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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.

Vector of two lines moving to the right and upward. Represents building financial statements and forecasts as part of your financial plan.

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:

Sales forecast

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.

Expense budget

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.

Balance sheet

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.

Break-even analysis

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.

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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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How to Develop a Small Business Financial Plan

By Andy Marker | April 29, 2022

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Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.

Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .

What Is a Small Business Financial Plan?

A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

Craig Hewitt

Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”

Why Is It Important for a Small Business to Have a Financial Plan?

All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.

Mark Daoust

Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”

To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .

What Does a Small Business Financial Plan Include?

All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.

Ahmet Yuzbasioglu

  • Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
  • Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
  • Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
  • Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
  • Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .

How to Write a Small Business Financial Plan

Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.

“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”

1. Create a Plan

Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.

2. Gather Financial Information

Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.

3. Create an Income Statement

Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.

Income Statement

4. Create a Balance Sheet

Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.

Balance Sheet

5. Create a Cash Flow Statement

As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”

Cash Flow

6. Create Other Documents as Needed

Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.

Breakeven Point

  • Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”

7. Save the Plan for Reference and Share as Needed

The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.

Janet Patterson

Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at  Highway Title Loans.

Small Business Financial Plan Example

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Example Microsoft Excel | Google Sheets

Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.

Small Business Financial Plan Starter Kit

Download Small Business Financial Plan Starter Kit

We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.

Small Business Income Statement Template 

Small Business Income Statement Template

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.

Small Business Balance Sheet Template 

Small Business Balance Sheet Template

Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets

This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter. 

Small Business Cash Flow Statement Template 

Small Business Cash Flow Template

Download Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.

Break-Even Analysis Template 

Break Even Analysis Template

Download Break-Even Analysis Template Microsoft Excel | Google Sheets

This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.

Personnel Plan Template  

Personnel Plan Template

Download Personnel Plan Template Microsoft Excel | Google Sheets

Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.

Sales Forecast Template

Sales Forecast Template

Download Sales Forecast Template Microsoft Excel | Google Sheets

Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.

Small Business Financial Plan Dashboard Template

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets

This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.

Tips for Completing a Financial Plan for a Small Business

You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:

Jesse Thé

  • Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
  • Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
  • Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
  • Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
  • Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”

Do Small Business Owners Need a Financial Planner?

Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.

Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run. 

Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”

For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .

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14.3 The Financial Planning Process

Learning objectives.

  • Identify the three stages of the personal-finances planning process .
  • Explain how to draw up a personal net-worth statement , a personal cash-flow statement , and a personal budget .

We’ve divided the financial planning process into three steps:

  • Evaluate your current financial status by creating a net worth statement and a cash flow analysis.
  • Set short-term, intermediate-term, and long-term financial goals.
  • Use a budget to plan your future cash inflows and outflows and to assess your financial performance by comparing budgeted figures with actual amounts.

Step 1: Evaluating Your Current Financial Situation

Just how are you doing, financially speaking? You should ask yourself this question every now and then, and it should certainly be your starting point when you decide to initiate a more or less formal financial plan. The first step in addressing this question is collecting and analyzing the records of what you own and what you owe and then applying a few accounting terms to the results:

  • Your personal assets consist of what you own .
  • Your personal liabilities are what you owe —your obligations to various creditors, big and small.

Preparing Your Net-Worth Statement

Your net worth (accounting term for your wealth ) is the difference between your assets and your liabilities. Thus the formula for determining net worth is:

Assets − Liabilities = Net worth

If you own more than you owe, your net worth will be positive ; if you owe more than you own, it will be negative . To find out whether your net worth is on the plus or minus side, you can prepare a personal net worth statement like the one in Figure 14.6 “Net Worth Statement” , which we’ve drawn up for a fictional student named Joe College. (Note that we’ve included lines for items that may be relevant to some people’s net worth statements but left them blank when they don’t apply to Joe.)

Figure 14.6 Net Worth Statement

Net Worth Statement of Joe College's Personal Net Worth Statement as of August 31, 2012

Joe has two types of assets:

  • First are his monetary or liquid assets —his cash, the money in his checking accounts, and the value of any savings, CDs, and money market accounts. They’re called liquid because either they’re cash or they can readily be turned into cash.
  • Everything else is a tangible asset —something that Joe can use, as opposed to an investment. (We haven’t given Joe any investments —such financial assets as stocks, bonds, or mutual funds—because people usually purchase these instruments to meet such long-term goals as buying a house or sending a child to college.)

Note that we’ve been careful to calculate Joe’s assets in terms of their fair market value —the price he could get by selling them at present, not the price he paid for them or the price that he could get at some future time.


Joe’s net worth statement also divides his liabilities into two categories:

  • Anything that Joe owes on such items as his furniture and computer are current liabilities —debts that must be paid within one year. Much of this indebtedness no doubt ends up on Joe’s credit card balance, which is regarded as a current liability because he should pay it off within a year.
  • By contrast, his car payments and student-loan payments are noncurrent liabilities —debt payments that extend for a period of more than one year. Joe is in no position to buy a house, but for most people, their mortgage is their most significant noncurrent liability.

Finally, note that Joe has positive net worth. At this point in the life of the average college student, positive net worth may be a little unusual. If you happen to have negative net worth right now, you’re technically insolvent , but remember that a major goal of getting a college degree is to enter the workforce with the best possible opportunity for generating enough wealth to reverse that situation.

Preparing Your Cash-Flow Statement

Now that you know something about your financial status on a given date , you need to know more about it over a period of time . This is the function of a cash-flow or income statement , which shows where your money has come from and where it’s slated to go.

Figure 14.7 “Cash-Flow Statement” is Joe College’s cash-flow statement. As you can see, Joe’s income (his cash inflows —money coming in) is derived from two sources: student loans and income from a part-time job. His expenditures (cash outflows —money going out) fall into several categories: housing, food, transportation, personal and health care, recreation/entertainment, education, insurance, savings, and other expenses. To find out Joe’s net cash flow , we subtract his expenditures from his income:

$25,700 – $25,300 = $400

Figure 14.7 Cash-Flow Statement

Cash-Flow Statement of Joe College's Personal Cash-Flow Statement as of August 31, 2012

Joe has been able to maintain a positive cash flow for the year ending August 31, 2012, but he’s cutting it close. Moreover, he’s in the black only because of the inflow from student loans—income that, as you’ll recall from his net worth statement, is also a noncurrent liability. We are, however, willing to give Joe the benefit of the doubt: Though he’s incurring the high costs of an education, he’s willing to commit himself to the debt (and, we’ll assume, to careful spending) because he regards education as an investment that will pay off in the future.

Remember that when constructing a cash-flow statement, you must record only income and expenditures that pertain to a given period, whether it be a month, a semester, or (as in Joe’s case) a year. Remember, too, that you must figure both inflows and outflows on a cash basis : you record income only when you receive money, and you record expenditures only when you pay out money. When, for example, Joe used his credit card to purchase his computer, he didn’t actually pay out any money. Each monthly payment on his credit card balance, however, is an outflow that must be recorded on his cash-flow statement (according to the type of expense—say, recreation/entertainment, food, transportation, and so on).

Your cash-flow statement, then, provides another perspective on your solvency : if you’re insolvent , it’s because you’re spending more than you’re earning. Ultimately, your net worth and cash-flow statements are most valuable when you use them together. While your net worth statement lets you know what you’re worth—how much wealth you have—your cash-flow statement lets you know precisely what effect your spending and saving habits are having on your wealth.

Step 2: Set Short-Term, Intermediate-Term, and Long-Term Financial Goals

We know from Joe’s cash-flow statement that, despite his limited income, he feels that he can save $1,200 a year. He knows, of course, that it makes sense to have some cash in reserve in case of emergencies (car repairs, medical needs, and so forth), but he also knows that by putting away some of his money (probably each week), he’s developing a habit that he’ll need if he hopes to reach his long-term financial goals.

Just what are Joe’s goals? We’ve summarized them in Figure 14.8 “Joe’s Goals” , where, as you can see, we’ve divided them into three time frames: short-term (less than two years), intermediate-term (two to five years), and long-term (more than five years). Though Joe is still in an early stage of his financial life cycle, he has identified and structured his goals fairly effectively. In particular, they satisfy four criteria of well-conceived goals: they’re realistic and measurable , and Joe has designated both definite time frames and specific courses of action (Kapoor, et. al., 2007).

Figure 14.8 Joe’s Goals

They’re also sensible. Joe sees no reason, for example, why he can’t pay off his car loan, credit card, and charge account balances within two years. Remember that, with no income other than student-loan money and wages from a part-time job, Joe has decided (rightly or wrongly) to use his credit cards to pay for much of his personal consumption (furniture, electronics equipment, and so forth). It won’t be an easy task to pay down these balances, so we’ll give him some credit (so to speak) for regarding them as important enough to include paying them among his short-term goals. After finishing college, he’ll splurge and take a month-long vacation. This might not be the best thing to do from a financial point of view, but he knows this could be his only opportunity to travel extensively. He is realistic in his classification of student loan repayment and the purchase of a home as long-term. But he might want to revisit his decision to classify saving for his retirement as a long-term goal. This is something we believe he should begin as soon as he starts working full-time.

Step 3: Develop a Budget and Use It to Evaluate Financial Performance

Once he has reviewed his cash-flow statement, Joe has a much better idea of what cash flowed in for the year that ended August 31, 2012, and a much better idea of where it went when it flowed out. Now he can ask himself whether he’s satisfied with his annual inflow (income) and outflow (expenditures). If he’s anything like most people, he’ll want to make some changes—perhaps to increase his income, to cut back on his expenditures, or, if possible, both. The first step in making these changes is drawing up a personal budget —a document that itemizes the sources of his income and expenditures for the coming year, along with the relevant money amounts for each.

Having reviewed the figures on his cash-flow statement, Joe did in fact make a few decisions:

  • Because he doesn’t want to jeopardize his grades by increasing his work hours, he’ll have to reconcile himself to just about the same wages for another year.
  • He’ll need to apply for another $7,000 student loan.
  • If he’s willing to cut his spending by $1,200, he can pay off his credit cards. Toward this end, he’s targeted the following expenditures for reduction: rent (get a cheaper apartment), phone costs (switch plans), auto insurance (take advantage of a “good-student” discount), and gasoline (pool rides or do a little more walking). Fortunately, his car loan will be paid off by midyear.

Revising his figures accordingly, Joe developed the budget in Figure 14.9 “Joe’s Budget” for the year ending August 31, 2013. Look first at the column headed “Budget.” If things go as planned, Joe expects a cash surplus of $1,600 by the end of the year—enough to pay off his credit card debt and leave him with an extra $400.

Figure 14.9 Joe’s Budget

Joe's College Budget

Figuring the Variance

Now we can examine the two remaining columns in Joe’s budget. Throughout the year, Joe will keep track of his actual income and actual expenditures and will enter the totals in the column labeled “Actual.” Like most reasonable people, however, Joe doesn’t really expect his actual figures to match with his budgeted figures. So whenever there’s a difference between an amount in his “Budget” column and the corresponding amount in his “Actual” column, Joe records the difference, whether plus or minus, as a variance . Two types of variances appear in Joe’s budget:

  • Income variance . When actual income turns out to be higher than expected or budgeted income, Joe records the variance as “favorable.” (This makes sense, as you’d find it favorable if you earned more income than expected.) When it’s just the opposite, he records the variance as “unfavorable.”
  • Expense variance . When the actual amount of an expenditure is more than he had budgeted for, he records it as an “unfavorable” variance. (This also makes sense, as you’d find it unfavorable if you spent more than the budgeted amount.) When the actual amount is less than budgeted, he records it as a “favorable” variance.

Setting Mature Goals

Before we leave the subject of the financial-planning process, let’s revisit the topic of Joe’s goals. Another look at Figure 14.8 “Joe’s Goals” reminds us that, at the current stage of his financial life cycle, Joe has set fairly simple goals. We know, for example, that Joe wants to buy a home, but when does he want to take this major financial step? And of course, Joe wants to retire, but what kind of lifestyle does he want in retirement? Does he expect, like most people, a retirement lifestyle that’s more or less comparable to that of his peak earning years? Will he be able to afford both the cost of a comfortable retirement and, say, the cost of sending his children to college? As Joe and his financial circumstances mature, he’ll have to express these goals (and a few others) in more specific terms.

Levels of Mature Goals

Let’s fast-forward a decade or so, when Joe’s picture of stages 2 and 3 of his financial life cycle have come into clearer focus. If he hasn’t done so already, Joe is now ready to identify a primary goal to guide him in identifying and meeting all his other goals (Winger & Frasca, 2003). Suppose that because Joe’s investment in a college education has paid off the way he’d planned ten years ago, he’s in a position to target a primary goal of financial independence—by which he means a certain financially secure life not only for himself but for his children, as well. Now that he’s set this primary goal, he can identify a more specific set of goals—say, the following:

  • A standard of living that reflects a certain level of comfort—a level associated with the possession of certain assets, both tangible and intangible.
  • The ability to provide his children with college educations.
  • A retirement lifestyle comparable to that of his peak earning years.

Having set this secondary level of goals, Joe’s now ready to make specific plans for reaching them. As we’ve already seen, Joe understands that plans are far more likely to work out when they’re focused on specific goals. His next step, therefore, is to determine the goals on which he should focus this next level of plans.

As it turns out, Joe already knows what these goals are, because he’s been setting the appropriate goals every year since he drew up the cash-flow statement in Figure 14.7 “Cash-Flow Statement” . In drawing up that statement, Joe was careful to create several line items to identify his various expenditures: housing, food, transportation, personal and health care, recreation/entertainment, education, insurance, savings , and other expenses . When we introduced these items, we pointed out that each one represents a cash outflow—something for which Joe expected to pay. They are, in other words, things that Joe intends to buy or, in the language of economics, consume . As such, we can characterize them as consumption goals . These “purchases”—what Joe wants in such areas as housing, insurance coverage, recreation/entertainment, and so forth—make specific his secondary goals and are therefore his third-level goals.

Figure 14.10 “Three-Level Goals/Plans” gives us a full picture of Joe’s three-level hierarchy of goals.

Figure 14.10 Three-Level Goals/Plans

Three-Level Goals/Plans (Primary Goals, Secondary Goals, Third-Level Goals)

Present and Future Consumption Goals

A closer look at the list of Joe’s consumption goals reveals that they fall into two categories:

  • We can call the first category present goals because each item is intended to meet Joe’s present needs and those (we’ll now assume) of his family—housing, health care coverage, and so forth. They must be paid for as Joe and his family take possession of them—that is, when they use or consume them. All these things are also necessary to meet the first of Joe’s secondary goals—a certain standard of living.
  • The items in the second category of Joe’s consumption goals are aimed at meeting his other two secondary goals: sending his children to college and retiring with a comfortable lifestyle. He won’t take possession of these purchases until sometime in the future , but (as is so often the case) there’s a catch: they must be paid for out of current income.

A Few Words about Saving

Joe’s desire to meet this second category of consumption goals— future goals such as education for his kids and a comfortable retirement for himself and his wife—accounts for the appearance on his list of the one item that, at first glance, may seem misclassified among all the others: namely, savings .

Paying Yourself First

It’s tempting to glance at Joe’s budget and cash-flow statement and assume that he shares with most of us a common attitude toward saving money: when you’re done allotting money for various spending needs, you can decide what to do with what’s left over—save it or spend it. In reality, however, Joe’s budgeting reflects an entirely different approach. When he made up the budget in Figure 14.9 “Joe’s Budget” , Joe started out with the decision to save $1,600—or at least to avoid spending it. Why? Because he had a goal: to be free of credit card debt. To meet this goal, he planned to use $1,200 of his current income to pay off what would continue to hang over his head as a future expense (his credit card debt). In addition, he planned to have $400 left over after he’d paid his credit card balance. Why? Because he had still longer-term goals, and he intended to get started on them early—as soon as he finished college. Thus his intention from the outset was to put $400 into savings.

In other words, here’s how Joe went about budgeting his money for the year ending August 31, 2013 (as shown in Figure 14.9 “Joe’s Budget” ):

  • He calculated his income—total cash inflows from his student loan and his part-time job ($25,700).
  • He subtracted from his total income two targeted consumption goals—credit card payments ($1,200) and savings ($400).
  • He allocated what was left ($24,100) to his remaining consumption goals: housing ($6,600), food ($3,500), education ($6,500), and so forth.

If you’re concerned that Joe’s sense of delayed gratification is considerably more mature than your own, think of it this way: Joe has chosen to pay himself first . It’s one of the key principles of personal-finances planning and an important strategy in doing something that we recommended earlier in this chapter—starting early (Keown, 2007).

Key Takeaways

The financial planning process consists of three steps:

In step 1 of the financial planning process, you determine what you own and what you owe :

  • Your personal assets consist of what you own.
  • Your personal liabilities are what you owe—your obligations to various creditors.

Most people have two types of assets:

  • Monetary or liquid assets include cash, money in checking accounts, and the value of any savings, CDs, and money market accounts. They’re called liquid because either they’re cash or they can readily be turned into cash.
  • Everything else is a tangible asset —something that can be used, as opposed to an investment.

Likewise, most people have two types of liabilities:

  • Any debts that should be paid within one year are current liabilities .
  • Noncurrent liabilities consist of debt payments that extend for a period of more than one year.
  • Your net worth is the difference between your assets and your liabilities. Your net worth statement will show whether your net worth is on the plus or minus side on a given date.
  • In step 2 of the financial planning process, you create a cash-flow or income statement , which shows where your money has come from and where it’s slated to go. It reflects your financial status over a period of time. Your cash inflows —the money you have coming in—are recorded as income . Your cash outflows —money going out—are itemized as expenditures in such categories as housing, food, transportation, education, and savings.
  • A good way to approach your financial goals is by dividing them into three time frames: short-term (less than two years), intermediate-term (two to five years), and long-term (more than five years). Goals should be realistic and measurable, and you should designate definite time frames and specific courses of action.
  • Net worth and cash-flow statements are most valuable when used together: while your net worth statement lets you know what you’re worth, your cash-flow statement lets you know precisely what effect your spending and saving habits are having on your net worth.
  • If you’re not satisfied with the effect of your spending and saving habits on your net worth, you may want to make changes in future inflows (income) and outflows (expenditures). You make these changes in step 3 of the financial planning process, when you draw up your personal budget —a document that itemizes the sources of your income and expenditures for a future period (often a year).

In addition to the itemized lists of inflows and outflows, there are three other columns in the budget:

  • The “Budget” column tracks the amounts of money that you plan to receive or to pay out over the budget period.
  • The “Actual” column records the amounts that did in fact come in or go out.
  • The final column records the variance for each item—the difference between the amount in the “Budget” column and the corresponding amount in the “Actual” column.

There are two types of variance:

  • An income variance occurs when actual income is higher than budgeted income (or vice versa).
  • An expense variance occurs when the actual amount of an expenditure is higher than the budgeted amount (or vice versa).

(AACSB) Analysis

Using your own information (or made-up information if you prefer), go through the three steps in the financial planning process:

  • Identify short-term, intermediate-term, and long-term financial goals.
  • Create a budget (for a month or a year). Estimate future income and expenditures. Make up “actual” figures and calculate a variance by comparing budgeted figures with actual amounts.

Kapoor, J. R., Les R. Dlabay, and Robert J. Hughes, Personal Finance , 8th ed. (New York: McGraw-Hill, 2007), 81.

Keown, A. J., Personal Finance: Turning Money into Wealth , 4th ed. (Upper Saddle River, NJ: Pearson Education, 2007, 22 et passim.

Winger, B. J., and Ralph R. Frasca, Personal Finance: An Integrated Planning Approach , 6th ed. (Upper Saddle River, NJ: Prentice Hall, 2003), 57–58.

Exploring Business Copyright © 2016 by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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The Business Planning Process: 6 Steps To Creating a New Plan

The Business Planning Process 6 Steps to Create a New Plan

In this article, we will define and explain the basic business planning process to help your business move in the right direction.

What is Business Planning?

Business planning is the process whereby an organization’s leaders figure out the best roadmap for growth and document their plan for success.

The business planning process includes diagnosing the company’s internal strengths and weaknesses, improving its efficiency, working out how it will compete against rival firms in the future, and setting milestones for progress so they can be measured.

The process includes writing a new business plan. What is a business plan? It is a written document that provides an outline and resources needed to achieve success. Whether you are writing your plan from scratch, from a simple business plan template , or working with an experienced business plan consultant or writer, business planning for startups, small businesses, and existing companies is the same.

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The Better Business Planning Process

The business plan process includes 6 steps as follows:

  • Do Your Research
  • Calculate Your Financial Forecast
  • Draft Your Plan
  • Revise & Proofread
  • Nail the Business Plan Presentation

We’ve provided more detail for each of these key business plan steps below.

1. Do Your Research

Conduct detailed research into the industry, target market, existing customer base,  competitors, and costs of the business begins the process. Consider each new step a new project that requires project planning and execution. You may ask yourself the following questions:

  • What are your business goals?
  • What is the current state of your business?
  • What are the current industry trends?
  • What is your competition doing?

There are a variety of resources needed, ranging from databases and articles to direct interviews with other entrepreneurs, potential customers, or industry experts. The information gathered during this process should be documented and organized carefully, including the source as there is a need to cite sources within your business plan.

You may also want to complete a SWOT Analysis for your own business to identify your strengths, weaknesses, opportunities, and potential risks as this will help you develop your strategies to highlight your competitive advantage.

2. Strategize

Now, you will use the research to determine the best strategy for your business. You may choose to develop new strategies or refine existing strategies that have demonstrated success in the industry. Pulling the best practices of the industry provides a foundation, but then you should expand on the different activities that focus on your competitive advantage.

This step of the planning process may include formulating a vision for the company’s future, which can be done by conducting intensive customer interviews and understanding their motivations for purchasing goods and services of interest. Dig deeper into decisions on an appropriate marketing plan, operational processes to execute your plan, and human resources required for the first five years of the company’s life.

3. Calculate Your Financial Forecast

All of the activities you choose for your strategy come at some cost and, hopefully, lead to some revenues. Sketch out the financial situation by looking at whether you can expect revenues to cover all costs and leave room for profit in the long run.

Begin to insert your financial assumptions and startup costs into a financial model which can produce a first-year cash flow statement for you, giving you the best sense of the cash you will need on hand to fund your early operations.

A full set of financial statements provides the details about the company’s operations and performance, including its expenses and profits by accounting period (quarterly or year-to-date). Financial statements also provide a snapshot of the company’s current financial position, including its assets and liabilities.

This is one of the most valued aspects of any business plan as it provides a straightforward summary of what a company does with its money, or how it grows from initial investment to become profitable.

4. Draft Your Plan

With financials more or less settled and a strategy decided, it is time to draft through the narrative of each component of your business plan . With the background work you have completed, the drafting itself should be a relatively painless process.

If you have trouble writing convincing prose, this is a time to seek the help of an experienced business plan writer who can put together the plan from this point.

5. Revise & Proofread

Revisit the entire plan to look for any ideas or wording that may be confusing, redundant, or irrelevant to the points you are making within the plan. You may want to work with other management team members in your business who are familiar with the company’s operations or marketing plan in order to fine-tune the plan.

Finally, proofread thoroughly for spelling, grammar, and formatting, enlisting the help of others to act as additional sets of eyes. You may begin to experience burnout from working on the plan for so long and have a need to set it aside for a bit to look at it again with fresh eyes.

6. Nail the Business Plan Presentation

The presentation of the business plan should succinctly highlight the key points outlined above and include additional material that would be helpful to potential investors such as financial information, resumes of key employees, or samples of marketing materials. It can also be beneficial to provide a report on past sales or financial performance and what the business has done to bring it back into positive territory.

Business Planning Process Conclusion

Every entrepreneur dreams of the day their business becomes wildly successful.

But what does that really mean? How do you know whether your idea is worth pursuing?

And how do you stay motivated when things are not going as planned? The answers to these questions can be found in your business plan. This document helps entrepreneurs make better decisions and avoid common pitfalls along the way. ​

Business plans are dynamic documents that can be revised and presented to different audiences throughout the course of a company’s life. For example, a business may have one plan for its initial investment proposal, another which focuses more on milestones and objectives for the first several years in existence, and yet one more which is used specifically when raising funds.

Business plans are a critical first step for any company looking to attract investors or receive grant money, as they allow a new organization to better convey its potential and business goals to those able to provide financial resources.

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  • Step 1: Understanding the Circumstances

Step 2: Identifying and Selecting Goals

  • Step 3: Analyzing the Client's Situation
  • Step 4: Develop the Plan
  • Step 5: Presenting the Recommendations
  • Step 6: Implementing Recommendation(s)
  • Step 6: Monitor the Plan

Frequently Asked Questions (FAQs)

The Balance / Julie Bang

Certified Financial Planners (CFPs) follow seven financial planning steps to create recommendations for their clients. These steps are considered to be the practice standards for CFPs. They should be followed to comply with the Certified Financial Planner Board of Standards' Code of Ethics and Standards of Conduct if the planner and client agree the standards are part of the scope of engagement between them.

These steps could also be learned and applied by individuals for their own benefit if they wanted to act as their own nonprofessional financial planner.

What Are the 7 Steps of Financial Planning?

The seven steps of financial planning start with getting to know the client's current financial situation and goals and end with continually measuring performance toward those goals and updating them as necessary.

  • Understanding the client's personal and financial circumstances.
  • Identifying and selecting goals.
  • Analyzing the client's current course of action and potential alternative course(s) of action.
  • Developing the financial planning recommendation(s).
  • Presenting the financial planning recommendation(s).
  • Implementing the financial planning recommendation(s).
  • Monitoring progress and updating.

The CFPB defines financial planning as "a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances."  

Step 1: Understanding the Client's Personal and Financial Circumstances

The CFP begins their financial planning process by asking their clients questions designed to help them get a clear picture of who the client is and what they want. Some of the questions are qualitative and lead to a better understanding of the client's health, family relationships, values, earnings potential, risk tolerance , goals, needs, priorities, and current financial plan.

Some of the questions are quantitative and lead to a better understanding of the client's income, expenses, cash flow, savings, assets, liabilities, liquidity, taxes, employee and government benefits, insurance coverage, and estate plans.

The advisor may ask open-ended questions to uncover necessary information to start the plan. This information may include a range of topics, from financial goals to feelings about market risk to dreams about retiring in the Caribbean.

The advisor will also analyze the client's financial information to ensure they have a clear understanding of where their client stands.

For example, if you are working on retirement planning , some of the key information needed is your annual income, savings rate, years until proposed retirement, age when you are eligible to receive Social Security or a pension, how much you've saved to date, how much you will save in the future, and the expected rate of return on your investments.

The advisor will use their financial expertise to help their client select goals. They'll ask clarifying questions to help identify those goals. For example, what is your time horizon? Do you want to accomplish this goal in five years, 10 years, 20 years, or 30 years? What is your risk tolerance? Are you willing to accept a high relative market risk to achieve your investment goals, or will a conservative portfolio be a better option for you?

Together, the financial planner and client will prioritize which goals are most important.

Step 3: Analyzing the Client's Current Course of Action

Next, the advisor will analyze the client's current course of action to see if it's moving them toward their financial goals. If it's not, the advisor will identify alternative courses of action and let the client know the advantages and disadvantages of each option.

Step 4: Developing the Financial Planning Recommendation(s)

The financial planner selects one or more recommendations that they believe will help meet the client's goals. They evaluate each recommendation, considering:

  • What assumptions were made to develop the recommendation
  • How the recommendation meets the client's goals
  • How it integrates with other aspects of the client's financial plans
  • How high a priority the recommendation is
  • Whether the recommendation is independent or needs to be implemented with other recommendations

Step 5: Presenting the Financial Planning Recommendations

In this step, the financial planner presents the recommendations and the thought process behind the recommendations. This helps the client make an informed decision about whether the recommendations are a good fit.

Step 6: Implementing the Financial Planning Recommendation(s)

Implementing the plan means putting the plan to work. But as simple as this sounds, many people find that implementation is the most difficult step in financial planning. Although you have the plan developed, it takes discipline and desire to put it into action. You may begin to wonder what may happen if you fail. This is where inaction can grow into procrastination.

If the financial planner has implementation responsibilities, you'll also clarify what those are so you know exactly what steps your CFP is taking on your behalf.

Successful investors will tell you that just getting started is the most important aspect of success. You don't need to start at a high level of savings or an advanced level of investment strategy. You could learn how to invest with just one fund or you could start saving a few dollars per week to build up to your first investment.

Step 7: Monitoring Progress and Updating

It's called "financial planning" for a reason: Plans evolve and change just like life. Once the plan is created, it's essentially a piece of history. This is why the plan needs to be monitored and tweaked from time to time. Think of what can change in your life, such as marriage, the birth of children, career changes, and more.

These life events may require new perspectives or changes to your financial plans. Now think about events or changes beyond your control, such as tax laws, interest rates, inflation, stock market fluctuations, and economic recessions.

Your CFP will work with you to ensure your plan is meeting your goals, and if it's not, they'll recommend changes.

The Bottom Line

Now that you know the seven steps of financial planning, you can apply them to any area of personal finance, including insurance planning, tax planning , cash flow ( budgeting ), estate planning , investing, and retirement. While you can do it yourself, professionals can provide invaluable advice and a neutral perspective on your finances.

Whether you do it yourself or hire an advisor , remember to keep referring back to the steps as significant life or financial changes occur. You may also want to do what professional financial planners do and sit down and reevaluate your plan periodically, such as once per year.

What is financial planning?

Financial planning is taking the time to determine your short- and long-term financial goals and plan how to get there. Financial planning can be done with a professional advisor, like a CFP, but it could also be done on your own. You can use many tools to help you with goals like paying down debt, evaluating your spending, and planning for retirement. If your situation is complicated, if you have a significant amount of assets, or if you want a neutral party to evaluate your situation, seeking out a financial planner to assist you can be helpful.

How much does a financial advisor cost?

Financial advisors use different fee structures. Some charge a flat fee for planning and advice. Others charge a percentage of the assets they're managing on behalf of a client. Some advisors might use a combination of the two methods, where they charge a flat fee for the plan and an ongoing fee for managing funds.

Certified Financial Planner Board of Standards. " Code of Ethics and Standards of Conduct ."

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9 Financial Planning Tips for Small Business Owners

David Luther

Starting a small business can be exhilarating and overwhelming all at once. It’s tempting to devote the lion’s share of time and effort to developing your product or service, hiring the right people and finding customers. But it’s important to carve out some time to tend to the financial health of the company. It’s similar to how airlines recommend attaching your own oxygen mask before helping others: You can’t fulfill your customers’ needs or empower employees if you suddenly find yourself in a liquidity crisis.

What is Financial Planning?

Small business financial planning is an ongoing process. Your objectives: Develop short- and long-term business and fiscal goals and tactics to achieve them. Do some scenario planning to understand the financial barriers that can arise at every stage of growth, and consider your options in terms of funding sources.

While many aspects of small business financial planning are similar to handling personal finances — think creating a budget, risk management, tax and investment strategies and retirement and estate planning — there are some important differences.

1. Separate business and personal goals.

Blurring the lines between personal and business goals could mean compromising some aspects of your finances for another. Perhaps you want to add a new product to your inventory but also want to add funds to your child’s 529 plan. Which takes priority?

Of course, you’re building the business to make money to forward your personal financial goals. But if you don’t distinguish between personal and business objectives, you may end up hurting both.

We’re not just talking about separating your finances, including having separate checking accounts, for example — though that’s also critical, as we’ll discuss. We’re talking about visioning and goal setting. Ask yourself:

  • Personal: What are my immediate personal priorities? Examples: Get more exercise, learn a new skill. What’s my five- and 10-year plan? What are my family’s priorities?
  • Business: What are my immediate business priorities? Examples: Hire a new employee, make a marketing plan to acquire more customers. Where do I want my business to be in five years? What are our product or service development priorities?

2. Explore your funding options.

Small business owners tend to self-fund, or bootstrap, meaning that personal funds are the owner’s only or major source of capital. Putting money back into the business makes sense: Bootstrapping allows you to slowly and organically grow your business while ensuring that the model is financially viable.

On the downside, you’re not well-diversified. Using savings or credit cards for startup capital can put you at significant financial risk, depending on how capital intensive your business is.

It’s prudent to offset some of that risk by exploring one or more additional sources of funding.

Fortunately, there are plenty of other places to get capital. Bringing in outside sources, such as offering equity and getting a good or service in return, business loans or customer presales or recurring sales can ensure a constant inflow of capital.

3. Focus on liquidity.

Sure, your balance sheet shows you that your business is financially sound, but it doesn’t mean your assets are liquid. The goal should be to have more assets than liabilities, so you have a buffer to meet short-term financial obligations.

And, the professionals controlling those external funding sources — like business lines of credit or inventory/receivables factoring — will expect you to have a view into your liquidity status . Some key points are that while cash, not P&L, is your main metric, there are additional important KPIs like the cash conversion cycle (CCC), days sales outstanding (DSO), days payable outstanding (DPO) and days inventory outstanding (DIO) that all companies should track.

Some small businesses may even want to assemble a “cash committee” to closely monitor daily metrics and report back on liquidity status.

4. Cash flow.

A healthy cash flow enables you to meet current obligations, like paying employees and purchasing raw materials, while also building up a reserve for investments and emergencies. Amassing assets, like real estate or inventory, is great, but if cash flow is a challenge, your business will stall.

Performing a formal cash flow analysis will tell you how much money is flowing in and out of your business. This knowledge allows you to plan accordingly. When you do these analyses regularly, you will gain historical perspective and be able to determine the amount you should set aside as reserves to weather the leaner months or an unexpected cash flow shortage.

5. Manage taxes.

Going the do-it-yourself route may work for your personal finances, but tax planning can be far more complicated as a small business owner. Outsourcing tax planning and preparation to a qualified certified public accountant (CPA) or other financial professional who may be helping with your business will not only free up time, but that expertise may reduce your tax liability.

A CPA knows tax laws in your area inside and out and can advise you on various strategies, such as how to maximize qualifying business expenses and the amount to pay in estimated taxes so you don’t end up with a big bill — or giving Uncle Sam an interest-free loan.

One note: One business valuation expert has seen founders make a mistake by trying to structure their businesses to minimize the payment of taxes. When they’re successful at that, net income might be zero or even negative. However, that can cause major problems when seeking funding or investments.

6. Risk management.

Identifying and mitigating risk is something every small business needs to do, but it often falls to the bottom of the list simply because creating a plan that addresses all potential perils seems like a massive task. And yes, it is virtually impossible to address every risk that could possibly affect your business. But you can certainly narrow the list and put safeguards, like cybersecurity insurance and a crisis communications plan, in place.

Scenario Planning vs. Business Continuity Planning

Scenario planning is often conflated with business continuity planning. While both are structured processes, scenario planning plays a longer game that considers revenue over time. Business continuity planning is about how your business will react to a disaster, such as a warehouse fire or earthquake.

In both processes, the journey may be as valuable as the final work product. By bringing leaders together to think through what could affect your business, you may head off potential risk.

Here are some things to consider when crafting a risk management plan:

  • Provide the right amount of coverage for yourself and your employees while avoiding overpaying for healthcare and worker’s compensation coverage
  • Include cash flow contingencies in case of a business interruption due to a disaster or death of a key person.
  • How will you cope with the loss or theft of business property or fraud by an employee, supplier, partner or other third party?
  • Consult with counsel about protecting your business from lawsuits.

Note that you don’t need to start from scratch. The Small Business Administration provides a free “Risk Management for a Small Business” training guide.

One existential risk for any business is the loss of the founder or other key leader — do you have a plan for what happens when you must or want to leave?

That leads us to the next three items which, while related, deserve their own plans and attention.

7. Create succession and exit plans. 

These are two different scenarios. In a succession, you’re turning the reins of the business over to the next leader. In an exit, you are selling or shutting down the business. As with risk management, the SBA offers a template for succession planning that also includes a section on selling the business.

When deciding whether to sell, close or pass along the company you’ve built, the Small Business Administration recommends looking at a few factors. Have you received a job offer from another company or a purchase offer for your business or your business assets? Are you satisfied with the business’ profitability? Do you foresee market or industry changes that you can’t or don’t wish to adapt to?

On a personal level, are you ready to retire or find you’re working too many hours? Are you simply no longer passionate about the business and ready to try something new? Answering these questions should provide clarity into your next steps.

Let’s look at both succession and exit.

Exit plan: If you wish to sell your company, you need an idea of the value. In fact, even if you aren’t looking to sell, it’s smart to always have a ballpark idea of the business’ market value. Experts advise looking at what similar firms have sold for recently, consider qualitative factors such as whether executives plan to stay on and decide what payment terms you’ll accept.

Succession plan: This is a strategy to cede control of the business to one or more people, or an acquirer. If the former, decide if you will pass the company on to a family member or an employee, and begin training. You’ll still need to know the business’ value, so take the steps mentioned above. Bring in an attorney and a tax professional early on.

8. Plan for retirement.

Retirement planning is crucial for everyone, business owner or not. Experts recommend saving at least 15% of pretax income for retirement in a tax-advantaged plan, such as a simplified employee pension individual retirement account, or SEP-IRA. Any employer, including sole proprietorships, are eligible to establish SEP-IRAs. You can extend this opportunity to employees.

As with taxes, an experienced financial planner can walk you through your options to create a plan suited to your company’s needs.

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9. Create an estate plan.

Proper estate planning helps to provide for your loved ones, business partners and employees who rely on your business; minimize tax exposure; and provide clear instructions on how the business should proceed. These plans are also critical in case you’re incapacitated. There’s no substitution for having an experienced estate planning attorney help you create an airtight plan.

Creating a customized financial plan is an ongoing process. Find trusted advisers who can offer advice and help you develop actionable steps. Successful small business financial planning is an ongoing process, and done successfully, these strategies will optimize performance and show customers and employees that you’re looking out for their welfare.

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Key performance indicators (KPIs) were top of mind for finance teams surveyed for NetSuite’s Winter Outlook report. Finance teams said they’re focused on using data more effectively, producing better reports on KPIs and…

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How to Write a Business Plan, Step by Step

Rosalie Murphy

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1. Write an executive summary

2. describe your company, 3. state your business goals, 4. describe your products and services, 5. do your market research, 6. outline your marketing and sales plan, 7. perform a business financial analysis, 8. make financial projections, 9. add additional information to an appendix, business plan tips and resources.

A business plan is a document that outlines your business’s financial goals and explains how you’ll achieve them. A strong, detailed plan will provide a road map for the business’s next three to five years, and you can share it with potential investors, lenders or other important partners.


ZenBusiness: Start Your Dream Business

Here’s a step-by-step guide to writing your business plan.

» Need help writing? Learn about the best business plan software .

This is the first page of your business plan. Think of it as your elevator pitch. It should include a mission statement, a brief description of the products or services offered, and a broad summary of your financial growth plans.

Though the executive summary is the first thing your investors will read, it can be easier to write it last. That way, you can highlight information you’ve identified while writing other sections that go into more detail.

» MORE: How to write an executive summary in 6 steps

Next up is your company description, which should contain information like:

Your business’s registered name.

Address of your business location .

Names of key people in the business. Make sure to highlight unique skills or technical expertise among members of your team.

Your company description should also define your business structure — such as a sole proprietorship, partnership or corporation — and include the percent ownership that each owner has and the extent of each owner’s involvement in the company.

Lastly, it should cover the history of your company and the nature of your business now. This prepares the reader to learn about your goals in the next section.

» MORE: How to write a company overview for a business plan

The third part of a business plan is an objective statement. This section spells out exactly what you’d like to accomplish, both in the near term and over the long term.

If you’re looking for a business loan or outside investment, you can use this section to explain why you have a clear need for the funds, how the financing will help your business grow, and how you plan to achieve your growth targets. The key is to provide a clear explanation of the opportunity presented and how the loan or investment will grow your company.

For example, if your business is launching a second product line, you might explain how the loan will help your company launch the new product and how much you think sales will increase over the next three years as a result.

In this section, go into detail about the products or services you offer or plan to offer.

You should include the following:

An explanation of how your product or service works.

The pricing model for your product or service.

The typical customers you serve.

Your supply chain and order fulfillment strategy.

Your sales strategy.

Your distribution strategy.

You can also discuss current or pending trademarks and patents associated with your product or service.

Lenders and investors will want to know what sets your product apart from your competition. In your market analysis section , explain who your competitors are. Discuss what they do well, and point out what you can do better. If you’re serving a different or underserved market, explain that.

Here, you can address how you plan to persuade customers to buy your products or services, or how you will develop customer loyalty that will lead to repeat business.

steps in planning in business finance

» MORE: R e a d our complete guide to small business marketing

If you’re a startup, you may not have much information on your business financials yet. However, if you’re an existing business, you’ll want to include income or profit-and-loss statements, a balance sheet that lists your assets and debts, and a cash flow statement that shows how cash comes into and goes out of the company.

You may also include metrics such as:

Net profit margin: the percentage of revenue you keep as net income.

Current ratio: the measurement of your liquidity and ability to repay debts.

Accounts receivable turnover ratio: a measurement of how frequently you collect on receivables per year.

This is a great place to include charts and graphs that make it easy for those reading your plan to understand the financial health of your business.

» NerdWallet’s picks for setting up your business finances:

The best business checking accounts .

The best business credit cards .

The best accounting software .

This is a critical part of your business plan if you’re seeking financing or investors. It outlines how your business will generate enough profit to repay the loan or how you will earn a decent return for investors.

Here, you’ll provide your business’s monthly or quarterly sales, expenses and profit estimates over at least a three-year period — with the future numbers assuming you’ve obtained a new loan.

Accuracy is key, so carefully analyze your past financial statements before giving projections. Your goals may be aggressive, but they should also be realistic.

List any supporting information or additional materials that you couldn’t fit in elsewhere, such as resumes of key employees, licenses, equipment leases, permits, patents, receipts, bank statements, contracts and personal and business credit history. If the appendix is long, you may want to consider adding a table of contents at the beginning of this section.

Here are some tips to help your business plan stand out:

Avoid over-optimism: If you’re applying for a business loan at a local bank, the loan officer likely knows your market pretty well. Providing unreasonable sales estimates can hurt your chances of loan approval.

Proofread: Spelling, punctuation and grammatical errors can jump off the page and turn off lenders and prospective investors, taking their mind off your business and putting it on the mistakes you made. If writing and editing aren't your strong suit, you may want to hire a professional business plan writer, copy editor or proofreader.

Use free resources: SCORE is a nonprofit association that offers a large network of volunteer business mentors and experts who can help you write or edit your business plan. You can search for a mentor or find a local SCORE chapter for more guidance.

The U.S. Small Business Administration’s Small Business Development Centers , which provide free business consulting and help with business plan development, can also be a resource.

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Funding from family and friends, tapping into retirement accounts.

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The Bottom Line

  • Corporate Finance

The Basics of Financing a Business

There are a number of ways you can do it, each with its own plusses and minuses

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

steps in planning in business finance

What Is Business Financing?

Unless your business has the balance sheet of Apple, eventually, you will probably need access to capital through business financing. Even many large-cap companies routinely seek capital infusions to meet short-term obligations . For small businesses, finding a suitable funding model is vitally important. Take money from the wrong source, and you may lose part of your company or find yourself locked into repayment terms that impair your growth for many years into the future.

Key Takeaways

  • There are a number of ways to find financing for a small business.
  • Debt financing is usually offered by a financial institution requiring regular monthly payments until the debt is paid off.
  • In equity financing, either a firm or an individual makes an investment in your business, meaning you don’t have to pay the money back.
  • However, the investor now owns a percentage of your business, perhaps even a controlling one.
  • Mezzanine capital combines elements of debt and equity financing, with the lender usually having an option to convert unpaid debt into ownership in the company.

What Is Debt Financing?

Debt financing for your business is something you likely understand better than you think. Do you have a mortgage or an automobile loan? Both of these are forms of debt financing. It works the same way for your business. Debt financing comes from a bank or some other lending institution. Although private investors can offer it to you, this is not the norm.

Here is how it works. When you decide you need a loan , you head to the bank and complete an application. If your business is in the earliest stages of development, the bank will check your personal credit.

For businesses that have a more complicated corporate structure or have been in existence for an extended period, banks will check other sources. The  Dun & Bradstreet (D&B) file is one of the most important. D&B is the best-known company for compiling a credit history on businesses. The bank will want to examine your books and likely complete other  due diligence along with your business credit history.

Before applying, make sure all business records are complete and organized. If the bank approves your loan request, it will set up payment terms, including interest. If the business loan process sounds a lot like the process you have gone through numerous times to receive a bank loan, you are right.

Advantages of Debt Financing

There are several advantages to financing your business through debt:

  • The lending institution has no control over how you run your company, and it has no ownership.
  • Once you pay back the loan, your relationship with the lender ends. That is especially important as your business becomes more valuable.
  • The interest you pay on debt financing is tax deductible as a business expense.
  • The monthly payment, as well as the breakdown of the payments, is a known expense that can be accurately included in your forecasting models.

Disadvantages of Debt Financing

However, debt financing for your business does come with some downsides:

  • Adding a debt payment to your monthly expenses assumes that you will always have the capital inflow to meet all business expenses, including the debt payment. For small or early-stage companies that is often far from certain.
  • Small business lending can be slowed substantially during recessions. In tougher times for the economy, it can be difficult to receive debt financing unless you are overwhelmingly qualified.

During economic downturns, it can be much harder for small businesses to qualify for debt financing.

The U.S. Small Business Administration (SBA) works with certain banks to offer small business loans . A portion of the loan is guaranteed by the credit and full faith of the government of the United States. Designed to decrease the risk to lending institutions, these loans allow business owners who might not otherwise be qualified to receive debt financing. You can find more information about these and other SBA loans on the SBA’s website.

What Is Equity Financing?

If you have ever watched ABC’s hit series “Shark Tank,” you may have a general idea of how equity financing works. It comes from investors, often called “ venture capitalists ” or “ angel investors .”

A venture capitalist is usually a firm rather than an individual. The firm has partners, teams of lawyers, accountants, and investment advisors who perform due diligence on any potential investment. Venture capital firms often deal in significant investments ($3 million or more), so the process is slow, and the deal is often complex.

Angel investors, by contrast, are generally wealthy individuals who want to invest a smaller amount of money into a single product instead of building a business. They are perfect for the software developer who needs a capital infusion to fund their product development. Angel investors move fast and want simple terms.

Equity financing uses an investor, not a lender. if you end up in bankruptcy, you do not owe anything to the investor, who, as a part owner of the business, simply loses their investment.

Advantages of Equity Financing

Funding your business through investors has several advantages:

  • The biggest advantage is that you do not have to pay back the money. If your business enters bankruptcy, your investor or investors are not creditors. They are partial owners in your company and, because of that, their money is lost along with your company.
  • You do not have to make monthly payments, so there is often more liquid cash on hand for operating expenses.
  • Investors understand that it takes time to build a business. You will get the money you need without the pressure of having to see your product or company thriving within a short amount of time.

Disadvantages of Equity Financing

Similarly, several disadvantages come with equity financing:

  • How do you feel about having a new partner? When you raise equity financing, it involves giving up ownership of a portion of your company. The more significant and riskier the investment, the more of a stake the investor will want. You might have to give up 50% or more of your company. Unless you later construct a deal to buy the investor’s stake, that partner will take 50% of your profits indefinitely.
  • You will also have to consult with your investors before making decisions. Your company is no longer solely yours, and if an investor has more than 50% of your company, you have a boss to whom you have to answer.

What Is Mezzanine Capital?

Put yourself in the position of the lender for a moment. The lender is looking for the best value for its money relative to the least amount of risk. The problem with debt financing is that the lender does not share in the business's success. All it gets is its money back with interest while taking on the risk of default. That interest rate will not provide an impressive return by investment standards. It will probably offer single-digit returns.

Mezzanine capital often combines the best features of equity and debt financing . Although there is no set structure for this type of business financing, debt capital often gives the lending institution the right to convert the loan to an equity interest in the company if you do not repay the loan on time or in full.

Advantages of Mezzanine Capital

Choosing to use mezzanine capital comes with several advantages:

  • This type of loan is appropriate for a new company that is already showing growth. Banks may be reluctant to lend to a company that does not have at least three years of financial data. However, a newer business may not have that much data to supply. By adding an option to take an ownership stake in the company, the bank has more of a safety net, making it easier to get the loan.
  • Mezzanine capital is treated as equity on the company’s balance sheet . Showing equity rather than a debt obligation makes the company look more attractive to future lenders.
  • Mezzanine capital is often provided very quickly with little due diligence.

Disadvantages of Mezzanine Capital

Mezzanine capital does have its share of disadvantages:

  • The coupon or interest is often higher, as the lender views the company as high risk. Mezzanine capital provided to a business that already has debt or equity obligations is often subordinate to those obligations, increasing the risk that the lender will not be repaid. Because of the high risk, the lender may want to see a 20% to 30% return.
  • Much like equity capital, the risk of losing a significant portion of the company is genuine.

Please note that mezzanine capital is not as standard as debt or equity financing . The deal, as well as the risk/reward profile, will be specific to each party.

Off-balance balance financing is good for one-time large purposes, allowing a business to create a special purpose vehicle (SPV) that carries the expense on its balance sheet, making the business seem less in debt.

Think about your personal finances for a minute. What if you were applying for a new home mortgage and discovered a way to create a legal entity that takes your student loan, credit card, and automobile debt off your credit report? Businesses can do that.

Off-balance sheet financing is not a loan. It is primarily a way to keep large purchases (debts) off a company’s balance sheet, making it look stronger and less debt-laden. For example, if the company needed an expensive piece of equipment, it could lease it instead of buying it or create a special purpose vehicle (SPV) —one of those “alternate families” that would hold the purchase on its balance sheet. The sponsoring company often overcapitalizes the SPV to make it look attractive should the SPV need a loan to service the debt.

Off-balance sheet financing is strictly regulated, and generally accepted accounting principles (GAAP) govern its use. This type of financing is not appropriate for most businesses, but it may become an option for small businesses that grow into much larger corporate structures.

If your funding needs are relatively small, you may want to first pursue less formal means of financing. Family and friends who believe in your business can offer advantageous and straightforward repayment terms in exchange for setting up a lending model similar to some of the more formal models. For example, you could offer them stock in your company or pay them back just as you would a debt financing deal, in which you make regular payments with interest.

Whereas you may be able to borrow from your retirement plan and pay that loan back with interest, an alternative known as a Rollover for Business Startups (ROBS) has emerged as a practical source of funding for those who are starting a business. When appropriately executed, ROBS allows entrepreneurs to invest their retirement savings into a new business venture without incurring taxes, early withdrawal penalties, or loan costs. However, ROBS transactions are complex, so working with an experienced and competent provider is essential.

How Do You Finance a Business?

There are many ways to finance your new business. You could borrow from a certified lender, raise funds through, family and friends, finance capital through investors, or even tap into your retirement accounts, although the latter isn't recommended.

This form of financing is the process of raising capital by selling shares in your company. If you do this, your investors will essentially own a part of your business.

Can I Borrow From My 401(k) to Start a Business?

You may take out a loan from your 401(k) but how advisable it is to use depends on your situation. Most plans only allow you to withdraw a maximum of $10,000 or 50% of your vested balance (whichever is greater), but there is a $50,000 cap. There are strict rules on repaying your account. If you go this route, make sure you can pay yourself back. It can be risky to take out a loan to fund a start-up because you have to keep your day job with your employer. If you leave with a loan on your plan, you will be required to repay the loan and taxes and penalties for an early withdrawal.

Every business eventually needs financing from one source or another. When you can avoid financing from a formal source , it will usually be more advantageous for your business. If you do not have family or friends with the means to help, debt financing is likely the most accessible source of funds for small businesses. You'll grow the credit profile of your business with timely payments and by not financially overreaching.

As your business grows or reaches later stages of product development, equity financing or mezzanine capital may become options. Less is more when it comes to financing and how it will affect your business.

Dun & Bradstreet. " About Us ."

Internal Revenue Service. " Publication 535 (2021), Business Expenses ."

U.S. Small Business Administration. " Loans ."

Dr. Ajay Tyagi. " Capital Investment and Financing for Beginners ," Page 150. Horizon Books, 2017.

Accounting Tools. " Mezzanine Financing Definition ."

U.S. Securities and Exchange Commission. " Final Rule: Disclosure in Management's Discussion and Analysis About Off-Balance Sheet Arrangements and Aggregate Contractual Obligations ."

Internal Revenue Service. " Rollovers as Business Start-Ups Compliance Project ."

Internal Revenue Service. " Retirement Plans FAQs Regarding Loans ."

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  • September 26, 2022

What are the Six Steps in the Financial Planning Process?

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Financial Planning is the process of evaluating and managing the utilization of financial resources optimally for achieving an organization’s goals and objectives. Financial planning helps insulate businesses from myopic policies and practices and aids in mapping out their financial future. Financial planning is one of the sought-after financial courses for working professionals owing to the rapidly growing need for trustworthy and knowledgeable personnel.

Importance Of Financial Planning

Whether it is an organization or a person, financial planning is critical to ensure that all expenses are taken care of, and the future is secure. For a company, this is of utmost importance as many people depend on it for their livelihoods. It cannot afford to find itself unable to continue operations. Having a clear idea about how a firm will spend money is crucial for reaching its goals. Let us see how this financial planning process benefits organizations.

1. Have Clear Business Goals

The main advantage of financial planning is that it allows a company to have clear business goals. When there is a good understanding of what money is available and how much can be expected, it is easy to set goals for different periods. Companies can plan for three, six, or nine months. It can also set goals for a year and beyond that period. Though everything may not happen as planned, it is good to have an idea and prepare for risks. With sound financial planning, organizations can achieve most of these goals.

2. Manage Cash Flow

Various steps in financial planning help to manage cash flow efficiently. It will allow companies to know how much revenue they will earn in a particular period. There will also be a concrete plan of how they will use this cash. Budgeting is part of the process, and it will help make sure that you can pay regular expenses that are part of a company’s operations. It is also possible to meet unexpected costs when there is good cash management. It helps to continue development works as planned.

finance analytics

3. Better Allocation

Financial planning allows companies to allocate funds in a better manner. Money is required for various activities that a firm must perform as part of its routine. When there is good planning based on information from multiple departments, it is easy to provide money for various purposes in a more rational manner. Every business unit of the company will also find it an excellent exercise to prioritize their projects and complete them successfully.

Role & Importance of Financial Management in a Business Organization

4. Cost Reduction

Cost reduction is a part of the process of financial management. Every company is looking at ways to reduce costs. Analyzing past spending and their returns is an excellent method of finding a possibility for reducing costs. This must be part of financial planning if an organization must benefit from this exercise. Lowering costs is vital for growth and development. Regular review of spending is an excellent way to find avenues for cost reduction.

Also Read:  How much do you make as a Financial Advisor?

5. Risk Management

Every company must prepare itself for unexpected events. Though everything cannot be predicted accurately, modern methods like analytics are helping to forecast various incidents correctly. Using this information, organizations must look at preparing themselves for future threats. Financial planning is an excellent opportunity to look into these and make provisions to overcome such risks. As all risks cannot be avoided, it is sensible to prepare for losses resulting from such events.

6. Crisis Management

Crisis management is different from risk management . Crises are not expected, and companies suddenly face a situation they must manage but are unprepared for. When these circumstances last a long time, it is essential to keep changing financial plans frequently as the pandemic situation. Those having a robust plan in place will find it easier to manage instead of those who must start from scratch.

7. Raise Funds Easily

The process of financial planning helps considerably when a company needs funds. It can be a new company looking for investors or a company that needs more funds for expansion. All of them will need to approach lenders with a concrete plan about what they will do with the money. Those lending money will more trust a firm with a financial plan because they know that such a company will spend wisely. They can be sure of getting good returns on their investment.

8. Transparency

Making a financial plan is a way to ensure transparency in a company. It is a new thought that employees must also know how a company is spending money. Many CEOs have started disclosing their salaries openly. A financial plan is an excellent way to tell employees how firms are spending money. This plan will give assurance to workers that their firm is going on the right path. They will not worry about their future.

Also Read:  Role & Importance of Financial Management in a Business

It is pretty clear that financial planning has many advantages, and all companies must perform this exercise to ensure better use of money. It is worth knowing the components this plan must include.

Things To Include In Financial Plan

Financial plans may differ with companies, but certain items do appear in all financial goals.

Sales Projection

The sale of goods is what will bring revenue. So this needs to be included. Companies must mention their growth plans for the near future and how much they will cost. They must give cost details with a separate breakdown for individual products.

Company spending will include various types of expenses. There will be fixed and variable costs. Companies with lesser fixed costs are at a lower risk. It is necessary to have all prices, including that of resources needed additionally for sales growth.

Also Read:  Best Financial Risk Management Course To Excel

Cash Flow Statement

A cash flow statement is a vital part of financial planning that will help cut expenses. This will be a statement that shows how the money will come in and how companies will spend it. Firms must give these details for the period for which they do financial planning.

Assets & Liabilities

Firms will include all startup costs in this. Assets at hand and those that they will purchase for new expansion will find a mention in this statement.

We have seen the importance of financial planning and what documents will appear in this. It is time to explain financial planning and its various stages.

Six Steps In Financial Planning

Whether your finance personnel does it or a Certified Financial Planner does it, the financial planning process should be done using the following 6 steps of financial planning.

Establish goals and define client-planner relationships

The first step in a financial planning process is establishing goals and defining the client-planner relationship. This lays the foundation for the financial planning process and provides clarity about the client’s financial destination. To this end, the planner should ask open-ended questions about needs, goals, dreams, objectives, risk appetite, experience, financial strengths, weaknesses, etc. The financial planner defines her role , responsibilities, and services to the client and the client’s obligations in this process. Once they reach an agreement about goals and relationships, the process moves ahead.

Also Read:   The Best Financial Analytics Applications

Gather relevant data

For formulating a sound financial plan, relevant data about financial information about the client, the collection of necessary documents, and structured questioning. The planner must document all the information to visualize data and provide prudent recommendations. Gathering data is not as easy a job as it sounds. Good financial planners will look at what data will be most helpful for this purpose. When gathering information, one must take adequate care to eliminate those that are not pertinent and cause wrong judgment.

Analyze and evaluate data

The financial and other data gathered about the client are analyzed and evaluated by the financial planner to understand the client’s situation concerning her needs, goals, and objectives and determine the gap between the two and the path that she must follow. Based on the services requested, the financial planner will customize assessments and analyses. Analyzing data can provide valuable insights into a company’s spending patterns and the returns received from various expenses.

Also Read:  Top 5 Activities of Financial Management

Develop the Financial Plan with recommendations and alternatives

Based on the analysis and evaluation of the customer data and needs, the financial planner develops alternatives and recommendations to meet goals and objectives and presents them to the client. Client feedback is taken and reviewed. Financial planners address concerns and revise plans to the client’s satisfaction. They incorporate relevant recommendations and revisions to develop a financial plan.

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Implement the plan

Implementation is the most challenging step because one can develop robust and sophisticated plans and revise them, but it is still a document on paper. It is one of the most complex financial planning steps when being done for an organization. It requires immense focus and discipline to implement the plans and stay with them. It will need everyone’s cooperation to act as per plans. It is also the financial planner’s job to convince all concerned to stick to this plan.

Monitor the progress of the plan

Plans need to be dynamic and must evolve with the need of the hour. So, monitoring and reviewing the plan’s progress regularly and systematically is an essential step in the financial planning process. While looking at how they implement, it is necessary to see why there is a deviation and find ways to reverse it. Sometimes, plans need to be revised as market conditions and other situations change. Financial position is constantly evolving, and procedures must remain flexible to include these changes.

Personal Financial Planning Tips

Taking the assistance of a financial planner is best for both companies and individuals. However, it is also good to know specific valuable personal finance tips from experts. It will help in ensuring that one utilizes one’s earnings most beneficially.

Managing Money Wisely

For those wondering what the first step in financial planning is, an expert will say it is managing money smartly. An essential step in money management is saving. It gives people a lot of independence. Saving can help when there is an emergency that everyone faces at some time. You need not rush to a friend to borrow. Saving helps people from falling into a debt trap.

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Saving can help people achieve their goals early. If there are enough savings, one can even retire early and enjoy life. There is always a doubt about how much to save. Ten percent of a person’s earnings can be a starting point. If there are ways to set aside more money, then that will be an added advantage. It is always better to keep aside this money before starting to spend it for various other purposes. It will curtail expenses and help save without failure.

Control Expenses

This is something everyone has been advising for ages. This is also something that people find difficult to do. When it is possible to curtail spending, there will be automatic savings. An excellent way to regulate spending is by preparing a budget. While budgeting, the first step should be to segregate expenses into fixed and variable. Then you must separate the variable costs as necessary and avoidable.

When you prepare such a budget, it is possible to avoid any unwanted expenses that drain money. It is necessary to prioritize expenses to see which ones you can address immediately and postpone. It is very important to understand that a person’s wants are unlimited, and income is limited. People must live within their revenues and have some savings every month.

Prepare A Balance Sheet

Those who explain the financial planning process say that everyone must prepare a balance sheet. It is not just companies who must do this exercise. A personal record of what someone owns and owes is a great way to know their financial position. A balance sheet shows all assets on one side and liabilities on the other. Assets will include homes, vehicles, and other items that someone can evaluate in terms of money. Liabilities will be all that you owe to someone else.

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You must write down everything. An ideal situation is where what a person owns is more than what they owe. But this may not always be the scenario. One can have more loans than assets. As these loans get paid, the assets will increase, and liabilities decrease. It is worth noting that one must try to own assets that appreciate value rather than just buying things whimsically.

Use Surplus Cash Wisely

Finding yourself with surplus cash is a good sign of planning. It means that a person has saved a little money after taking care of all necessary expenses. This cash will be surplus and will add to the savings. But keeping it idle will not help. As the years go by, inflation will reduce its value. Money doesn’t automatically grow to adjust for inflation. People must make sure to use cash wisely so that it multiplies and earns you more.

Investing in various financial instruments is an excellent way to make sure that money grows to offset inflation. Such investments can make retirement enjoyable. One must look at multiple ways to invest this money for the short-term as well as long-term periods. A person must also assess the risk in different types of investment. Knowing how many falls a person can take is necessary. It is at this juncture that a financial planning expert can be of great help.

Make An Investment Portfolio

Creating an investment portfolio is among the best financial planning process steps because then it is evident that you have started saving. Creating a portfolio means investing a person’s savings in various instruments. There are a variety of options that are available for investors today. Many insurance companies offer different types of investment opportunities that can return cash in different periods. There are mutual funds that can give excellent returns.

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It is always wise to distribute money instead of putting all your eggs in one basket. A planner can help you find the best investment areas. It is necessary to plan in such a way that these returns come in different durations. It means that it is possible to take care of some major expenses when cash is available. One must also plan to get a regular monthly income after retirement age.

Preparing For Retirement

There are those who may feel it is too early to plan for retirement. Expenses are increasing daily, and by the time people retire, their monthly requirements will be much higher than what they are today. It is possible to know when a person retires. But it is anyone’s guess for how many years one will live after retirement when there is no fixed monthly income. It is best to plan for as much monthly income as possible.

Health is a significant concern for older people. Healthcare expenses after retirement can be much higher than what they are now. The cost of medicines and hospitalization are also going up. One must plan for those expenses too. If they do that, then there is no need to depend on someone else. It is also easy to get good healthcare if there is enough money.

Manage Loans Well

Almost everyone has loans. People buy various assets by availing of loans from banks or other financial institutions. These are easily payable using their monthly income. But it is of critical importance to be very careful when getting into debt. If they are not managed well, one can end up availing of new loans to pay up old ones. Falling into a debt trap can delay retirement and make life really miserable. One must have a clear plan about how one will repay these debts.

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Credit cards are a very dangerous form of debt. It is also one of the costliest if you don’t pay on time. It is best to use them with restraint. Even if there are purchases made with credit cards, one must pay them off fully on time. People should not be lured by offers of the minimum payment. As far as possible, all low-priced purchases must be made using cash. If there are costly things to purchase, one must start saving for them early.

Insure Well

Everything from our property, assets, and life is prone to risk. There are many types of risks that can take away everything we have within a few seconds. The recent pandemic has shown how life can be suddenly taken away before giving us a chance to fight. It is always best to protect all our wealth. If it is not done, one can put their closest relatives in danger.

Buying term insurance is a good way. They are cheaper and offer great benefits. There are various options available that can be checked online. This is one of the steps in the financial planning process that is very important and must be given a lot of thought. Health insurance is also very important because even a short time spent in a hospital can wipe away all your savings.

Plan Taxes Well

Taxes can sometimes be very high. One must have a clear plan about how much income is taxable and what amount will need to be paid. This is an exercise everyone must start doing when a year starts. Keeping it for last can result in you not having enough money for investing. There are various options for saving tax legally in India. One must have a detailed study about which is most beneficial to avail.

Many insurance schemes allow you to claim tax deductions. Some loans like housing loans can also help you reduce tax while creating an asset. Many equity instruments give a good benefit while having a very less lock-in period. This can be a kind of savings that can be used when there are purchases to be made. Everyone has to take care that they don’t indulge in tax evasion or avoidance. This can land people in a lot of serious trouble.

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We can see that financial planning is important for individuals and companies. Financial planners are in demand, and the profession pays well. To equip yourself with the skills and knowledge required in financial planning and management, you should consider enrolling yourself in finance courses. So, what are the most important skills that a person must possess if he or she wants to become a financial planner?

Skill Required For A Financial Planner

Financial skills.

A person who wants to be a financial planner must possess financial skills. These can be acquired by attending certificate courses on this subject. These are offered by various institutions in India. One can attend these classes online. That makes it easy even for employed people to get specialized in financial planning. Having a certificate will also make clients trust you more with their money. They can be confident that their future is safe in the hands of a competent person.

Interpersonal Skills

The financial planning process steps include soliciting new businesses. For independent planners, this is an important step, and for this, they will need excellent interpersonal skills. They will need to collect various data from a client, which requires interacting with them cordially to extract such details. Even those working in companies must constantly meet other colleagues and unit heads to find out their business plans and make sure it aligns with those of the company.


Some may equate it with interpersonal skills. But communication is not just about mingling with people. It is essential that a good planner is able to convey messages in such a manner that a client or a department head in a firm understands perfectly. Finance is full of terms that a non-finance person may not understand. A planner must convert such jargon into simple language that anyone can follow. Financial planners must also be able to convince others to follow their strategies without any deviation.

Also Read:   Professional Certificate Program In Applied Financial Risk Management

Ability To Handle Pressure

A financial planner is expected to help clients or organizations to invest well and reap good rewards. But finance is highly dynamic, and situations keep changing constantly. There are so many external factors that affect personal and corporate finances. This means that planning must be done keeping this in mind. Their decisions are very critical, and this puts a lot of pressure on them to make the right judgment. Whether a client gains immensely or loses badly will depend on what advice a financial planner gives.


  Persistence and high energy are required for most professions. But for a finance expert, it is even more necessary to have these qualities. These capabilities are required for prospecting clients and acquiring them. They are also essential when analyzing market conditions. Such professionals must constantly watch financial markets to find the best investment for their clients. They must know the latest financial news. It is necessary to cash in on upward trends when they happen.

Problem Solving Skills

A financial planner deals with someone else’s money. These people are expected to get the best out of a company’s or person’s investment. Each client and situation will require unique solutions. They must be able to solve problems and go ahead with helping others plan their finances well. In companies, they will be faced with various hurdles that will prevent implementing a strategy. These must be overcome while keeping everyone together. Implementing a plan in a company with many people can bring forward various issues that must be solved.

Also Read: Executive Certificate Program In Applied Financial Risk Management

Organizing Skills

The financial planning process consists of various activities that need to be done together. A planner must deal with many clients and their financial matters. In an organization, there could be many documents and reports that need to be studied. Data analysis is an important part of financial planning. All these need to be kept organized so that they are accessible whenever needed. Being organized will help in managing time well and ensuring that all clients are attended to.

Financial management is a relative concept that refers to planning, organizing, directing, and controlling the financial activities like procurement and utilization of funds of the enterprise. It means applying general management principles to the financial resources of the organization.

An Introduction to Financial Management

The basics of financial management include managing the routine-wise operations by keeping them in the budget of business in lieu of the long-term investments in equipment and obtaining the financial support for all your operations. It is a process where the money for a firm’s functioning is planned, organized, controlled, and monitored. This type of management is essential for a company to achieve its goals.

The job involves procurement of funds required for setting up and running an organization. Finance managers are appointed for this purpose. They will also ensure that funds are properly utilized. It is also their job to make sure that all money that comes in and goes out is properly accounted for. This is required both as a control measure and for checking by outside agencies. Risk assessment is another important function of the financial management process.

Why Is Financial Management Important To Business?

Money is what makes this world function as it does. It is the commodity that makes businesses function. Without it, nothing can be achieved. It is also for money that people work in these companies. So it is highly important that this precious commodity is managed well. This is what financial management achieves. This function is critical because if finance is not properly managed, all plans of a company can get derailed. It will not be able to function nor achieve its goals. It is beneficial for those aspiring to take up financial management to know its importance in business.

Financial Planning

One of the key components of financial management, the various steps involved in financial planning, can help companies to have clear business objectives. This procedure is also useful for bringing down expenses to a great extent. Budgeting is part of financial planning, and this is done to ensure that all expenses can be met. Organizations can also make sure that they don’t plan expenses in excess of income. Financial planning is essential to manage risks and crises. It is a vital tool for raising funds.

Ensure Project Completion

Projects are important for every company. These are planned and implemented to make sure that all objectives are met in a systematic manner. Projects require funds, and these must be allocated carefully. Managing finance helps in allocating and setting aside funds for various projects. It will support in ensuring that projects are completed successfully. Completion of such assignments also gives a morale boost to employees. Project managers can concentrate on other areas instead of worrying about funds.

Ensure Payment To Suppliers

Suppliers are a vital part of any company’s operation. They support a firm’s activities by supplying raw materials. Keeping them happy is important, and the best way to do this is to ensure their payments are made on time. This is important among the steps in the financial planning process that makes sure that funds are available to pay suppliers on time. Good financial managers will ensure that money is kept aside for all future payments to vendors. This will help to keep suppliers on the company’s side.

Invest Wisely

Companies don’t just spend money on their production and other expenses. They also invest in various ways. This is one method of using available surplus and putting them to use. Investing excess cash can help in earning good returns. But this investment must be made wisely, and this is part of financial management. For financial institutions, this is a highly critical activity. They must invest public money well to make sure that it can be returned when needed, and profits can be made out of that.

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Make Sound Decisions

Business decisions are very crucial. Important decisions can make or break a company. A decision about whether to expand production capacity or launch an expensive marketing campaign must be taken very carefully. Once companies spend these amounts, they cannot be got back. So it must be made sure that they will fetch excellent returns. It is the finance managers who must make such critical decisions. They must have an excellent idea about what expenses will be most beneficial for their organization.

Growth And Stability

Organizations must grow. They cannot remain stagnant. As expenses climb continuously, they must find new methods of revenue. Expansion is the best way to make sure that they make increased profits. The growth of a firm is also highly desired by its employees. That is the only way by which they can also grow and become economically stable. Finance managers study various options for a company to expand and improve its profits. They look at what returns can be expected by spending money on development projects.

Reducing Tax Burdens

Those explaining what the financial planning process is can tell you that reducing the tax burdens of an establishment is an important part of this procedure. There are various types of taxes that a firm must pay to remain within the law. There are ways in which tax can be reduced using legal means. Financial managers look at such ways and recommend what is most suited. This will help improve a company’s profits. Saving on tax will also help in increasing investments in new projects.

If you are a working-class professional aspiring to advance in the field of finance, an advanced financial management course can help you learn all the advanced modeling techniques used in finance. The ultimate goal of any business is to maximize the wealth of its shareholders and stakeholders, which can be achieved through the following five activities of financial management

Five Financial Management Activities

Estimation of capital requirements.

A finance manager has to estimate with regards to the capital requirements of the organization. The capital requirement depends upon various factors like unexpected costs, profits, future programs, policies of concern, etc. Estimations have to be made in an adequate manner that increases the earning capacity of the organization.

Determination of Capital Composition

Once the estimation has been determined, the capital structure has to be decided. This involves determining the short-term and long-term debt-equity analysis. This depends on the proportion of equity capital a company possesses and the additional funds required to be raised from third parties.

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Procurement and Investment of Funds

For additional funds to be procured, the organization has many options like the issue of shares and debentures, loans can be taken from various banks and financial institutions, or public deposits can be drawn in the form of bonds. Choice of the source depends on the relative pros and cons of each source and the period of financing. The finance manager also has to decide how much and where to allocate the funds to gain the maximum yield out of the investment.

Disposal of Surplus

The net profits decision has to be made by every finance manager. This can be taken in two ways.

  • Dividend Declaration – This includes identifying the rate of dividends and other benefits like bonuses to the distribution of the surplus.
  • Retained Profits – The volume of profits to be retained in the company has to be decided. This depends upon the long-term expansion, innovation, diversification plans of the company.

Management of Cash

The finance manager finally has to make decisions with regard to cash management. Cash is required for many purposes like payment of electricity and water bills, payment of wages and salaries, purchase of equipment and assets, payment to creditors, meeting current liabilities, purchase of raw material, etc.

The finance manager not only has to plan, procure, and utilize the funds but he/she also has to exercise control over those finances. If you want to get more insight into the scope of financial management activities, you can consider applying for financial management online certification to dig deeper into this domain. An advanced financial management course can help you learn the latest concepts and modeling techniques used in finance to determine how to gain control over the finances of an organization like ratio analysis, financial forecasting, cost and profit control, etc.

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  • Financial Planning


Financial Planning is a vital part of Financial Management. In fact, planning is the first function of management. Before embarking on any venture, the company must have a plan. Let’s understand in detail what Financial Planning is.

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Before initiating a new business , the organization puts an immense focus on the topic of Financial Planning. Financial planning is the plan needed for estimating the fund requirements of a business and determining the sources for the same. It essentially includes generating a financial blueprint for company’s future activities. It is typically done for 3-5 years-broad in scope and generally includes long-term investment, growth and financing decisions.

Browse more Topics under Financial Management

  • Meaning of Business Finance
  • Financial Management and Objectives of Financial Management
  • Financing Decision
  • Capital Structure

Objectives of Financial Planning

  • Ensuring availability of funds : Financial planning majorly excels in the area of generating funds as well as making them available whenever they are required. This also includes estimation of the funds required for different purposes, which are, long-term assets and working capital requirements.
  • Estimating the time and source of funds : Time is a game-changing factor in any business venture. Delivering the funds at the right time at the right place is very much crucial. It is as vital as the generation of the amount itself. While time is an important factor, the sources of these funds are necessary as well.
  • Generating capital structure : The capital structure is the composition of the capital of a company , that is, the kind and proportion of capital required in the business. This includes planning of debt-equity ratio both short-term and long-term.
  • Avoiding unnecessary funds: It is an important objective of the company to make sure that the firm does not raise unnecessary resources . Shortage of funds and the firm cannot meet its payment obligations. Whereas with a surplus of funds, the firm does not earn returns but adds to costs.

Financial Planning

(Source: indiainfoline)

Process of Financial Planning

  • Preparation of sales conjecture.
  • Decide the number of funds – fixed and working capital.
  • Conclude the expected benefits and profile ts to decide the number of funds that can be provided through internal sources.
  • This causes us to evaluate the requirement from external sources.
  • Recognize the conceivable sources and set up the money spending plans consolidating these variables.

Importance of Financial Planning

Financial Planning is the procedure of confining company’s targets, policies , techniques, projects and budget plans with respect to the financial activities lasting for a longer duration. This guarantees viable and satisfactory financial investment policies. The importance is as follows-

  • Guarantees sufficient funds.
  • Planning helps in guaranteeing a harmony between outgoing and incoming of assets with the goal that stability is kept up.
  • Guarantees providers of funds to effortlessly put resources into organizations which provokes financial planning.
  • Financial Planning supports development and expansion programmes which support in the long-run sustenance of the organization.
  • Diminishes vulnerabilities with respect to changing business sector patterns which can be confronted effortlessly through enough funds.
  • Financial Planning helps in diminishing the vulnerabilities which can be a deterrent to the development of the organization. This aids in guaranteeing security and benefits of the organization.

Solved Question for You

Question: Choose the first step of the process of Financial Planning

  • evaluate the requirement from external sources
  • recognize the conceivable sources
  • decide the number of funds that can be provided through internal sources
  • preparation of sales conjecture

Answer. d. Preparation of sales conjecture is the first step in this process.


Financial Management

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8 Foundational Components that Drive Up Your Business’s Intrinsic Value

The Strategic Planning Process

The Strategic Planning Process: Steps to Clarity and Direction

4 steps to help make your business planning process successful.

Business Planning Process Steps

By nature, entrepreneurs are passionate, driven, and courageous , ready and willing to charge hell with a water pistol. Yet, many business owners are poor planners. Author and businessman John L. Beckley said it best: “Most people don’t plan to fail. They fail to plan.” Oftentimes, you’re so consumed with daily business operations that you don’t take time to plan for the future. Inevitably, you experience setbacks and failures that keep you in a hamster wheel of day-to-day worries. But there’s hope. By instituting these 4 stages of the business planning process within your company, you can disrupt your present weaknesses enough to make them tomorrow’s strengths.

Follow Along With The Financially Simple Experience!

Podcast Time Index for “Business Planning 101”

  • Business Planning 101
  • Buying a Car vs. Saving for Retirement
  • Entrepreneurs Planning Habits
  • Planning gets the least attention
  • So what exactly is Business Planning?
  • The Ultimate Definition
  • Planning with Military Precision

This article is the first in a mini-series about Planning within a larger series about the 8 Foundational Components That Drive Up Your Business’s Value . 

“By instituting business planning processes within your company, you can disrupt your present weaknesses enough to make them tomorrow’s strengths.” – Justin Goodbread, CFP®, CEPA®, CVGA®

Making Plans

Everyone plans. What are you wearing today? What will you eat for dinner? Who’s watching the kids? Many times, you concentrate on your short-term plans more than your long-term plans. You prepare for life’s immediate concerns instead of preparing for future prosperity. But, as an American statesman, entrepreneur, inventor, and author, Benjamin Franklin said, “By failing to prepare, you are preparing to fail.”

As a small business owner, you tend to do the same thing. You fret about immediate needs and issues in your business more than you plan for the future of your business. In a press release about The Alternative Board’s (TAB) latest Business Pulse Survey , reporter Richard Carufel notes that “the average entrepreneur spends 68.1% of the time working ‘ in”  their business—tackling day-to-day tasks, putting out fires, etc.—and only 31.9% of the time working ‘ on’  their business—i.e. long-term goals, strategic planning.” Additionally, Corporate Value Metrics , a national corporate consulting company, says that business owners typically work harder on the other seven  fundamental components that drive up your business’s intrinsic value than they do on planning.

What is Business Planning?

Knowing that most business owners fail to plan properly, what exactly is business planning? According to the Business Dictionary, business planning is “ The process of determining a commercial enterprise’s objectives, strategies and projected actions in order to promote its survival and development within a given time frame .” I agree that business planning needs to be done within a time frame. I also agree that it’s a process. However, this definition fails to address available resources. Just because business owners layout plans doesn’t mean they can afford to act on them. Therefore, I would revise the definition of business planning as follows:

Business planning is a basic management function involving the design, steps, and quantified resources needed to achieve the optimum balance of needs or demands with available resources. So, what are the steps involved in the business planning process?

4 Basic Steps in the Business Planning Process

Ultimately, the definition of business planning can be seen in the business planning process . Whether you’re planning your business’ opening, growth, projects, risk mitigation, sale, closing, or anything else, all planning begins with a process . Although you can make the planning process as long or as complicated as you’d like, I tend to break the process into 4 Basic Steps.

Step #1 – Decide what you’re going to do.

Identify goals or objectives to be achieved. It has been said that if you aim at nothing, you will hit it every time. The same is true for your business plans. In order to create an effective, quantifiable, and measurable plan, you must clearly define your goals. A plan without a goal is like charting a course for nowhere. You will just continue working in perpetuity to reach a goal that doesn’t exist.

Step #2 – Determine how you will do it.

Formulate strategies to achieve the goals or objectives. Once you’ve defined your goals, create a set of tactics and action steps to reach them. It’s a good idea to include your team in this process, as they will likely be the boots on the ground that are working through your strategy. Likewise, they may be able to help you find the best way to achieve your goals because they will have first-hand knowledge of what tactics work within your existing operations.

Step #3 – Pick who will accomplish it.

Arrange the people required to work on the strategies to achieve the goals. Be clear in communicating who is responsible for what. Additionally, you need to set a timeframe that is both realistic and challenging. If you ask for the work to be done in an unrealistic amount of time, the group may not put any effort toward accomplishing it because they know that it can’t be done. Likewise, giving too much time could breed procrastination.

Step #4 – Take action.

Implement, direct, and monitor the steps of the action plan. Once your team is set and they understand what is expected of them and when it is expected to be done, then you need to be consistent in following up with them. Regular check-ins keep the task fresh on their minds and enable you to offer additional resources if things are falling behind. Similarly, these follow-up meetings will help you to identify and address any problem areas that may need to be adjusted.

Details to Include in the Business Planning Process

I think that’s the way any type of business planning works. Those are the actions business owners, managers, and employees must take to make a business plan. Yet, while you’re going through the business planning process, you must include the following items within your plans:

  • Lists of who is involved in the planning process
  • A current assessment of your business’s strengths and weaknesses
  • The reasoning behind your plans
  • Project start and end dates
  • Measurements you will use to determine the success or failure of your plans
  • Locations in which you will take action.
  • How you will take action.
  • A list of resources you will need to take action.

strategic planning worksheet

Remember, in order to affect the future, you must disrupt the present. You have to create some turmoil to make improvements. Think about a rocket ship. In order for a rocket ship to go upward into orbit, it must have combustion or “disruption.” Similarly, planning often disrupts business because it makes you stop and think about what you’re doing well or poorly, giving you a chance to improve upon and fix things.

Be sure to join me in my next article within this planning mini-series where I deal with, the Strategic Planning Process – the next step in business planning you must do to give your team direction and accomplish long-term goals!

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How to Prepare a Financial Plan for Small Business?

Ajay Jagtap

11 Min Read

financial plan for small business

Let’s face it—accurate financial forecasting and planning isn’t everyone’s cup of tea, nor is it something someone would enjoy scratching their heads over.

In fact, it is considered to be the most difficult part of the business plan.

While it’s the most challenging aspect of business planning, it’s also the most important when convincing potential investors to invest in your business.

(You can’t simply ignore that!)

That’s why we decided to help you eat this giant frog at once. This is the ultimate guide to preparing a small business financial plan .

It will help you understand the critical components of financial planning, articulate quick steps to prepare a financial plan and provide a small business financial plan example to help you get started.

Sounds good? Let’s dive right in.

What is a Business Financial Plan?

A financial plan is an integral part of a business plan that helps determine if your business idea is sustainable and keeps you on track to financial health.

It’s the process of planning the financial aspects of a small business, which comprises its three major components: balance sheet, income statement, and cash-flow statement.

Besides these financial statements, this section may also include details about assets & liabilities, revenue and sales forecasts, break-even analysis, and others.

Key Takeaways

  • Cash flow projection, balance sheet, and income statement are considered to be the three core components of a financial plan.
  • Make sure to be realistic and conservative about your revenue forecasts; it is better to be surprised than disappointed.
  • Preparing a financial plan is easier and faster when you use a financial planning tool .
  • A clear market understanding, realistic assumptions, and thorough research are crucial to preparing reliable financial projections.

Why is Financial Planning Important to a Small Business?

It’s no secret and won’t come off as a big surprise that financial planning is crucial to building a successful business.

In fact, Y Combinator, a leading US startup accelerator, considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

A solid financial plan helps you manage cash flow, provides clear economic direction, helps you set realistic financial projections, and accounts for months when revenue might be lower than expected.

It helps you budget expenses, plan for yearly taxes, and show if your business is committed to its financial goals. It helps your investors understand where your business stands today and in 5 years.

Now that you know how important financial planning is for your small business, let’s head straight to discussing the critical elements of a financial plan.

Key Components of a Small Business Financial Plan

As mentioned earlier, cash flow projections, income statements, and balance sheets are three major components of a financial plan—but that’s not all. Here are all the key components you must consider including in your very own financial plan.

1. Income Statement

An income or profit and loss statement is a financial statement that shows any business’s income and expenditure over a specific time.

Your income statement also helps determine whether your business is making any profit or loss over a specific period—usually prepared at the end of the month, quarter, or year.

Your income or P&L statement must list the following:

  • Cost of goods or cost of sale
  • Operating expenses
  • Revenue streams
  • Gross margin
  • EBITDA (Earnings before interest, tax, depreciation, & amortization)

2. Cash flow Statement

A cash flow statement is yet another important financial statement that summarizes the amount of cash and cash equivalents entering and leaving a business over a given time.


Your cash flow statement will consist of the following three components:

  • Cash revenue projection
  • Cash disbursement
  • Cash flow reconciliation

Your company’s cash flow forecast can be critical while assessing your firm’s liquidity and ability to generate positive cash flows, pay off debts, and invest in growth initiatives.

3. Balance Sheet

A balance sheet is a financial statement that reports any company’s assets, liabilities, and shareholder equity at a specific point in time. Your balance sheet is one of three major financial statements used in evaluating your company’s performance.

This statement consists of three parts: assets, liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with liabilities plus owner equity on one side and assets on the other.

Here is what the core purpose of having a balance sheet:

  • Indicates the capital need of the business
  • It helps to identify the allocation of resources
  • It calculates the requirement of seed money you put up, and
  • How much financing is required?

Considering it’s a critical element in helping investors understand the current condition of your business, this is something you can’t simply miss out on.

4. Break-even Analysis

A break-even analysis is referred to as a financial calculation that weighs the costs of a new business, product, or service against the unit sell price to determine a point at which you have sold enough units to cover all your costs.

break even

Your break-even point helps you understand when your investment is returned dollar-to-dollar, no more or less. This is the point where your small business is neither making profits nor burning cash.

However, anything you sell beyond that will result in profits.

Break-even analysis can be mandatory in situations when you either plan to expand your business, lower your pricing, or narrow down your business scenarios.

5. Sales forecast

Your sales forecast is a process of estimating your expected future revenue. It estimates how much your business plans to sell within the next month, quarter, year, or so. Your sales projection needs to be consistent with the sales number within your profit and loss statement.

Segmentation of these forecasts will depend on how closely you want to monitor your sales revenue. For instance, if you are a restaurant business, you may consider keeping catering and dine-in revenues separate from each other.

6. Expense Budget

expense breakdown

Managing expenses is one of the fundamentals of your financial plan, and it starts with an expense budget. The expense budgets can include operating expenses, direct costs, or repaying debts.

Consider it as an informed prediction of your future business expenses based on your research, experience, and common sense.

Having covered all the key elements of a solid financial plan, let’s discuss creating one.

How to Create a Financial Section of a Business Plan?

1. create a strategic plan.

A strategic plan helps you understand what you want to accomplish with your financial plan. You may consider your operational expenses, financing needs, objectives, and exit strategy while creating a strategic plan.

You can start by asking yourself a few questions, like how much financing you need, where most of your expenses go, and what other resources will you need.

Once you determine your financial needs, set realistic goals based on these requirements—identifying your business KPIs would make an excellent starting point.

2. Choose the Right Financial Planning Tool

It may take you forever to start and finish creating a financial plan using traditional and old-school methods.

It worked just fine earlier, but that’s not how you do it today.

Having a financial forecasting tool will not just simplify the process, but will also help speed things up. In fact, it’s the best way to prepare financial forecasts and meet financial obligations.

steps in planning in business finance

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

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3. Make Presumptions to Project Financials

Of course, Upmetrics will help with automatic and accurate forecasting, but at least you have to feed it some information to get started. Right?

That’s why the next step—making predictions about your business financials.

It’s just about predicting your business growth and financial future based on its current performance and past financial records, so no need to overthink or complicate things.

Start off by gathering historical financial data, conducting industry research, and compiling relevant documents about your business and industry.

Once you have developed rough assumptions and understand your business finances, you can start preparing financial projections.

4. Prepare Realistic Financial Projections

Here we come—discussing the most important steps of all. Although it’s challenging to get through, Upmetrics’ forecasting tool makes it relatively easier for rookie entrepreneurs to follow.

Upmetrics allows you to forecast financials for up to 7 years, while new startups usually consider planning only for the next five years.

However, this is something that varies from business to business based on their financial goals and investor specifications, so it’s up to you how you plan your projections.

Following are the two key aspects of your financial projections:

Revenue Projections

Since your revenue projections help investors understand how much revenue your business plans to generate in the near future, it’s an important one for them to consider.

It generally involves conducting market research, determining pricing strategy, and cash flow forecast—which we’ve already discussed in the previous steps.

The following would be the key components of your revenue projections:

  • Market analysis
  • Sales forecast
  • Pricing strategy
  • Growth assumptions
  • Seasonal variations

Expense Projections

Although both are different, revenue and expense forecasts are closely related to each other.

Similar to how revenue forecasts project revenue predictions, expense projections will predict expenses or future costs associated with operating a small business.

The following would be the key components of your expense projections:

  • Fixed costs
  • Variable costs
  • Employee costs or payroll expenses
  • Operational costs
  • Marketing and advertising expenses
  • Emergency fund

Remember, a clear understanding of your industry and market, realistic presumptions, and thorough research are the key to reliable financial projections.

5. “What if” Scenarios and Sensitivity Analysis

We learned to forecast financials, next—let’s discuss conducting sensitivity analysis to understand potential risks and opportunities involved in your business operations.

“What if” scenario or sensitivity analysis analyzes a business in three scenarios: best, expected, and worst-case. It increases transparency and helps investors and lenders understand your business’s future considering all three scenarios.

This proactive exercise will help make necessary adjustments to your financial plan and will be of incredible use in making strategic decisions.

6. Track Progress and Adjust Your Financial Plan

This may not sound like a necessary step while creating a financial plan, but it’s also an important one.

It’s critical to closely monitor your assumptions and make adjustments to make sure the assumptions you made are still relevant and you are heading in the right direction.

There won’t be any complex data analysis or big calculations, so worry not!

You simply have to compare your assumptions with the actual numbers to stay relevant. You may consider key business metrics to do so, like the number of customers acquired, cost per acquisition, or any other specific metrics.

Consider making adjustments if your assumptions do not resonate or match actual numbers.

And it was the last step in our financial plan writing guide. Next? Here’s a business financial plan example to help you get started.

Small Business Financial Plan Example

Since we’ve already learned about small business financial planning, let’s quickly review the coffee shop financial plan example created using Upmetrics:

Important Assumptions

  • The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
  • The analysis accounts for economic seasonality – wherein some month’s revenues peak (such as holidays ) and wane in slower months.
  • The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time, it is assumed that the owner’s withdrawal is available at his discretion.
  • Sales are on a cash basis – nonaccrual accounting.
  • Moderate ramp-up in staff over the 5 years forecast
  • Barista’s salary in the forecast is $36,000 in 2023.
  • In general, most cafes have an 85% gross profit margin.
  • In general, most cafes have a 3% net profit margin.

Projected Balance Sheet


Projected Cash-Flow Statement


Projected Profit & Loss Statement


Break-Even Analysis


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What’s the best way to create a financial plan? If you had asked this question maybe a decade ago, I would definitely have said—EXCEL. Not today.

With the AI revolution and modern business & financial plan software, financial planning has never been this accurate before.

Want to improve your financial planning game? Upmetrics is the way to go. No manual calculations or preparing visual reports; simply enter your assumptions and watch things getting done.

What are you waiting for? Try Upmetrics for your business financial plan.

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Frequently Asked Questions

What components should be included in a business financial plan.

Your business financial plan should include the following six components:

  • Income statement
  • Cash flow projections
  • Break-even analysis
  • Balance sheet
  • Sales forecasts
  • Expense outlay

How often should I update my business financial plan?

Well, there is no certain rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How to determine any business’s break-even point in a financial plan?

This is considered to be the formula for determining a break-even point: fixed costs ÷ gross profit margin = break-even point .

However, business plan tools like Upmetrics can automatically calculate different business ratios like break-even points and others.

What financial ratios should small businesses monitor in a financial plan?

There are multiple financial ratios, but here are some of the important ones for small business owners to consider:

  • Working capital
  • Return on equity
  • Debt-to-equity ratio
  • Net profit margin
  • Current ratio
  • Quick ratio
  • Return on assets
  • Debt-to-asset ratio

About the Author

steps in planning in business finance

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

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  • Strategic Financial Management
  • The Strategic Financial Planning Process

The strategic financial planning process is different in the sense that it combines the functions of strategy formulation as well as financial planning. For many years, these two processes have been considered to be separate in most organizations around the world. Strategic financial planning merges these processes and created a hybrid approach.

In a broad sense, strategy formulation refers to the market in which the company decides to place itself . This means that the company decides to sell some products and services and excludes all other products and services. This decision in turn decides the opportunities that the company has as well as the competition that it is likely to face.

Using strategic financial planning to place a company in a strategically advantageous position has more benefits than having an ordinary strategic position and then competing. This long-term view of where the company sees itself a few years from now is kept in mind while making strategic financial decisions.

In this article, we will have a closer look at the strategic financial decision-making process .

Scanning the External Environment

The first step in the strategic financial planning process is scanning the external environment. This simply means that the organization pays close attention to social, political, demographic, and more importantly technological changes happening in the environment.

The organization tries to understand what the business environment will look like in the future. It tries to make an educated guess about the type of competition they will be facing and what competitive advantage will they have vis-a-vis their competitors. This process is done in the due course of strategic management as well. However, in the strategic financial management process, there is a lot of emphasis on numbers. Decisions are based on quantifiable information instead of being based on intuition.

Internal Introspection

The second step is for the company to clearly know its capabilities and shortcomings. The company needs to take a just and unflinching look at what its competitive advantage is today. The next step is for them to realize that this competitive advantage will change with the passage of time. A decision has to be made regarding whether the company should continue on the same course that it is on today, or whether it should change its strategic priorities and build a new competitive advantage.

Internal introspection can be challenging for many companies due to the paucity of relevant data. However, some resources should be spent in acquiring this data if it aids in the final decision-making. After all, the strategic priorities which the firm sets as a result of this exercise are likely to continue in the long run and will shape the financial future of the firm.

Clear and Compelling Goals

The process requires the creation of clear and compelling goals for the organization. In theory, mission and vision statements are present in every organization. However, in reality, they are often ignored. Also, the vision statements tend to be vague and can be used to include almost any line of business. This is done purposely to provide the organization with flexibility. However, it can work out to be disadvantageous in the long run. Also, these goals are generally set up at corporate level goal alignment meetings. Hence, the head office is generally under pressure from various departments to include their goals in the strategic goals as well.

The end result is a list of goals that dilute the focus of the organization. The entire process can end up being political if the senior management is not cognizant of the fact and does not try to steer the company in the right direction.

This is where strategic financial management is different. It clearly advocates that the organization should limit the number of strategic goals. The emphasis is on selecting a narrow set of goals and excluding everything else. The logic is that if the vast resources of the firm are concentrated on a narrow number of goals, then the firm will gain absolute superiority in such areas. On the other hand, vague and ambiguous strategic statements can be detrimental to the strategic financial management objective.

Management’s Vision Aligned with the Company’s Vision

In an ideal scenario, the strategic vision of the management needs to be aligned with the strategic vision of the board of directors. However, it does not happen in practice in several organizations. This is the case particularly when a company undergoes a change in the top leadership. The new management often wants to bring in changes. However, it is the responsibility of the board of directors to ensure that the vision of the management stays aligned with the overall vision.

The fact of the matter is that management can change over a period of time. However, the company will remain for a longer period of time. The management should adapt to the company’s strategic vision and not vice versa. Even if the new management wants to bring in changes, they should be deliberated and brought in through the right channel.

The bottom line is that there are a few steps in the strategic financial planning process that need to be followed rigorously. In the short run, they might seem to be unnecessary. However, in the long run, they provide tremendous clarity and as a result, the company is able to organize its resources in order to obtain the best possible results.

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Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team . MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider . To Know more, click on About Us . The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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  • Main content
  • What is financial planning? 

6 steps to create a financial plan

Benefits of financial planning.

  • The bottom line

Financial planning basics: How to create a financial plan

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  • Financial planning is a practice that helps you track and manage your money with the purpose of reaching your financial goals.
  • Create a strong financial plan by setting goals, tracking cash flow, budgeting, investing, and paying down debt. 
  • A CFA or CFP can assist you in creating a personalized financial plan.

Insider Today

Life may be full of twists and turns, but a strong financial plan can help you stay on track toward reaching your goals. From paying off your student loans to buying a house, a comprehensive individualized plan is the best way to go. 

Financial planning is a broad and encompassing practice that aids you and your family in better managing your money and preparing for potential risks. No matter what your current financial situation is, a solid financial plan offers guidance and insight beneficial to all households.

Read about our picks for the best online financial advisors here.

What is financial planning? 

Financial planning is essential to achieving long-term and short-term financial goals, while also preparing you for potential future risks and obligations. No two financial plans are the same. Your plan should accurately reflect your own financial needs, goals, and best course of action. 

"The purpose of a financial plan is to help clients — whether it be an individual, family, or business — achieve their financial goals and objectives by creating a structured roadmap for managing their finances effectively," says Chloe Wohlforth, CFP, Partner at Angeles Wealth Management . "A well-crafted financial plan considers a person's current financial situation, future financial goals, and risk tolerance."

Financial plans often address retirement savings, wealth-building strategies, emergency savings plans, tax optimization strategies, college funds, and debt consolidation .

To create a comprehensive plan, you'll need to thoroughly evaluate your current financial situation, such as household income and debt (including car payments, loans, and credit card debt). Most plans tend to involve budgeting, saving, and routine investing. 

You can craft a financial plan yourself or enlist professional assistance. Search for the best online financial advisors or planners, or look for in-person advisors.

"Financial advisors can help you create a financial plan by understanding your goals, values and risk tolerance, and then building a customized path that they can guide you along to enrich your life to its fullest potential," says Jordan Gilberti, CFP and senior lead planner at Facet.

Financial planning isn't as hard as you might think. Here are six steps you can take to create your own financial plan. 

1. Set financial goals

The first step in creating a strong financial plan is identifying your goals. Whether by yourself or with a partner, you should know what you're aiming for. 

"Set your goals and priorities by envisioning a future for yourself over the short, medium, and long term, and what you would like to achieve financially," says Gilberti. "Get yourself organized by gathering all relevant financial documents, including your investment accounts, insurance policies, debts, and other assets."

You can start by asking yourself: What do you want to achieve in five years? How about in 10 or 20 years? Are you looking to buy a house? Have kids? Plan a huge trip? 

Financial planning should feel intentional, and you can more easily draw motivation from clear, obtainable objectives. Consider at least three goals with the following information: 

  • How much will it cost? If you're looking to save for a house or pay off student debt, for example, you should have a number you're aiming for. For instance, how much will it cost to buy a house and how much are you needing to save to make it happen?
  • What is my deadline? Once you know how much you need to save, you'll need to set a realistic timeline. For example, how long do you think it will take to save up for a down payment on a house? 
  • Where should I store the funds? While you can store all your funds in the same bank account, you may want to separate your funds into different savings accounts or brokerage accounts. 

2. Track your finances

What's coming in and what's going out? Before you can start responsibly budgeting, review your cash flow to reveal more ways to save. While some expenses — like rent or gas — are mandatory expenses, you may uncover nonessential charges that are draining your funds.

"The best way to budget is to ask for help. Often clients don't budget because they don't know where to begin. An advisor can help you think about your expenses in different categories. What is discretionary, what is non-discretionary? What is an expense that might be costly now, but only for a fixed amount of time?" says Wohlforth.

Once you have a grasp on your spending habits, you can budget. A beginner-friendly method of budgeting is the 50/30/20 rule , which is suitable for both consistent and irregular-income households. Basically, this plan is a rule of thumb that designates 50% of your income to mandatory expenses, 30% to wants, and 20% to debt or savings.

But keep in mind that everyone's financial situation is unique and the 50/30/20 budget plan won't be suitable for everyone. 

3. Create an emergency fund

Part of establishing a realistic budget is setting aside cash in case of emergencies.

"An emergency fund is typically a savings account that serves as a safety net from unforeseen financial difficulties that you may face throughout your life," Gilberti says. "Examples may include a job loss, disability, home appliance breaking, and more."

Emergencies are unexpected, so having the extra funds on hand can help you pay for medical emergencies and other sudden bills. An emergency budget may also protect you against racking up credit card debt and interest. 

Check out Insider's picks for the best budgeting apps

4. Reduce and manage debt

Reducing and managing debt is a crucial step in financial planning. Even if you're storing a good chunk of cash in a savings or brokerage account, high-interest debt will weigh you down. The longer your debt accumulates interest, the more money you'll lose in the long run. 

You may want to pay down expenses like credit card balances, student loans , and car payments sooner rather than later. You may want to include regular debt payments in your budget plan. 

5. Diversify your investment portfolio

One of the best ways to save for future financial goals and build wealth is through investing. While investing can be risky, a diverse portfolio of stocks, bonds, ETFs, and alternative investments can significantly lower the risk. There are plenty of beginner-friendly online brokerages, robo-advisors, and investing platforms.

The best investing apps for beginners and the best online brokerages for beginners are low-cost and best for passive traders. These sites also allow you to customize your investing portfolio based on your financial goals, risk tolerance, and time horizon.

Automatic investing platforms like SoFi Invest , Fidelity Go , and Wealthfront are also ideal for new investors. Robo-advisors are a flexible and accessible way for hands-off traders to buy and sell assets. 

6. Plan for retirement

A retirement account is one type of investing account. Early retirement may even be one of your long-term financial goals. The best retirement plan for you depends on your individual situation. 

One of the easiest ways to start savings for retirement is through an employee-sponsored retirement plan like a 401(k) , 403(b) , or SEP IRA . These are tax-advantaged accounts that collect a portion of your salary. Some plans, like most 401(k)s, may offer to match an employee's contributions up to a certain percentage. 

In order to grow your account faster, find out how much your employer matches and contribute enough to reach the maximum contribution amount.  In 2023, you can contribute up to $22,500 if you're under 50 years old (people age 50 or older can add an additional $7,500), but keep in mind that you can't withdraw funds until you're 59 1/2. 

Another option is an individual retirement account (IRA), which functions similarly to a 401(k) but it is not sponsored by an employer. IRAs are also tax-advantaged accounts and are often more flexible. In 2023, you can contribute up to $6,500 if you're under 50 (up to $7,500 if you're 50 or older). You also can't withdraw until you're at least 59 1/2. 

A well-thought-out plan not only helps you meet your financial goals but will also map out an accessible course of action based on your individual circumstances. Not only can you better your understanding of your own finances, but you can also focus on reaching important steps. Plus, you're more likely to reach your goals faster. 

While it may be stressful in the beginning, having a clear insight into your income and spending can reduce future stress and financial worry. The more you understand your own financial needs, the more realistic your expectations about the future.

You may also be better prepared for emergencies, like disability or financial trouble. Routinely contributing to an emergency fund is a great way to reduce financial stress and prevent your savings from being drained if trouble arises. 

Financial planning frequently asked questions (FAQs)

Financial planning means that an individual(s) tracks cash flow, budgets expenses, saves for retirement, pays down/manages debt, and invests funds in order to reach long and short-term financial goals. It's a personalized plan based on individual values, risk tolerances, and time horizons.

An example of financial planning may look like a young couple with dual income devising a plan to buy a home in five years based on their current cash flow. In order to reach this goal, the couple establishes a reasonable budget based on necessary monthly expenses (including debt payments), consistent monthly income, and what's left over to save. They develop a plan to pay down their high-interest credit card debt first. Then they open a high-yield savings account and put savings for their down payment into this account, while also contributing to an emergency fund in case any unexpected expenses come up in the next five years.

You can start financial planning by determining your financial goals and tracking your cash flow. If you're struggling to start, you can reach out to a financial planner or financial advisor for help. 

How to start financial planning

Everyone can benefit from financial planning, no matter what your current financial situation is. A plan can lay out the steps you need to take to reach your long and short-term goals. Whether it's early retirement, buying a house, savings up for a wedding or creating a college fund , a personalized financial plan can help you get there. 

You can start planning by setting goals, tracking your cash flow, budgeting, paying down debt , investing in a diversified investment portfolio, and saving for retirement.

But remember that financial plans aren't static. You'll need to consistently reevaluate your plan in order to make sure it reflects your current situation and goals. 

"While you should be constantly monitoring and adjusting your plan as your life changes, some typical triggers for an update in your financial plan may include a change in income/employment, change in marital status, birth of a child, receiving an inheritance, and much more," says Gilberti. 

If you're having trouble getting started, a certified financial advisor or financial planner can guide you through the process. You can find a financial advisor through online reviews or by talking with friends and family. 

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Read our editorial standards .

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steps in planning in business finance

What is Financial planning in a business plan

Finance plan example

If one is new to the field of business and entrepreneurship, then Finance is unquestionably the vital section of the business plan. Even if your ideas and innovations are important what matters the most at the end of the day is the marketing strategies and how much your vision can help in making an earning. Hence it is vital to explain your start-up with good figures which are done with the help of accurate numbers included in the business plans and briefing about it in such a way that genuinely makes your business more attractive and profitable to the investors.

What is a business plan? 

In simple words, it is a guide for the company to achieve its goal. It is a written document that describes in detail how a business, especially a start-up , what are its objectives or how it is about to achieve its goal. This can be considered as a roadmap to success with detailed plans and budgets saying how they will be achieved. It lays a road map from marketing, financial and operating point of view as well.

Business plans are documents which are vital papers used to attract investors even before the company has shown a proven record. They do this by giving a vision to the investor and trying to convince them that their business idea is worth investing for.  From that, there comes a firm assurance and hence the business idea is sound and has every chance of success. For any newcomer, preparing a business plan is an important first step. It is this rigid milestone that will help the entry towards the path of success.

When you are about to begin a new venture, a business plan gives you a clear idea which in turn can determine whether your business idea is viable or not; that is, there is no point in business if there aren’t any chances of earning. A business plan is also a good way for companies to maintain a regular track.

We can also describe the business plan as a living document that you can use to prove two sources as it shows that one’s dreams are no longer just a dream but can be made into a viable reality. In the majority of cases, the main barrier in commencing a business is the fact that they don’t have enough money to be in the business or to start the business they wish to begin. In the case of start-ups, a ready business plan is essential to show potential investors how the proposed business can bring profit.

What is Financial Plan ?

In the world of start-ups, the importance of perfect business planning is beyond explanation. Plan length of business is different for different businesses. As mentioned no two businesses have the same sort of plans but they all have the same elements from which financial planning can be considered as a vital key in the making of a business plan.

A financial plan is a document containing the current money situation and long term goals of an individual as well as the strategies for achieving the goals. A financial plan can be done independently or with the help of a specialist who is a certified financial  planner where he will have a deep evaluation of the person’s current financial state and ,future goals and expectations.

It gives you a clear picture of current finances and how it can be utilised to achieve your goals. This is also a process which will reduce the amount of stress about money and help you to set a long term goal. It is very important as it shows how to make use of your assets in an orderly manner.

The main purpose of financial planning is that it helps you to make strong business decisions about what are the resources that the company requires and what are the strategies that the company needs to be successful. It helps to obtain necessary financing, thus helping it grow.

Financial Planning can be explained with six steps:-

1. Setting up of Financial Goals:-

 The secret of a successful business is setting up proper financial goals.

2. Track your Money:-

Since the financial plan is a guide for good business flow,  having an accurate idea about your savings or pay-downs is helpful to develop medium and long term plans.

3. Emergency expenses:-

Collecting cash for emergency expenses is the bedrock of the financial plan. 

4. Investing your savings:-

 Investing isn’t always meant for the rich alone. Building credit is another way to shock proof of your budget.

  5. Have a check of high-interest debt:-

Sometimes it happens that the interest rates most of the time, we end up repaying 2 or 3 times what we have actually borrowed. Paying down the ‘toxic’ high-interest debt like title loans,rent-to-own payment, credit card balances etc. are the crucial steps in any financial plan.

6. Setting up of a moat:-

It is essential to build a moat to protect you and your family from financial setbacks.  Financial moats can be improved by:-

  • Retirement accounts should be increased
  • Padding your emergency fund until you earn a constant profit.
  • By using insurance so that a sudden illness or accident can alter you thus, ensuring financial stability.

Financial planning is at the heart of all successful business ventures. As mentioned earlier, it consists of details of statement and financial projections, forming the overall core of your business plan. Financial planning is supposed to be completed within a year and revised monthly for better results. In addition to impressing  your investors that you are serious and knowledgeable with the business the financial  planning allows them to evaluate :

•The short and long term prospects 

• Profit potential 

•Your company’s  weakness as well as strengths

•Opportunities and challenges 

•What type of financing  can make your business successful  

For a strong financial plan,  there should be careful calculations and reliable numbers. If you are starting a new business then your financial plan should consist of:- 

• Start-up costs

•Cash flow projection 

•Projected Balance sheet 

•Balance and income statement (if it isn’t a new business)

•Break-even analysis

Start-up Costs

If you are about to start a business, first you are supposed to determine start-up costs. They are the first time expenditures that you have to spend before opening your business. It includes all costs such as furniture, supplies, equipment, renovations, license permits and incorporation fees; if necessary.

Cash flow projections  

All the business activities, large or small depends on cash. Cash flow projections show the expected amount of money that you can earn in a business along with what will be spent on expenses It is the cash that you expect from sales.

Projection of cash flow projections

The first is to calculate how much revenue you expect to generate from the sales every month. For that:

  • consider the best and worst.
  • reach to the clients who can  repay loan on a regular-schedule basis 
  • set a credit policy .
  • which bills should be delayed and what to be paid. The projections must be completed on an ongoing basis.

Income statements 

It shows your actual business expenses and revenues, the difference between the net profit over some time it sometimes often referred to as profit and loss statement or an operating statement.

From a regular check-in, the projected income statement (at least every three months) can help you identify an emerging problem in your business.

Balance Sheets

It is a snapshot record which contains all the details of what your business assets (owns) are or on as well as its liabilities (owes). Assets can be money, property,  vehicle, inventory etc. The projected balance sheet is what predicts the net worth of your business over a specific period in future. It should be from at least one year to three years into the future

Break-even Analysis

It is a useful tool which calculates at what point your company will be able to make a profit . This is where the total costs equal total revenues. It is based on three factors:- Selling price, fixed cost and variable cost.

  Methods Of Financing for Businesses

After you have completed financial statement, projections and calculations, you will have a clear idea on how to finance your business.

The two main financings are:- 

  • Equity Financing

The financing in which you and your partner put the money or raise from the investor’s for the business.

Equity financing is not a debt or loan, but the investors just share the profits or losses.

2. Debt  Financing 

With your equity capital, you are now in a position to approach lenders for a business loan.  It is the money you borrow for business. Unlike equity financing, it should be repaid with interest over a specific period. The lenders won’t be getting the profit however, they must be repaid-with interest no matter whether the business is in profit or loss. The potential lenders include banks, credit unions , private investors, trust companies etc.

In the end, financial planning is a crucial step in mapping out a company’s financial future. In that sense, it is financial planning which gives clarity to your business plan and thus to one’s life!

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steps in planning in business finance

Financial Planning Process: 5 Simple Steps

Smolin » Blog » Financial Planning Process: 5 Simple Steps

financial planning process

Financial Planning Process

Step one: know where you stand.

The first step to creating your financial plan is to understand your current financial situation. This means taking an inventory of all of your debt, income and expenses.

Take time to make a list of your current assets, including:

  • The balance in your checking, savings and money market accounts.
  • Retirement savings.
  • Stocks and bonds.
  • The market value of your home and other properties.

Record all of your debts, including:

  • The balances on all credit cards.
  • Student loan debt.
  • Mortgage balance.
  • Personal loan balances.
  • Auto loans.

Subtracting your debts from your total assets will determine your current net worth. A negative number means that your assets are insufficient to cover your debts. While this is a key indicator of financial standing, it does not provide the full picture. A second, equally important measure of financial standing can be found by looking at your income and expenses.

Make a list of your take home income from all sources. Then, evaluate all of your expenses, including:

  • Debt payments.
  • Cable and phone bills.
  • Food and dining out.
  • Travel expenses including gasoline and tolls.
  • Entertainment.

Comparing your income and expenses provides your cash flow and insight into where your money is going. This serves as the foundation for creating your financial plan. Once you understand your current financial situation, you can plan for where you want to be.

Step Two: Set Your Goals

The second part in the financial planning process is to set your financial goals. Your financial goals should be unique to your financial situation and reflective of where you want to be in the future. The goals you set should be realistic given your financial situation. Additionally, it is important to set both long-term and short-term goals. Common financial goals include:

  • Paying off debt.
  • Establishing an emergency fund.
  • Saving for retirement.
  • Planning for your children’s college expenses.
  • Saving for a vacation.
  • Buying a home.
  • Investing in the stock market.

The next step is to determine the importance and priority of each of your financial goals and how long each goal is expected to take. For example, saving for retirement in the NYC area typically happens over decades in order to establish adequate funds for surviving after leaving the workforce. In some cases, your financial goals may be dependent on one another.

Finally, think about how much money is required to achieve each goal. For some, this process can seem daunting. However, it is important to understand what achieving your financial goals will require. This information may then be used in comparison with your income and expenses. Look for areas where you can decrease expenses in order to work toward your financial goals. Bringing in additional income will also allow you to achieve your financial goals sooner.

Understanding what it will take to achieve your financial goals allows you to make better financial decisions.

Step Three: Plan for the Future

You know where you stand financially and where you would like to be financially. The third step in the financial planning process is to create a plan for achieving each of your financial goals. For some, meeting financial goals will simply mean continuing on their existing path. For others, realizing financial goals will require a change in lifestyle or outlook.

For each of your financial goals, think about what it will take for you to achieve that goal. For instance, saving for retirement takes place over several decades. Making small investments over a longer period of time is often more advantageous than waiting and making larger contributions. Achieving retirement savings may involve contributing to a 401K at work or opening an IRA account.

Look at your income and expenses. Chances are, there are some areas where you can reduce expenses in order to better allocate your funds. Taking simple steps, like taking your lunch to work and cooking at home, can quickly add up.

Step Four: Managing Money

Savings for short-term goals, including paying off debt, can typically be done through savings accounts. However, long-term goals or goals that involve investing require other options for saving money. There are several ways to save and invest money. To determine which investment vehicle is best for your needs, consider the following:

  • Risk Tolerance:  Risk tolerance is a measurement of how comfortable you are risking your money in order to achieve greater returns in the future. There is no right amount of risk tolerance; it is dependent on your personality. Conservative individuals in the NYC area should invest in vehicles where the principle investment is likely to be maintained even if there is little to no growth. On the other hand, more aggressive investors will feel comfortable taking on riskier investments in order to receive larger rewards.
  • Time Frame:  The amount of time you have to invest can also determine an individual’s risk tolerance. For example, if funds are needed within the next year to two, a conservative option may be best in order to ensure funds will be available. Investments that will not be needed for an extended period of time can be more aggressively invested as there is time to make up for losses.
  • Tax Implications:  The type of investment selected can have a significant effect on income taxes. Therefore, it is important to consider your entire portfolio before deciding how to invest or save your money.

Step Five: Review Your Plan

Your financial plan should be a living document. Take time to regularly view your savings and investments to determine if they are on track for your savings goals. Consider if your current level of risk is providing the returns you’re expecting and make adjustments as necessary.

As your circumstances change, the financial plan should be updated. Designate a specific interval for reviewing your financial plan and determining where changes should be made. Additionally, reviews of your financial plan should take place when major life changes, such as marriage, having children or changing jobs, occur.

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Financial Planning: Five Steps to Secure Your Business’ Future

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  • Financial planning for a business is as essential as oxygen for humans.

American sports personality Stephen A Smith said, “If you are in the world of business, that means you are in the business of making money.” As a business, one of the key indicators of success is making money for your stakeholders and employees. Financial planning holds an organization in good stead even during times of crisis.

You might have great business planning skills, but if it doesn’t include a doable financial plan, you have little hope of winning the confidence of investors. A business also doubles your chances of success as it keeps you focused on priorities.

business planning

Financial Planning: An Overview

Financial planning refers to an organization’s financial health and how it can be leveraged to plan for short-term and long-term goals. 

A financial plan is part of finance management of an organization. Setting goals and staying on track is easier when you have a financial plan that aligns with your business goals. It can also reveal opportunities that businesses might otherwise overlook.

Business financial planning allows a company to sensibly allocate resources to various functions.

B usiness financials gives you an insight into your company’s financial health and helps you develop a realistic strategy for the future. It allows you to gauge how far you have come, where you are bleeding money, and how to troubleshoot problem areas. Financial planning also serves as an early warning system, helping you make predictions about the future, forecasting income, and expenditure.

Apart from making you attractive to investors, it also helps you set realistic goals for your business. You are better prepared for growth and crisis, as you are familiar with your business financials.

Why is it important to have financial plan for your business?

Without a financial plan in place, you will have a heard time assessing the performance of your company.

Almost 50% of businesses fail in the first five years. For businesses that do not have a business plan, 25% of them will die within two years of startup.

A detailed financial plan is an art and a skill that takes time to master and is fundamental to growth. Business planning is a non-negotiable part of strategizing for success. A Palo Alto Software survey found that entrepreneurs who had completed a business plan for their venture were more than twice as likely to successfully grow their business as those who had no plan or an incomplete financial plan.

Financial planning also boots stakeholder confidence and support sound money habits that make it easier to manage income. Building wealth becomes second nature when you are equipped with a sound financial plan.

Ideally, business owners must engage in a yearly financial planning exercise that maps out short-term and long-term goals for the company. Chinese philosopher Confucius said, “A man who does not plan long ahead will find trouble at his door.”

business financials

Five Important Steps to Creating a Foolproof Financial Plan for Your Business

Chalking out a financial plan for your business will help you pinpoint the best timing for projects, cash flow needs, avert crisis, and convince financiers to lend you money. Financial business planning must include budgetary allocations for immediate and long-term needs.

1.  Review Your Company’s Strategy

A business strategy is the first plan of action that outlines a business’ vision and goals, and guides its decision-making process. Before getting started on financial planning for a business, executives must familiarize themselves with the organization’s strategy.

This will help you understand what the company plans to focus on in the coming year and allocate budgets accordingly. Some questions that can be asked while reviewing your business plan are:

  • What is affecting the company’s cash flow?
  • How much financing is needed for the next year?
  • What are the regular expenses vs expected future expenses?
  • How will liabilities affect cash flow in case of a crisis?

These factors will help you come up with a clearer picture on what kind of a financial plan is required to meet business goals in the coming year.

2.  Study the Balance Sheet

To get a clear idea on where you stand in terms of finances, you must review the balance sheet. It is essential to understand the company’s past and plan the future. A balance sheet also shows you past strategies and how it affected your company. It is rich in data and facts.

A balance sheet lets you review the assets and liabilities under your organization. In simple terms assets are what your company owns while liabilities include anything that your company owes.

Assets provide future benefits while liabilities drain spending power. A thorough understanding of assets and liabilities will help you plan what can be leveraged in the future.

The formula to calculate shareholder equity is: Shareholder Equity = Assets – Liabilities

Organizations must focus on growing their assets to have a steady cash flow from various sources as it is necessary to fight off unprecedented crises. Studying the balance sheet before financial planning ensures that you are well-versed with what you have and what you stand to lose.

3.  Personnel Costs

In case the company plans to expand its footprint in the coming year, it is essential to plan for added FTE costs. FTE stands for Full-Time Equivalent, a tool used to forecast the costs of a project or forecasting employee hours and salaries.

For most companies, wage and salary costs itself account for almost 70% of employer costs. Personnel costs include cash compensation, training costs, travel allowances, severance packages, payroll taxes, incentive programs, office and computing supplies, and other expenses if any.

It is also important to study whether you have the right amount of people to meet business goals. In case of new projects, a comprehensive study helps you understand whether you need to on-board more employees and if they should be full-time, part-time, or work on a contractual basis.

Personnel planning helps you monitor if you are on track to meet business goals or if some adjustments are needed.

4.  Break-even Analysis

A break-even analysis is the tipping point in financial planning. It shows us the point at which total cost and total revenue is equal and what kind of situations will push a business to reach it.

A break-even analysis is a major milestone before a business moves into profitability. It also tells you whether you might need to borrow money to keep the business afloat or if the endeavor is a lost cause.

It calculates the company’s break-even point (BEP) and is an internal calculation that is sometimes shared with investors and regulators. Mature businesses conduct this exercise even to evaluate risks before making major decisions regarding product changes.

Although a major part of business planning, a break-even analysis is conducted whenever a business plans for additional costs. The ideal break-even window is between six to 18 months. In case it exceeds the 18-month mark, it indicates that the risk factor is extremely high.

Cash-flow statements, which record all cash flow from operations, investment, and financing activities, are an important part of break-even analysis.

Often, lenders ask companies to share their break-even analysis to calculate the company’s eligibility for a loan. When what-ifs and different market conditions complicate matters, a break-even analysis provides business owners with a simplified decision-making process.

5.  Income Projections

Business owners must continue to look ahead to make substantial progress. Short-term and long-term income projections guide companies on how to monitor their financial activity.

A sales forecast is the first step towards income projections. Sales are affected by market conditions, global concerns, and supply-chain challenges. Taking these variables into account while drawing up a sales forecast gives you an approximate idea on where you stand with regards to income.

Well-researched, data-driven income projections help you onboard the right investors and chart a course for greater profitability. In today’s competitive marketplace, income projections are essential to understand how much money your company can make in a year, broken down month by month.

business planning

Benefits of Financial Planning for Businesses

The benefits of financial planning far outweigh the stress induced while preparing one. A financial analysis shows you whether your business is viable or in the red.  Schwab’s 2018 Modern Wealth Index found that having a written financial plan can lead to better “daily money behaviors.” 

Plan for contingencies

What would you do if your financial health deteriorated suddenly? When you have engaged in financial planning, you have a step-by-step guide on how to deal with crisis situations. You also know what can be done in such cases to keep the business afloat.

It is crucial for risk management and helps you prepare ahead of time for man-made and natural calamities that can derail business plans.

Monitor goals

In any business, it is important to periodically review goal-setting. Throughout the course of the year, you can match your actual results with your financial planner to see where you stand, and adjust course accordingly.

Regularly checking in helps prevent catastrophes as you spot potential trouble much earlier.

Expert Intervention

A financial planner also indicates when a business is going under and needs expert guidance. Business financials are treasure troves of data on the health of the organization.

When things are not going to plan, it highlights the need for a fresh pair of eyes and expert advice. Businesses can reach out to consultants to course-correct when their strategies fail to give expected results.

In a study conducted by the Financial Bank of Chicago , it was discovered that there is a direct correlation between financial management and financial health of small businesses. The financial plan helps guide the day-to-day decision making of the business and keep a tight-rein on expenditure during lean periods.

According to the research, “The Power of Planning: Proven Benefits That Transform Consumer Financial Outcomes,” Americans with a written plan save more across all income levels. Improving a company’s financial management is key to achieving profitability.

What is the purpose of financial planning?

Financial planning helps guide business investments and serves as a comprehensible roadmap for future growth.

What is the most important part of financial plan?

The most important part of a financial plan for an organization is budgeting. Sticking to a pre-decided budget ensures that you are on track to success.

Is financial planning in demand?

According to the US Bureau of Labor Statistics, financial planning is in high demand and the requirement for personal financial advisors is expected to grow at a rate of 7% through 2028.

What are the five pillars of finance?

The five pillars of financial planning include earning, spending, saving, borrowing, and safeguarding wealth.

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