies may not have COGS
- Gross margin, which is revenue less COGS
Revenue, COGS, and gross margin are at the heart of how most businesses make money.
The P&L should also include operating expenses, those expenses that are not directly associated with making a sale but that are associated with running the business. These are the fixed costs that fluctuations in business really don’t affect, such as utilities, rent, and insurance.
The P&L statement should also include operating income:
- Gross Margin – Operating Expenses = Operating Income
Typically, operating income is equivalent to EBITDA: earnings before interest, taxes, depreciation, and amortization—although this depends on how the organization classifies expenses. Another way to think about operating income is the amount in profit before tax and interest but after operational costs.
The net income is the bottom line of the business, found at the end of the profit and loss statement. It represents going back to EBITDA and going a few steps further, subtracting expenses for interest, taxes, depreciation, and amortization to find net income:
- Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income
Cash flow statement
Just as critical as the P&L, the cash flow statement is typically a per-month explanation of how much cash the business brings in, pays out, and the ending cash balance. This detailed map of how much cash is in play, where it originates and goes to, and the cash flow schedule itself, is essential to any healthy, functional business.
The cash flow statement assists management in understanding the difference between the company’s actual cash position and the reported income on the profit and loss statement. It is just as important to clearly lay this information out for investors and lenders in the cash flow statement to raise funds.
Some businesses might be profitable but still lack the cash to pay expenses and continue to operate. Others might have the cash on hand to stay open even if they are unprofitable—cash flow break-even is vital to future company scale.. Therefore, the cash flow statement is important to understand.
There are two methods of accounting in the cash flow statement—the indirect method and the direct method. Which you select can affect how the cash flow statement and profit and loss statement compare, and accrual accounting might better reflect actual cash flow than cash accounting for many businesses.
The balance sheet is a picture of the financial position of the business at a specific point in time. It reflects how much cash and equity is on hand, how much is in receivables, and how the business owes vendors and other debtors.
A balance sheet should include:
- Assets: Cash, inventory, accounts receivable, etc.
- Liabilities: Debt, loan repayments, accounts payable, etc.
- Equity: Owners’ equity, investors’ shares, stock proceeds, retained earnings, etc.
Ideally, as the name suggests, the balance sheet items should balance out. Total assets on one side should always equal total liabilities plus total equity.
- Assets = Liabilities + Equity
The sales forecast is the FP&A team’s forecast or projections for a set period of what they think will generate revenue. Particularly if a business is seeking investment from investors or lenders, the sales forecast is among the fundamentals of financial planning, and should be part of a dynamic, ongoing process.
The sales or revenue number in the profit and loss statement and the sales forecast should be consistent. In fact, many types of financial planning software automatically connect these projects. Develop, organize, and segment an individualized sales forecast to meet the needs of a specific business.
The personnel plan identifies the resourced structure and positions needed to run the company operations. How important the personnel plan is depends in large part on the company.
A sole proprietor doesn’t need much of a personnel plan. A large company with high labor costs requires a detailed personnel plan and should invest the necessary time in determining how personnel impacts the business.
A complete personnel plan should describe the expertise, training, and market or product knowledge of each member of the management team. Some businesses might find listing entire departments as a better tactic for the personnel plan.
Business ratios and break-even analysis
To calculate standard business ratios, all that is required are the profit and loss statement, cash flow statement, and balance sheet. Common profitability ratios and liquidity ratios include the gross margin, return on investment (ROI), and debt-to-equity ratios.
The break-even analysis determines how much revenue a business needs to cover all of its expenses, or break even. To assess the break-even point for the business, find the contribution margin—those are the costs necessary to generate revenue.
For management to get an accurate sense of how high revenue must be for the company to stay profitable, they must subtract those contribution margin costs as well as fixed costs from the profit to find that break-even point. For example, most businesses have some labor costs as well as things like insurance and rent—those are fixed costs. Then there might be contribution costs per sale, such as costs per meal prepared in a restaurant or costs per package shipped or outfit sold in a store. A functional business has to cover them all and generate additional profit to break-even.
What are the Steps in Financial Planning?
There are many routes toward creating a solid financial plan. A well-designed financial business plan thoroughly clarifies business goals in financial context and helps a company plan for the future. Although there is no one correct way to engage in financial planning, understanding some basic steps in financial planning can make the process easier.
Review your strategic plan
The strategic plan of the business is usually where comprehensive financial planning services start. If the business lacks such a plan, it’s time to develop one.
As management reviews the plan, they should consider several questions for the coming year:
- Will we want or need to expand?
- Will we need to hire talent/staff?
- Will we need more equipment?
- What about additional new resources?
- Are there any other plans that we have in mind this year that will require resources?
- How will these plans impact cash flow?
- Will we need financing? If so, how much? Can we revise our plans? Should we?
Fully assess the financial impact of all spending on major projects over the next 12 months.
Develop financial projections
Develop financial projections based on anticipated income and anticipated expenses. Sales forecasts are the basis for anticipated income, while things like costs for supplies, labor, and other overhead form the basis for anticipated expenses. Typically these financial projections will be monthly, but weekly projections may be better for businesses focused on cash optimization.
To make a financial projection, the business will compare project costs from the strategic plan to these anticipated costs and expenses. In other words, the team will look at the costs of doing business as normal plus the costs of adding in the projects, keeping in mind that sales will not always convert to cash immediately.
To create a financial projection, management often also must refer to a projected profit and loss or income statement and a projected balance sheet which it may need to develop in tandem with the financial projection. To assist the team in evaluating the impact of each possible scenario, it can be useful to include various outcomes—optimistic, most likely, and pessimistic—for the projections.
Finance’s advice may be essential to developing financial projections. However, ensure that leadership and anyone who will be seeking financing and explaining the plan to investors and lenders understands the projections and how they fit into the plan.
Arrange financing, plan for growth and contingencies
Determine the financing needs of the business using the financial projections. Well-prepared projections presented to financial stakeholders in advance of deadlines are always more reassuring.
How will the business grow in the coming year? Turn to the FP&A team to make smart investment and growth decisions.
Keep emergency sources of money on hand in case business finances suddenly pivot.. Maintaining credit or a cash reserve are possibilities. Keep laser focus on cash management and optimization.
Financial planning is a dynamic process. Compare projections to actual results throughout the year to see if they are accurate or require adjustments. Monitoring assists businesses in spotting financial problems before they are out of control, and ultimately in identifying smarter growth opportunities.
Consult and use tools
For some businesses, expert help in the form of financial planning services may be necessary to create a financial plan. For many others, the right financial planning software and other financial planning tools are critical to the job.
Why is Financial Planning Important?
A financial business plan has two main purposes. A business needs a financial plan that proves the business will grow, scale, and provide shareholder value over the long term.. Ensuring growth, scale and consistent shareholder value is vital to all stakeholders in the business. . Similarly, the financial plan proves to lenders and banks that the business will be able to repay any loans.
Just as critically, though, a financial forecast benefits leadership. A realistic projection of how the business is likely to perform prepares management and staff. A financial plan is a guide to running a healthy business and should be considered a living document.
There are several other reasons why financial planning is important to a business:
Be realistic when developing a financial business plan, make sure your forecast or plan mirrors business reality. However, if you can demonstrate that your financial plan is realistic in a step-by-step way, your financial forecast will be credible. For example, if you break down your figures into components or channels to provide more detailed estimates, you may be able to reassure lenders, investors, and leadership more.
Balancing the balance sheet
Balance sheet optimization is one of the powerful benefits of financial planning. Identifying and assessing all business assets and liabilities and planning in advance how and when to pay all taxes, salaries, expenses, overheads, and miscellaneous costs is part of this process. Another strategy is to divide the business into functions or departments and prioritize them to better identify which important and urgent investment areas.
Efficient, comprehensive financial planning gives businesses improved long-term visibility into fund allocation. Analysis of how funds are deployed within a business can positively affect productivity and revenue and offer deeper insight into the health of the business. This kind of visibility also empowers more insightful decision making.
No business has endless money to burn on marketing, and a well-designed financial plan helps identify which marketing strategies are most productive for that particular business. Business marketing strategies frame tasks for a company, from planning to execution and implementation.
The marketing team may well be experts across the board when it comes to marketing channels and strategies. However, only actions that generate more business in measurable ways should be planned for the company. Ultimately, finance partnership with the business assesses whether the metrics in the reports justify ongoing marketing campaigns, so for every strategy the team formulates for business, they should highlight the ratio of expense and profits.
Monitoring assets (In’s) and liabilities(Out’s)
The financial team protects the stability of the business by routinely monitoring its assets and liabilities and the ratio of liabilities and assets. This ongoing activity provides insight into needed improvements and actionable ways to decrease liabilities and increase assets.
Measuring profit and loss
The finance team compiles financial planning reports to support evaluation of organizational profits and loss. These reports also showcase the net profits and their main causes, assisting management in evaluating which strategies worked best for the business.
What are Financial Planning Benefits?
It is easier for businesses that focus on financial planning to grow their revenues at a quicker pace than it is for companies that lack an efficient financial planning process. Corporate financial planning offers decision making support in the form of forecasts or budgets. It assists businesses in managing costs and building revenues by highlighting where they should focus resources for optimal effectiveness. Impactful financial management nurtures more growth by freeing up more funds for expanding operations, marketing, and product development.
As a broader matter, strategic business planning develops tasks and determines who will be responsible for delivering those tasks in a timely way, thus determining the company’s direction. Financial planning aligns to the strategic plan which then translates to actionable outcomes and measurable results.
The financial plan projects the revenues the team thinks will result from implementing the strategies and the expenses taking those actions will require. Senior management, operations, and marketing personnel are all deeply involved in strategic financial planning, and finance is focused on developing deep business partnerships, connecting the business and tracking the results. Here are some of the specific benefits of financial planning:
The starting point for the financial plan as a whole is what the company aims to achieve in the coming quarter, year, three years, five years, and longer. This is because it is essential to establish that a real need for the business exists, and this company in particular fills the need—a product/market fit.
Many startups devote several years to establishing that product/market fit as they build out and refine their product. In fact, achieving that kind of fit, with smaller checkpoints along the way, is a good one-to-two year goal. In these early stages, the financial plan can reveal to the team that it doesn’t yet make sense to set massive marketing KPIs or sales targets as the refinement process continues.
The financial plan sets forth clear cash flow expectations. For new businesses, the amount of cash going out is often more than is coming in, but it remains important to determine an acceptable level of expense, and ensure the business stays on track, and the statement helps achieve this. Cash flow management is also an important part of a financial plan, so that even team members who are not seasoned finance experts can efficiently and accurately track cash flow as needed. For all of these reasons, a solid financial plan assists with sensible cash flow management.
Agility, collaborative and actionable budgeting
Closely related to both cost reductions and cash flow management, it is essential to know the best way to spend the funding that is actually available to the business, whether through investments, revenue, or some other source. The business should break down the overall budget for the quarter or year into separate budgets for specific teams such as customer support, marketing, product development, and sales. This way management can ensure each budget accurately reflects the team’s productivity and relative importance.
Budgets also allow each team to build within a known set of limits. Team members can effectively plan campaigns and other tasks because they know what resources are available. Furthermore, it is always simpler to track team or project budgets than to monitor overspending at the company level.
Identify spend reductions
A financial plan enables the FP&A team to identify ways to reduce spend in advance. Building a financial plan includes a careful look back over the speed of current growth and what has already been spent. The goal with this kind of spend control is to detect over-inflated costs and unnecessary spending in the past to eliminate it in future budgets. The result from this kind of periodic review is keeping spending in line with expectations and making better use of resources.
The finance team assists the business in avoiding risk and navigating pitfalls when they occur. Many risks, from fraud and other forms of economic crises, are predictable and avoidable.
A strong financial plan should account for some uncertainty, business insurance expenses, and other unexpected expenses, and set aside resources to cope with them. Some teams create several financial forecasts with various business outcomes: one that shows results under conditions with more revenue, and others under conditions with less.
Especially during economically volatile times, prepare for many contingencies in the financial plan, which should clarify how the roadmap for the business will change as growth fluctuates.
During a crisis in any business, the first move is typically to review and re-build strategic plans. Without strategic plans in place, a crisis response is merely improvisational.
As the coronavirus crisis and surrounding financial crisis in 2020 and beyond have revealed, finance teams and leaders must constantly reforecast to deal with adversity. Businesses are developing new financial plans quarterly or even monthly to cope, and nobody truly knows when the crises will end.
The financial-planning team should help get through this particular challenge and other crises by focusing on several steps, all using their ongoing financial planning process. The first step in crisis management is to reassess new business operational baselines. Next, the team should use the plans and feedback to build a reality-based plan they will review many different business scenarios.
The team will next determine the business’s general direction and align on a financial plan that fits with this possibly new direction, in context. Then they will identify the best actions for the company to take, as well as any trigger points that could require further changes. A strong financial planning process, FP&A team, and store of financial statements can all make these crisis management steps much simpler.
Be opportunistic around fundraising
Any prospective bank, lender, or investor needs to see financial planning in the form of a business plan. A financial plan must tell a story to investors, while communicating the trustworthiness of the projections.
Roadmap for growth
A financial plan clarifies both the current financial situation of a business, and helps it project where it intends to be in the future. This may be reflected in various specifics, such as number of employees to hire; markets to penetrate; or new services or products to sell. The financial plan itself augments these goals with specific data, such as a budget for a particular number of new employees, including talent and recruitment costs and other resourcing needs.
Of course transparency in the financial plan is critical for lenders and investors. But it’s just as important for the team and staff. To ensure your team that the business is healthy, following a solid plan towards growth and scale, and in good leadership hands, a transparent financial plan is key.
Does Planful Help With Financial Planning?
Yes. Planful delivers a continuous planning platform elevating the financial conversation, aligning finance’s need for structured planning with the business’ need for dynamic planning, and enabling your organization to make better decisions more confidently, quickly, and strategically by uniting the business together.
Comprehensive budgeting, planning, and forecasting features offer the financial planning and analysis team the control, structure, and partnership with the business they want. Meanwhile, dynamic planning features empower business leaders and finance with individualized, agile models and plans to manage for multiple business outcomes
Planful also delivers complete financial consolidation, including inter-company eliminations, partial ownership rules, and statutory reporting. The platform also ensures your business meets every management, financial, regulatory, and ad hoc reporting need with a robust library of delivery options and reporting formats.
Planful can help your business:
- Reduce reporting time up to 90% by automating manual processes
- Replace annual planning cycles with rolling forecasts to better respond to changing business conditions with increased agility, more accurate financial plans, and optimized financial results in real-time
- Leverage data from across the business to drive strategic planning, long-term value, and growth
- Free up time for collaboration and analysis by automating tedious, manual tasks in the planning process
- Simplify complex ad-hoc financial analysis and explore financial insights with greater confidence and speed
- Reduce time to close by up to 75% by automating data collection, aggregation, and validation across the organization with low risk and high security thanks to robust, searchable audit logs and strong internal controls
- Create impressive, professional financial and management reports that share insights with clarity
- Improve collaboration and workflow with accurate, current data
Find out more about Planful’s Financial Planning solution here.
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Simple Business Plan Template for Startups, Small Businesses & Entrepreneurs
Financial plan, what is a financial plan.
A financial plan is the part of your business plan that details how your business will achieve its financial goals. It includes information on the company’s income, expenses, and cash flow. The plan should also include a description of the business’s current financial situation, as well as its long-term goals.
The financial plan is an important part of the business plan, as it provides a framework for making financial decisions. It can be used to track progress and make adjustments as needed.
Why Your Financial Plan is Important
The financial section of your business plan details the financial implications of running your company. It is important for the following two reasons:
Making Informed Decisions
A financial plan provides a framework for making decisions about how to use your money. It can help you determine whether or not you can afford to make a major purchase, such as a new piece of equipment.
It can also help you decide how much money to reinvest in your business, and how much to save for paying taxes.
A financial plan is like a roadmap for your business. It can help you track your progress and make adjustments as needed. The plan can also help you identify potential problems before they arise.
For example, if your sales are below your projections, you may need to adjust your budget accordingly.
Your financial plan helps you understand how much outside funding is required, when your levels of cash might fall low, and what sales and other goals you need to hit to become financially viable.
This section of your plan is absolutely critical if you are trying to secure funding. Your financial plan should include information on your revenue, expenses, and cash flow.
This information will help potential investors or lenders understand your business’s financial situation and decide whether or not to provide funding.
Include a detailed description of how you plan to use the funds you are requesting. For example, what are the key uses of the funds (e.g., purchasing equipment, paying staff, etc.) and what are the future timings of these financial outlays.
The financial information in your business plan should be realistic and accurate. Do not overstate your projected revenues or underestimate your expenses. This can lead to problems down the road.
Potential investors and lenders will be very interested in your future projections since it indicates whether you will be able to repay your loans and/or provide a nice return on investment (ROI) upon exit.
Financial Plan Template: 4 Components to Include in Your Financial Plan
The financial section of a business plan should have the following four sub-sections:
Here you will detail how your company generates revenues. Oftentimes this is very straightforward, for instance, if you sell products. Other times, your answer might be more complex, such as if you’re selling subscriptions (particularly at different price/service levels) or if you are selling multiple products and services.
Financial Overview & Highlights
In developing your financial plan, you need to create full financial forecasts including the following financial statements.
5-Year Income Statement / Profit and Loss Statement
An income statement, also known as a profit and loss statement (P&L), shows how much revenue your business has generated over a specific period of time, and how much of that revenue has turned into profits. The statement includes your company’s revenues and expenses for a given time period, such as a month, quarter, or year. It can also show your company’s net income, which is the amount of money your company has made after all expenses have been paid.
5-Year Balance Sheet
A balance sheet shows a company’s financial position at a specific point in time. The balance sheet lists a company’s assets (what it owns), its liabilities (what it owes), and its equity (the difference between its assets and its liabilities).
The balance sheet is important because it shows a company’s financial health at a specific point in time. A strong balance sheet indicates that a company has the resources it needs to grow and expand. A weak balance sheet, on the other hand, may indicate that a company is struggling to pay its bills and may be at risk of bankruptcy.
5-Year Cash Flow Statement
A cash flow statement shows how much cash a company has on hand, as well as how much cash it is generating (or losing) over a specific period of time. The statement includes both operating and non-operating activities, such as revenue from sales, expenses, investing activities, and financing activities.
While your full financial projections will go in your Appendix, highlights of your financial projections will go in the Financial Plan section.
These highlights include your Total Revenue, Direct Expenses, Gross Profit, Other Expenses, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and Net Income projections. Also include key assumptions used in creating these future projections such as revenue and cost growth rates.
Funding Requirements/Use of Funds
In this section, you will detail how much outside funding you require, if any, and the core uses of these funds.
For example, detail how much of the funding you need for:
- Product Development
- Product Manufacturing
- Rent or Office/Building Build-Out
If you are seeking equity capital, you need to explain your “exit strategy” here or how investors will “cash out” from their investment.
To add credibility to your exit strategy, conduct market research. Specifically, find other companies in your market who have exited in the past few years. Mention how they exited and the amounts of the exit (e.g., XYZ Corp. bought ABC Corp. for $Y).
Business Plan Financial Plan FAQs
What is a financial plan template.
A financial plan template is a pre-formatted spreadsheet that you can use to create your own financial plan. The financial plan template includes formulas that will automatically calculate your revenue, expenses, and cash flow projections.
How Can I Download a Financial Plan Template?
Download Growthink’s Ultimate Business Plan Template which includes a complete financial plan template and more to help you write a solid business plan in hours.
How Do You Make Realistic Assumptions in Your Business Plan?
When forecasting your company’s future, you need to make realistic assumptions. Conduct market research and speak with industry experts to get a better idea of the key trends affecting your business and realistic growth rates.
You should also use historical data to help inform your projections. For example, if you are launching a new product, use past sales data to estimate how many units you might sell in Year 1, Year 2, etc.
Learn more about how to make the appropriate financial assumptions for your business plan.
How Do You Make the Proper Financial Projections for Your Business Plan?
Your business plan’s financial projections should be based on your business model and your market research. The goal is to make as realistic and achievable projections as possible.
To create a good financial projection, you need to understand your revenue model and your target market. Once you have this information, you can develop assumptions around revenue growth, cost of goods sold, margins, expenses, and other key metrics.
Once you have your assumptions set, you can plug them into a financial model to generate your projections.
Learn more about how to make the proper financial projections for your business plan.
What Financials Should Be Included in a Business Plan?
There are a few key financials that should be included in a traditional business plan format. These include the Income Statement, Balance Sheet, and Cash Flow Statement.
Income Statements, also called Profit and Loss Statements, will show your company’s expected income and expense projections over a specific period of time (usually 1 year, 3 years, or 5 years). Balance Sheets will show your company’s assets, liabilities, and equity at a specific point in time. Cash Flow Statements will show how much cash your company has generated and used over a specific period of time.
Growthink's Ultimate Business Plan Template includes a complete financial plan template to easily create these financial statements and more so you can write a great business plan in hours.
BUSINESS PLAN TEMPLATE OUTLINE
- Business Plan Template Home
- 1. Executive Summary
- 2. Company Overview
- 3. Industry Analysis
- 4. Customer Analysis
- 5. Competitive Analysis
- 6. Marketing Plan
- 7. Operations Plan
- 8. Management Team
- 9. Financial Plan
- 10. Appendix
- Business Plan Summary