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What Is Business Financial Planning

Published: November 2, 2023

Discover the importance of business financial planning and how it can optimize your finances. Gain insights into finance strategies and maximize profitability.

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Table of Contents

Introduction, definition of business financial planning, importance of business financial planning, steps in business financial planning, components of business financial planning, benefits of business financial planning, challenges in business financial planning, considerations in business financial planning.

Welcome to our comprehensive guide on business financial planning. In today’s fast-paced and competitive business landscape, having a solid financial plan is crucial for the success and sustainability of any organization. Whether you are a small start-up or a large corporation, effectively managing your finances is a key factor in achieving profitability, growth, and long-term stability.

Financial planning for businesses involves analyzing the company’s current financial situation, setting realistic financial goals, and developing strategies to achieve those goals. It encompasses various aspects such as budgeting, forecasting, cash flow management, investment planning, risk management, and tax planning.

In this article, we will explore the definition, importance, steps, components, benefits, challenges, and considerations involved in business financial planning. By gaining a deeper understanding of these critical elements, you will be equipped with the necessary knowledge and insights to create a strong financial foundation for your organization.

Financial planning is not just for companies seeking external funding or facing financial difficulties. It is a fundamental process that applies to all businesses, regardless of their size or industry. It allows you to make informed decisions, optimize resource allocation, and seize opportunities as they arise.

Effective financial planning provides you with a roadmap to success, setting a clear direction for your business and helping you stay on track. It enables you to anticipate potential obstacles and devise strategies to overcome them, ensuring smooth operations and sustained profitability.

As we delve deeper into the world of business financial planning, it’s important to remember that every organization’s needs and circumstances are unique. While there are standard principles and best practices, it is essential to tailor your financial plan to align with your specific objectives, challenges, and resources.

Are you ready to embark on this journey of optimizing your business’s financial health? Let’s dive in and explore the exciting world of business financial planning together!

Business financial planning is the process of assessing, organizing, and managing a company’s financial resources to achieve its goals and objectives. It involves analyzing the company’s financial status, setting financial targets, and developing strategies to achieve those targets.

Financial planning also includes creating budgets, forecasting future financial performance, and monitoring cash flow, investments, and expenses. It helps businesses make informed decisions about resource allocation, capital investments, and risk management.

At its core, business financial planning aims to ensure the organization’s financial stability, growth, and long-term success. It provides a roadmap for allocating financial resources effectively, maximizing profitability, and mitigating financial risks.

Business financial planning covers various areas, including:

• Income and expense management: Monitoring and controlling the company’s revenue streams and expenses to achieve financial sustainability.
• Cash flow management: Managing the inflow and outflow of cash to ensure sufficient liquidity for day-to-day operations and future growth.
• Investment planning: Identifying investment opportunities that align with the company’s financial goals and risk tolerance.
• Debt management: Evaluating and managing the company’s debt levels to optimize financial leverage and maintain healthy financial ratios.
• Risk management: Identifying potential risks, such as market volatility or regulatory changes, and implementing strategies to mitigate their impact on the organization’s finances.
• Tax planning: Developing strategies to minimize tax liabilities and ensure compliance with applicable tax laws and regulations.

Business financial planning is an ongoing process that requires regular review and adjustment. As market conditions, financial goals, and business circumstances change, it is crucial to update and adapt the financial plan accordingly to maintain its effectiveness.

The ultimate goal of business financial planning is to optimize the company’s financial performance, enhance shareholder value, and provide a solid foundation for sustainable growth. By proactively managing the company’s finances and making informed decisions, businesses can navigate challenges, seize opportunities, and achieve their desired financial outcomes.

Business financial planning is of utmost importance for organizations of all sizes and industries. It provides a roadmap for success by guiding key financial decisions and ensuring the long-term stability and growth of the business. Here are several reasons why business financial planning is essential:

• Goal Setting and Strategic Alignment: Financial planning helps businesses set clear financial goals and align them with the overall strategic objectives of the organization. By defining specific targets, such as revenue growth or profitability ratios, businesses can track their progress and make informed decisions that drive them closer to accomplishing their goals.
• Resource Optimization: Financial planning allows businesses to plan and allocate their resources effectively. By carefully analyzing income and expenses, businesses can identify areas of inefficiency, eliminate unnecessary costs, and focus resources on initiatives that generate the highest returns. This optimization of resources leads to increased profitability and the preservation of valuable capital.
• Risk Management: One of the key benefits of financial planning is the ability to assess and mitigate risks that may impact the financial health of the business. By performing risk analysis and implementing risk management strategies, businesses can prepare for unforeseen events, such as economic downturns or industry disruptions, and minimize their potential negative impact.
• Cash Flow Management: Effective financial planning enables businesses to manage their cash flow efficiently. By forecasting future cash inflows and outflows, businesses can ensure that they have sufficient liquidity to meet their financial obligations, such as paying suppliers or employees, while also planning for future investments or expansion.
• Financial Decision-Making: Financial planning provides businesses with the necessary information and analysis to make informed financial decisions. Whether it is evaluating investment opportunities, determining pricing strategies, or deciding on financing options, a solid financial plan acts as a guiding framework, ensuring decisions are based on sound financial principles and long-term objectives.
• Stakeholder Confidence: Having a robust financial plan instills confidence in stakeholders, including investors, lenders, and shareholders. It demonstrates that the business is well-managed, financially stable, and capable of delivering on its promises. This, in turn, enhances credibility and attracts potential investors or financing opportunities.

Overall, business financial planning plays a crucial role in setting the direction, optimizing resources, and managing risks for an organization. It provides the foundation for effective financial management and decision-making, enabling businesses to navigate challenges, seize opportunities, and achieve sustainable growth in a competitive market environment.

Effective business financial planning involves a series of steps that help organizations analyze their current financial position, set financial goals, and develop strategies to achieve those goals. While each business’s financial planning process may vary based on their specific needs, here are the general steps to follow:

• Assess Current Financial Position: The first step in financial planning is to assess the company’s current financial position. This involves gathering and analyzing financial statements, such as income statements, balance sheets, and cash flow statements, to understand the company’s revenue, expenses, assets, liabilities, and cash flow. It also involves identifying any financial strengths, weaknesses, or areas for improvement.
• Set Financial Goals: Once the current financial position is evaluated, the next step is to set specific financial goals. These goals can include increasing revenue, improving profit margins, reducing costs, increasing cash flow, or achieving a specific return on investment. It is important to ensure that these goals are realistic, measurable, and aligned with the overall strategic objectives of the business.
• Develop a Budget: A budget is a crucial tool in financial planning as it helps to allocate resources and track financial performance. Based on the identified financial goals, businesses create a budget that outlines projected income, expenses, and cash flow for a specific period, typically on an annual basis. The budget should be detailed and comprehensive, accounting for all aspects of the business’s operations.
• Perform Financial Analysis: Financial analysis involves examining historical financial data and using financial ratios to assess the company’s financial health and performance. This analysis helps to identify trends, patterns, and areas of improvement. Key financial ratios to consider include liquidity ratios, profitability ratios, and solvency ratios.
• Create Financial Strategies: With a clear understanding of the current financial position, goals, and budget, businesses can develop strategies to achieve their financial objectives. These strategies may include steps to increase revenue, reduce costs, manage cash flow, optimize investments, and mitigate financial risks. The strategies should be realistic, actionable, and aligned with the overall business strategy.
• Implement and Monitor: Once the financial strategies are defined, it is important to implement them and closely monitor their progress. Regularly reviewing and comparing actual financial performance against the budget and goals helps to identify any deviations or areas requiring adjustments. This monitoring allows for timely decision-making and course correction to stay on track.
• Periodic Review and Adjustments: Financial planning is an ongoing process, and it is essential to periodically review and adjust the financial plan as business conditions change. This includes revisiting financial goals, updating the budget, and adapting strategies to reflect new opportunities or challenges. Regular reviews help businesses stay agile and responsive to the evolving market dynamics.

Following these steps in business financial planning ensures that organizations have a clear understanding of their financial position, set realistic goals, and implement strategies to achieve those goals. It provides a structured approach to financial management and enables businesses to make informed decisions for long-term success and profitability.

Business financial planning encompasses several key components that work together to create a comprehensive and effective financial strategy. These components provide the necessary framework for managing and optimizing the company’s finances. Here are the primary components of business financial planning:

• Financial Goals: Defining clear and specific financial goals is an essential component of business financial planning. Financial goals can include revenue targets, profit margins, cash flow objectives, and return on investment. These goals provide direction and purpose to the financial planning process, guiding decision-making and resource allocation.
• Budgeting: Budgeting is a critical component of financial planning that involves creating a detailed plan for income and expenses. A well-structured budget lays out projected revenue, costs, and investments over a specific period, typically on an annual basis. It helps businesses track their financial performance, allocate resources effectively, and make informed financial decisions.
• Cash Flow Management: Managing cash flow is crucial for the financial health of any business. It involves monitoring and controlling the inflow and outflow of cash to ensure there is enough liquidity to meet ongoing expenses and fund future growth. An effective cash flow management component of financial planning includes forecasting cash flow, optimizing working capital, and implementing strategies to improve cash flow efficiency.
• Financial Analysis: Financial analysis plays a pivotal role in business financial planning. It involves analyzing financial statements, ratios, and other financial data to assess the company’s financial health and performance. Key financial analysis components include liquidity ratios, profitability ratios, and solvency ratios. This analysis helps identify trends, evaluate the company’s financial strengths and weaknesses, and make data-driven financial decisions.
• Investment Planning: Investment planning focuses on identifying investment opportunities that align with the company’s financial goals and risk tolerance. This component involves evaluating potential investments, such as new projects, technology upgrades, or acquisitions, and assessing their potential returns and risks. Effective investment planning allows businesses to allocate resources wisely to maximize profitability and long-term growth.
• Risk Management: Risk management is an integral part of financial planning that involves identifying and mitigating financial risks that can impact the company’s finances. This component includes assessing market risks, legal and regulatory risks, credit risks, and operational risks. Implementing risk management strategies, such as insurance coverage or hedging techniques, helps businesses protect their financial stability and minimize potential losses.
• Tax Planning: Tax planning is an essential component of financial planning that involves developing strategies to minimize tax liabilities while maintaining compliance with tax laws and regulations. This includes understanding tax incentives, deductions, and credits, as well as effectively managing tax reporting and documentation. Effective tax planning ensures businesses optimize their tax positions and maximize after-tax profitability.

By integrating these components into their financial planning process, businesses can create a comprehensive and dynamic strategy that addresses their financial goals, manages cash flow, analyzes performance, minimizes risks, and optimizes investments. Each component contributes to the overall financial health and success of the organization, helping businesses navigate challenges, seize opportunities, and achieve sustainable growth.

Business financial planning offers several significant benefits to organizations of all sizes and industries. It serves as a fundamental tool for managing and optimizing financial resources, making informed decisions, and achieving long-term success. Here are some key benefits of business financial planning:

• Goal Clarity and Focus: Financial planning helps businesses set clear financial goals and objectives. By defining specific targets, businesses can align their efforts and resources towards achieving those goals. It brings clarity and focus to the organization, providing a sense of direction and purpose.
• Resource Optimization: A well-developed financial plan enables businesses to allocate their resources effectively. It helps identify areas of inefficiency, wasteful spending, or underutilization of resources. Through financial planning, organizations can optimize their resource allocation, reduce costs, and maximize profitability.
• Risk Management: Financial planning incorporates risk management strategies that help businesses identify and mitigate potential risks. It enables companies to anticipate and prepare for unforeseen events, such as economic downturns, regulatory changes, or supply chain disruptions. By mitigating risks, businesses can protect their financial stability and minimize potential losses.
• Sustainable Growth: Financial planning is crucial for sustained business growth. It allows organizations to assess their financial position, identify growth opportunities, and develop strategies to capitalize on them. By setting achievable financial goals, businesses can expand their market share, enter new markets, invest in research and development, and drive long-term growth.
• Better Decision-making: Financial planning provides businesses with a solid foundation for making informed decisions. By analyzing financial data, evaluating risk factors, and considering various scenarios, businesses can make strategic decisions that align with their financial goals. This leads to better investment choices, pricing strategies, and capital allocation.
• Improved Cash Flow: Effective financial planning helps businesses manage their cash flow efficiently. It involves forecasting cash inflows and outflows, optimizing working capital, and ensuring sufficient liquidity for day-to-day operations and growth initiatives. Improved cash flow management enables businesses to meet financial obligations, seize opportunities, and maintain financial stability.
• Enhanced Credibility: Financial planning enhances a business’s credibility and reputation with stakeholders, including investors, lenders, and customers. It demonstrates that the organization is well-managed, financially stable, and has a clear vision for the future. This credibility attracts potential investors, lenders, and partners, opening doors to new growth opportunities.

Overall, business financial planning plays a vital role in guiding organizations towards financial success and sustainability. It provides a framework for goal setting, resource optimization, risk management, and decision-making. By implementing effective financial planning strategies, businesses can navigate challenges, seize opportunities, and achieve their desired financial outcomes.

While business financial planning is crucial for success, it is not without its challenges. Organizations must navigate various obstacles to develop and implement effective financial plans. Here are some common challenges in business financial planning:

• Data Accuracy and Availability: Financial planning heavily relies on accurate and up-to-date financial data. However, obtaining reliable and comprehensive data can be a challenge, especially for small businesses or those with inadequate financial reporting systems. Without accurate data, it becomes difficult to perform accurate financial analysis and make informed decisions.
• Uncertain Economic Climate: The ever-changing economic landscape poses a challenge in financial planning. Businesses need to adapt their financial plans to account for economic fluctuations, changes in market trends, and shifts in consumer behavior. Uncertainty, such as recessions, inflation, or global crises, can impact revenue streams, cash flow, and profitability, making financial planning more complex.
• Complexity of Financial Regulations: Compliance with financial regulations is a significant challenge in financial planning. Businesses must stay abreast of constantly evolving regulations, tax laws, and reporting requirements. Failure to comply can result in penalties, legal issues, and reputational damage. Ensuring accuracy and compliance while navigating a complex regulatory environment adds complexity to the financial planning process.
• Difficulty in Forecasting: Forecasting future financial performance is integral to financial planning. However, accurately predicting future events, such as sales growth, market demand, or industry trends, can be challenging. External factors like changing customer preferences or new competitors can impact revenue projections, making it difficult to create realistic financial forecasts.
• Limited Resources: Limited financial and human resources can pose challenges in financial planning. Small businesses often face constraints in hiring dedicated financial professionals or investing in sophisticated financial planning tools. Lack of expertise and resources can hinder the ability to develop and execute robust financial plans.
• Inadequate Communication and Collaboration: Financial planning requires collaboration across different departments and stakeholders within an organization. Ineffective communication and collaboration can lead to misalignment between financial goals, operations, and strategic objectives. It is essential to foster effective communication channels and ensure all stakeholders are involved in the financial planning process.
• External Factors: External factors beyond a business’s control, such as political instability, natural disasters, or shifts in the global economy, can impact financial planning. These unforeseen events can disrupt supply chains, affect customer demand, or create financial instability. Adapting financial plans to mitigate the impact of external factors is a challenge that businesses must navigate.

Despite the challenges, businesses can overcome them by adopting proactive measures. Implementing robust financial systems, investing in accurate data collection and reporting tools, staying informed about regulatory changes, and fostering effective communication can help organizations navigate these challenges and develop resilient financial plans.

When embarking on business financial planning, there are several important considerations to keep in mind. These considerations help ensure that the financial plan is comprehensive, realistic, and tailored to the specific needs of the organization. Here are key factors to consider in business financial planning:

• Business Objectives: Align financial planning with the overall strategic objectives of the business. The financial plan should support and contribute to the achievement of the organization’s goals, whether it is revenue growth, market expansion, profitability, or sustainability.
• Risk Tolerance: Understand the risk tolerance of the business and factor it into the financial plan. Different businesses have varying levels of risk appetite, and the financial plan should account for this. It should include risk management strategies that align with the organization’s risk tolerance and protect against potential financial setbacks.
• Industry and Market Conditions: Consider the specific industry and market conditions in which the business operates. Market trends, customer preferences, competitive landscape, and regulatory environment all impact financial planning. Keeping abreast of industry dynamics helps in making informed financial decisions and formulating realistic financial projections.
• Customer and Supplier Relationships: Analyze the relationships with customers and suppliers to understand their impact on the financial health of the business. Ensure financial planning accounts for any dependencies, credit terms, payment schedules, and potential risks associated with these relationships.
• Technology and Systems: Assess the technology infrastructure and financial systems in place to support financial planning. Evaluate whether the existing systems are capable of providing accurate and timely financial data for analysis. Consider whether any upgrades or investments in technology are needed to enhance financial planning capabilities.
• Competencies and Resources: Evaluate the financial competencies and resources within the organization. Determine if the current finance team has the necessary expertise to develop and execute the financial plan effectively. Identify any gaps and consider training or hiring new talent to strengthen financial planning capabilities.
• Long-term Sustainability: Consider long-term sustainability when creating the financial plan. Beyond short-term goals, it is crucial to analyze the impact of financial decisions on the overall financial health and viability of the business in the long run. Balancing short-term objectives with long-term sustainability is essential for sustained growth and profitability.
• Regulatory Compliance: Stay informed about relevant financial regulations, tax laws, and reporting requirements. Ensure the financial plan complies with all applicable regulations. Consult with legal and financial experts, if necessary, to ensure compliance and mitigate any potential legal or financial risks.

By considering these factors in business financial planning, organizations can develop a comprehensive and tailored financial strategy that addresses their unique circumstances. Regularly reviewing and updating the financial plan in response to changes in these considerations ensures that the plan remains relevant and effective in driving the organization towards its financial goals.

Business financial planning is a crucial process that organizations must undertake to navigate the complex world of finance and achieve their goals. From setting clear financial objectives to creating budgets, managing cash flow, and analyzing financial performance, financial planning forms the foundation for informed decision-making and long-term success.

Throughout this comprehensive guide, we have explored the definition, importance, steps, components, benefits, challenges, and considerations of business financial planning. We have seen how financial planning helps businesses clarify their goals, optimize resources, mitigate risks, and make strategic financial decisions.

By engaging in financial planning, businesses can set the stage for sustainable growth, enhanced profitability, and improved financial stability. It empowers organizations to allocate resources effectively, manage cash flow efficiently, and respond to changes in the economic, market, and regulatory environment.

However, financial planning is not without its challenges. Obtaining accurate data, forecasting future performance, complying with regulations, and managing limited resources are some of the obstacles businesses may face. Despite these challenges, businesses can overcome them through proactive measures such as investing in technology, fostering effective communication, and staying informed about industry trends.

As you embark on your own financial planning journey, remember that flexibility and adaptability are key. Regularly review and update your financial plan, considering factors such as market conditions, customer relationships, and long-term sustainability. By doing so, you can ensure that your financial plan remains relevant and responsive to the evolving needs of your organization.

In conclusion, business financial planning is a dynamic and essential process that enables organizations to effectively manage their financial resources and achieve their strategic objectives. By integrating financial planning into your business strategy, you lay the groundwork for sustainable growth, profitability, and long-term success in today’s competitive business landscape.

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How to Write a Small Business Financial Plan

Noah Parsons

4 min. read

Updated April 22, 2024

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 are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan

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.

What to include if you plan to pursue funding

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.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

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).

• How to improve your financial plan

Your financial statements are the core part of your business plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

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• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

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Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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• What to include for funding

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6 Elements of a Successful Financial Plan for a Small Business

Table of Contents

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

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What is financial planning in business?

Table of Contents

What is financial planning?

Difference between a personal and business financial plan, how to create a financial plan for your business, develop a solid strategy, create a balance sheet, make cash flow projections, prepare a projected income statement, allocate your budget, monitor your results, plan your finances easily with countingup.

Planning and organising your finances is one of the most crucial parts of running your own business. Financial planning helps you prepare for what the future may involve and uncover ways to grow your company. 

But a financial plan involves much more than simply tracking income and expenses. To help you understand what financial planning is, this guide covers:

• The difference between a personal and business financial plan

Read on to learn how Countingup can help you manage your financial planning with ease.

A financial plan serves as a roadmap for your economic growth, showing where you’re at right now, where you want to go, and how you will get there. 

You can create a financial plan for personal and business purposes, but these processes are slightly different. We’ll explain more about personal vs business financial planning later in this article.

Financial plans are essential because they force you to consider if you’re on the right track to achieve your business goals. Businesses don’t usually grow accidentally but as a result of hard work and careful planning. 

Working with specific goals in mind and a plan for reaching them increases your chances of taking your business where you want it to go. Otherwise, you risk stumbling around in the dark, focusing on things that won’t help your business grow. 

Most financial plans include much of the same information. However, there are some key differences between a personal financial plan and a business one. The reason is that an individual’s financial goals are likely different from those of a growing company.

For example, your personal financial plan may include a retirement plan, a strategy for investments, and a plan for buying a new house. You’ll also likely focus on making more money while paying yourself as tax-efficiently as possible.

On the flip side, your company’s financial plan is more likely to focus on goals like hiring more staff, buying new equipment, expanding your product or service offering, and purchasing additional inventory. 

These goals are entirely different from the hypothetical individual goals we just mentioned. Therefore, you need a different strategy for your business and personal financial planning.

What is important to include in a financial plan? Below we’ve listed some of the main documents and other aspects you need to create a robust plan:

Effective financial planning usually includes a strategic plan. Think about what you want to accomplish in the next year and ask yourself questions like:

• Do I need to expand or hire more staff?
• Do I need more equipment or new resources?
• How will my plan affect my cash flow?
• Will I need financing? If yes, how much?

Once you know where you want your business to go in the next 12 months, think about how much it might cost you.

It’s also good to think about what you would do if your finances suddenly deteriorated, perhaps from not getting enough jobs or selling enough products. Maybe you could put money aside when the business goes well to have funds available if money ever gets tight.

Your balance sheet is a snapshot of your business’s financial position, meaning how much money you have, how much you’ll receive, and how much money you owe. It’s called a ‘balance sheet’ because it calculates what you need to balance out.

A balance sheet should list your:

• Assets: Such as unpaid invoices, money in the bank, and inventory.
• Liabilities : Money you owe, credit card balances, loan repayments, and so on.
• Equity: For small businesses, this is usually the owner’s equity, but it could include investors’ shares, retained earnings, and stock proceeds.

Financial planning also involves predicting how much money you’ll make and spend in the coming month, quarter or year. Record how much you expect to make from sales and what you think you’ll spend on expenses like bills, supplies, loan repayments, and so on. 

You can use a simple spreadsheet to calculate your cash flow projections. We have a separate guide that tells you all about what cash flow is and how it works.

Next, you’ll want to prepare a projected income (or profit and loss) statement to predict how successful you think your company will be. It can be helpful to include different scenarios, good and bad, to help you prepare for each one.

Income statements typically include:

• Revenue: Money from sales.
• Expenses: Money you’ll spend. 
• Total income: Calculated as your revenue minus expenses before income taxes.
• Income taxes: Such as Income Tax, National Insurance, and Corporation Tax for limited companies.
• Net income: Your total income after deducting expenses and taxes.

Once you’ve created your strategy and filled in your balance sheet, cash flow, and income projections, you need to figure out where you’ll spend the money you make. 

Take your company’s overall budget (read more about how to budget money for your growing business ) and divide it into specific budgets. For example, one for hiring new staff, one for buying new equipment, and one for expanding your product or service offering.

Once you’re done with your financial planning, monitor your real-life results and compare them to your predictions. Monitoring helps you spot any problems so you can fix them before they get out of hand. 

It may be a good idea to hire a financial expert to help you put together and monitor your financial plan. Accounting software like Countingup can also help you keep track of your finances almost effortlessly.

Countingup offers sole traders and small business owners the chance to save time and money. 

With Countingup, your business current account and accounting software are available in one app. Coupled with our handy expense reminders, automated invoicing, and tax estimates, you can have complete confidence in keeping on top of your finances as you trade. 

The app’s realtime profit and loss dashboard gives an insight into your business’ performance and can give you the edge you need to make it a success. 

Find out more about Countingup here and sign up for free today. 

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Financial Planning

Financial planning definition.

Financial planning enables a business to determine how it will afford to achieve its objectives and strategic goals. A business typically sets a vision and objectives, and then immediately creates a financial plan to support those goals. The financial plan describes all of the resources and activities that the company will require—and the expected timeframes—for achieving these objectives.

Financial planning is crucial to organizational success because it compliments the business plan as a whole, confirming that set objectives are financially achievable.

The financial planning process includes multiple tasks, including:

• Confirming the vision and objectives of the business
• Assessing the business environment and company priorities
• Identifying which resources the business needs to achieve its objectives
• Assigning costs business costs centers included in the plan
• Quantifying the amount of equipment, labor, materials, and other resources needed
• Creating and setting a budget
• Identifying any issues and risks with the budget
• Establishing the time period of the plan or planning horizon, either short-term (typically 12 months) or long-term (2 to 5 years)
• Preparing a full financial plan summarizing all key investments, budgets and departmental costs

Generally, the financial partner role includes three areas:

• Strategic financial management;
• Determining financial management objectives; and
• Managing the planning cycle itself.
• Connecting business partners and teams to financial plan

What Is Financial Planning?

Financial planning is the process of assessing the current financial situation of a business to identify future financial goals and how to achieve them. The financial plan itself is a document that serves as a roadmap for a company’s financial growth. It reflects the current status of the business, what progress they intend to make, and how they intend to make it.

Financial plans include budgets, but the terms are not interchangeable. Budgets are just one piece of a financial business plan, which should also include other important information that contribute to a complete picture of a business’ financial health, such as detailed, itemized breakdowns of company assets; typical expenditures; and forecasts of income, cash flow, and revenue.

Typically, business financial plans also focus on specific growth goals and other long-term objectives, as well as potential obstacles to achieving those objectives. A detailed financial planning checklist can identify overlooked opportunities and highlight possible risks that will affect the growth plan.

The comprehensive financial planning process in business is designed to determine how to most effectively use the company’s financial resources to support the objectives of the organization, both short- and long-range, by accurately forecasting future financial results. Financial planning processes are both analytical and informative, balancing the use of data and metrics to predict the future as well as institutional knowledge in departments and teams.

What is Financial Planning and Analysis (FP&A)?

Financial planning and analysis (FP&A) is a group within a company’s finance organization that supports the health of the organization by engaging in several types of activities: budgeting, integrated financial planning, modeling, and forecasting; decision support via reporting on management and performance; and various special projects. FP&A solutions link corporate strategy and execution, enhancing the ability of the finance department to manage performance.

FP&A professionals provide senior management with forecasts of the company’s operating performance and profit and loss for each upcoming quarter and year. These forecasts allow leadership to assess investments and strategic plans for effectiveness and progress. They also enable improved communication between external stakeholders and management.

To map out future goals and plans and evaluate the company’s progress toward achieving its goals, corporate FP&A professionals analyze the company’s operational aspects both quantitatively and qualitatively. FP&A analysts review past company performance, consider business and economic trends, and identify risks and possible obstacles, all to more effectively forecast future financial results for a company.

In contrast to accountants, who are tasked with accurate recordkeeping, consolidations and reporting, financial analysts must analyze and evaluate the totality of a company’s financial activities and map out the financial future of the business. FP&A professionals manage a broad range of financial scenarios and plans, including capital expenditures, expenses, financial statements, income, investments, and taxes.

Budgeting, planning, modeling, and forecasting

The primary responsibility of FP&A is to anchor the company, unite the business and translate plans to actionable & informed results. . So, what is financial planning and analysis, and how does it look in practice?

Senior management creates and drives the strategic plan in a top-down way, setting net income and revenue goals, core strategic initiatives, and other high-level business targets for the company’s next 2 to 10 years. FP&A’s corporate performance management aim is to develop the financial plan needed to achieve the strategic plan created by management.

In the past, financial planning and analysis teams developed annual budgets that remained mostly static and updated annually. However, whether in tandem with a traditional budget or as a replacement altogether, modern FP&A teams are increasingly developing rolling forecasts to cope with stale static budgets. Other important tasks of FP&A teams that are related to the budgeting, planning, and forecasting process include:

• Creating, maintaining, and updating detailed forecasts and financial models of future business operations
• Comparing budgets and forecasts to historical results, and conducting variance analysis to illustrate to management how actual performance and the rolling forecast or budget compare, suggesting ways to improve future performance
• Assessing expansion and growth opportunities based on forecasts and other projections
• Mapping out capital expenditures and investments, and other growth plans
• Generating long-term financial forecasts in the three- to five-year range

Decision support and reporting

FP&A reports variances and forecasts, naturally. However, the team also advises management using that data, offering support on decisions concerning performance improvement, risk minimization, or risk benefit analysis of new opportunities from outside and within the company.

One primary piece of this the FP&A team typically generates is the monthly budget versus actual variance comparison. This report explanations of variances; analysis of historical financials; an updated version of the forecast with opportunities and risks related to the current stage of plan; and Key Performance Indicators (KPIs). Ideally, this report or analysis offers leadership information sufficient to identify ways to meet specific goals or optimize performance, and answer imminent questions of stakeholders. However, the true goal of the budget vs. actual report should be to inform the business around gaps or opportunities that inform the future.

Other ongoing pieces of the FP&A team’s reporting and decision support role include:

• Using key financial ratios such as the current ratio, debt to equity ratio, and interest coverage ratio to gauge the overall financial health of the business
• Identifying which company products, product lines, or services generate the most net profit
• Determining which products, product lines, or services have the highest and lowest profit margins—separate from total profit
• Assessing and evaluating each department’s cost-efficiency in light of the percentage of total company financial resources it consumes
• Collaborating with departments to prepare and consolidate budgets into a single corporate budget
• Preparing other internal reports in support of decision making for executive leadership

Special projects

Inevitably, the FP&A team works on special projects, depending on the size and needs of the business. For example:

Capital allocation. How much of the organization’s capital should be spent, and on what? Based on factors such as return on investment (ROI) and comparisons with increased stock dividends, different possible investments, and other ways the business could utilize its cash flow, are the company’s current investments and assets the best use of excess working capital?

Market research. What are the sizes and contours of a given market in which the organization may have a competitive advantage? Who are its laggards and leaders, and what potential opportunities does it hold for the company?

M&A. Which potential buy-side support, acquisition targets, integration, and divestiture opportunities exist for the company?

Process optimization. How can the company improve problems of process and workflow inefficiency? How can tools and technology in use by the business speak to and work with each other more effectively?

Ultimately, the FP&A team provides upper management with advice and analysis concerning how to best deploy the organization’s financial resources for optimal growth and increased profitability, while avoiding serious financial risk.

What is Corporate Financial Planning and Analysis?

Corporate financial planning is the process of determining what a company’s financial needs and goals for the future are, and how best to achieve them. Corporate financial planning considers the individual circumstances of the company as well as its broader economic context to determine which activities and investments would be most advantageous and appropriate. Generally, because short-term market trends are more predictable, short-term corporate financial planning involves less uncertainty and more readily adaptable financial plans.

Balanced corporate financial planning should elucidate how the company can achieve its goals and priorities while upholding its values. A financial plan for a corporation achieves at least two aims.

First, it forces management to think about the company’s prospects for business success objectively by basing their analysis on company finances. It also gives lenders and investors a good reason to invest into the business performance, by showing the growth and profit projections. Unrealistic or unbalanced financial plans or plans that understate profits tell investors to reconsider their investment or evaluation.

As a basic matter, three financial statements form the core of a corporate financial plan: income statement, statement of cash flow, and balance sheet. These statements clarify how much profit the business earns, and how much cash actually comes in, compared to the income reflected in accounts receivables. They also detail the relationships between corporate liabilities, corporate assets, and owner equity.

What is the Financial Planning Process?

The financial planning process results in the development of a financial plan, a financial forecast, or both. There are several well-understood steps in this process, and they often come out of sequence, depending on the deliverable or project at hand. However, it’s often simplest to think about these as steps in financial planning as financial planning tips, all of which are parts of a larger, flexible financial planning process.

With that in mind, these key components of financial planning for businesses are, in a sense, a set of best practices for your financial planning checklist.

Forecast revenue

Project revenue or sales for the next three years in a spreadsheet, or even better, in Planful. You’ll track numbers at least monthly in year one, and quarterly in years two and three.

Ideally you want to include sections that track unit sales, pricing, units times price to calculate sales, unit costs, and units times unit cost to calculate COGS or cost of goods sold, also called direct costs. Calculate gross margin, which is sales less cost of sales, and it’s a useful number for considering a new line of business or a new product expansion.

Budget expenses

Here you want to determine the actual cost of making the revenue you have forecasted. Differentiate between fixed costs such as payroll and rent and variable costs such as most promotional and advertising expenses. Lower fixed costs mean less risk; higher fixed costs may signal a need for reduced risk tolerance.

Remember, this is not accountancy, but a forecast, so you will have to estimate things such as taxes and interest. Use run rates or average assumptions whenever possible, and estimate taxes by multiplying estimated profits by estimated tax percentage rate. Then estimate interest by multiplying estimated debts balance by estimated interest rate.

Project cash flow

Project cash flow, or dollars moving in and out of the business, in this statement is based partly on balance sheet items, sales forecasts, and reasonable assumptions.

An existing company should have historical documents to base these forecasts on, such as balance sheets and profit and loss statements from years past. A new business which lacks these historical financial statements can project a cash-flow statement broken down month by month.

Remember to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on when compiling a cash-flow projection so you are not reliant on collecting 100 percent to pay your expenses. Some financial planning platforms build these formulas to make these projections simpler.

Project income

The income projection is the company’s pro forma profit and loss statement or P&L, which offers detailed business forecasts for the coming three years. To project income, use expense projections, sales forecasts, and cash flow statement numbers. Sales minus cost of sales equals gross margin. Gross margin minus expenses, interest, and taxes equals net profit.

Compile assets and liabilities

To deal with assets and liabilities that project the net worth of your business at the end of the fiscal year but are not in the profit and loss statement you need a projected balance sheet. Some of these, such as startup assets, are obvious and affect just one part of the process. However, others are less apparent.

For example, although the profit and loss reflects interest, it does not reflect repayment of principle. This means that loans and inventory register only as assets, but only up until you pay for them.

Cope with this by compiling a complete list of assets, equipment, real estate, and an estimate month by month of inventory if the business has it, accounts receivable (money owed to the company), and cash the business will have on hand. Then compile a complete list of liabilities and debts, including outstanding loans.

Conduct breakeven analysis

The breakeven point is when the expenses of the business match volumes or revenue. Undertake this analysis using the three-year income projection. Overall revenue will exceed overall expenses, including interest, within this period of time if the business is viable. Potential investors must engage in this critical analysis to ensure they are investing in a healthy business that is fast-growing and maintains reasonable profit.

Put the plan to work

Many companies work hard to create a financial plan for small business, only to ignore it as soon as it has been created. Placing all of the focus on creating the plan is a major error, because it is a powerful management tool. It is a better practice to compare actual numbers in the profit and loss statement with projections in the financial plan once a month, and use that data to revise future projections.

Compare statements over time

Undertake a financial statement analysis to compare specific items and entire financial statements over time—even the statements of the business to those of other companies. Conduct a ratio analysis to determine the prevailing industry ratios for profitability analysis, liquidity analysis, and debt. Measure the business both against its past performance and other similar businesses by comparing these standard ratios. You can also use the business plans from similar companies as financial plan examples.

Pitch with past plans

Include past financial plans as supplementary documentation of the business’s financial history as the organization applies for a loan or works to attract investment.

Use financial planning software

Obviously, this is a tremendous amount of dynamic information and calculation, making financial planning software a good option for many teams assembling a business plan’s financial section. These digital financial planning tools also enable visual financial projections such as bar graphs and pie charts.

What Should Financial Planning Include?

All business financial plans should include: a profit and loss statement; a cash flow statement; a balance sheet; a sales forecast; a personnel plan; business ratios; and a break-even analysis.

Profit and loss statement

The profit and loss statement is a financial statement that goes by several names, including P&L, income statement, and pro forma income statement. By any name, the profit and loss statement is essentially an explanation of how the business either made a profit or incurred a loss over a specific time period—typically three-months. The table lists all revenue streams and expenses, along with the total net profit or loss.

Depending on the type and structure of the business, there are different formats for profit and loss statements. However, in general, include in the profit and loss statement:

• Revenue or sales
• Cost of sale or cost of goods sold (COGS), although services companies may not have COGS
• Gross margin, which is revenue less COGS

Revenue, COGS, and gross margin are at the heart of how most businesses make money.

The P&L should also include operating expenses, those expenses that are not directly associated with making a sale but that are associated with running the business. These are the fixed costs that fluctuations in business really don’t affect, such as utilities, rent, and insurance.

The P&L statement should also include operating income:

• Gross Margin – Operating Expenses = Operating Income

Typically, operating income is equivalent to EBITDA: earnings before interest, taxes, depreciation, and amortization—although this depends on how the organization classifies expenses. Another way to think about operating income is the amount in profit before tax and interest but after operational costs.

The net income is the bottom line of the business, found at the end of the profit and loss statement. It represents going back to EBITDA and going a few steps further, subtracting expenses for interest, taxes, depreciation, and amortization to find net income:

• Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income

Cash flow statement

Just as critical as the P&L, the cash flow statement is typically a per-month explanation of how much cash the business brings in, pays out, and the ending cash balance. This detailed map of how much cash is in play, where it originates and goes to, and the cash flow schedule itself, is essential to any healthy, functional business.

The cash flow statement assists management in understanding the difference between the company’s actual cash position and the reported income on the profit and loss statement. It is just as important to clearly lay this information out for investors and lenders in the cash flow statement to raise funds.

Some businesses might be profitable but still lack the cash to pay expenses and continue to operate. Others might have the cash on hand to stay open even if they are unprofitable—cash flow break-even is vital to future company scale.. Therefore, the cash flow statement is important to understand.

There are two methods of accounting in the cash flow statement—the indirect method and the direct method. Which you select can affect how the cash flow statement and profit and loss statement compare, and accrual accounting might better reflect actual cash flow than cash accounting for many businesses.

Balance sheet

The balance sheet is a picture of the financial position of the business at a specific point in time. It reflects how much cash and equity is on hand, how much is in receivables, and how the business owes vendors and other debtors.

A balance sheet should include:

• Assets: Cash, inventory, accounts receivable, etc.
• Liabilities: Debt, loan repayments, accounts payable, etc.
• Equity: Owners’ equity, investors’ shares, stock proceeds, retained earnings, etc.

Ideally, as the name suggests, the balance sheet items should balance out. Total assets on one side should always equal total liabilities plus total equity.

• Assets = Liabilities + Equity

Sales forecast

The sales forecast is the FP&A team’s forecast or projections for a set period of what they think will generate revenue. Particularly if a business is seeking investment from investors or lenders, the sales forecast is among the fundamentals of financial planning, and should be part of a dynamic, ongoing process.

The sales or revenue number in the profit and loss statement and the sales forecast should be consistent. In fact, many types of financial planning software automatically connect these projects. Develop, organize, and segment an individualized sales forecast to meet the needs of a specific business.

Personnel plan

The personnel plan identifies the resourced structure and positions needed to run the company operations. How important the personnel plan is depends in large part on the company.

A sole proprietor doesn’t need much of a personnel plan. A large company with high labor costs requires a detailed personnel plan and should invest the necessary time in determining how personnel impacts the business.

A complete personnel plan should describe the expertise, training, and market or product knowledge of each member of the management team. Some businesses might find listing entire departments as a better tactic for the personnel plan.

Business ratios and break-even analysis

To calculate standard business ratios, all that is required are the profit and loss statement, cash flow statement, and balance sheet. Common profitability ratios and liquidity ratios include the gross margin, return on investment (ROI), and debt-to-equity ratios.

The break-even analysis determines how much revenue a business needs to cover all of its expenses, or break even. To assess the break-even point for the business, find the contribution margin—those are the costs necessary to generate revenue.

For management to get an accurate sense of how high revenue must be for the company to stay profitable, they must subtract those contribution margin costs as well as fixed costs from the profit to find that break-even point. For example, most businesses have some labor costs as well as things like insurance and rent—those are fixed costs. Then there might be contribution costs per sale, such as costs per meal prepared in a restaurant or costs per package shipped or outfit sold in a store. A functional business has to cover them all and generate additional profit to break-even.

What are the Steps in Financial Planning?

There are many routes toward creating a solid financial plan. A well-designed financial business plan thoroughly clarifies business goals in financial context and helps a company plan for the future. Although there is no one correct way to engage in financial planning, understanding some basic steps in financial planning can make the process easier.

Review your strategic plan

The strategic plan of the business is usually where comprehensive financial planning services start. If the business lacks such a plan, it’s time to develop one.

As management reviews the plan, they should consider several questions for the coming year:

• Will we want or need to expand?
• Will we need to hire talent/staff?
• Will we need more equipment?
• What about additional new resources?
• Are there any other plans that we have in mind this year that will require resources?
• How will these plans impact cash flow?
• Will we need financing? If so, how much? Can we revise our plans? Should we?

Fully assess the financial impact of all spending on major projects over the next 12 months.

Develop financial projections

Develop financial projections based on anticipated income and anticipated expenses. Sales forecasts are the basis for anticipated income, while things like costs for supplies, labor, and other overhead form the basis for anticipated expenses. Typically these financial projections will be monthly, but weekly projections may be better for businesses focused on cash optimization.

To make a financial projection, the business will compare project costs from the strategic plan to these anticipated costs and expenses. In other words, the team will look at the costs of doing business as normal plus the costs of adding in the projects, keeping in mind that sales will not always convert to cash immediately.

To create a financial projection, management often also must refer to a projected profit and loss or income statement and a projected balance sheet which it may need to develop in tandem with the financial projection. To assist the team in evaluating the impact of each possible scenario, it can be useful to include various outcomes—optimistic, most likely, and pessimistic—for the projections.

Finance’s advice may be essential to developing financial projections. However, ensure that leadership and anyone who will be seeking financing and explaining the plan to investors and lenders understands the projections and how they fit into the plan.

Arrange financing, plan for growth and contingencies

Determine the financing needs of the business using the financial projections. Well-prepared projections presented to financial stakeholders in advance of deadlines are always more reassuring.

How will the business grow in the coming year? Turn to the FP&A team to make smart investment and growth decisions.

Keep emergency sources of money on hand in case business finances suddenly pivot.. Maintaining credit or a cash reserve are possibilities. Keep laser focus on cash management and optimization.

Financial planning is a dynamic process. Compare projections to actual results throughout the year to see if they are accurate or require adjustments. Monitoring assists businesses in spotting financial problems before they are out of control, and ultimately in identifying smarter growth opportunities.

Consult and use tools

For some businesses, expert help in the form of financial planning services may be necessary to create a financial plan. For many others, the right financial planning software and other financial planning tools are critical to the job.

Why is Financial Planning Important?

A financial business plan has two main purposes. A business needs a financial plan that proves the business will grow, scale, and provide shareholder value over the long term.. Ensuring growth, scale and consistent shareholder value is vital to all stakeholders in the business. . Similarly, the financial plan proves to lenders and banks that the business will be able to repay any loans.

Just as critically, though, a financial forecast benefits leadership. A realistic projection of how the business is likely to perform prepares management and staff. A financial plan is a guide to running a healthy business and should be considered a living document.

There are several other reasons why financial planning is important to a business:

Credibility

Be realistic when developing a financial business plan, make sure your forecast or plan mirrors business reality. However, if you can demonstrate that your financial plan is realistic in a step-by-step way, your financial forecast will be credible. For example, if you break down your figures into components or channels to provide more detailed estimates, you may be able to reassure lenders, investors, and leadership more.

Balancing the balance sheet

Balance sheet optimization is one of the powerful benefits of financial planning. Identifying and assessing all business assets and liabilities and planning in advance how and when to pay all taxes, salaries, expenses, overheads, and miscellaneous costs is part of this process. Another strategy is to divide the business into functions or departments and prioritize them to better identify which important and urgent investment areas.

Long-term visibility

Efficient, comprehensive financial planning gives businesses improved long-term visibility into fund allocation. Analysis of how funds are deployed within a business can positively affect productivity and revenue and offer deeper insight into the health of the business. This kind of visibility also empowers more insightful decision making.

Strategic marketing

No business has endless money to burn on marketing, and a well-designed financial plan helps identify which marketing strategies are most productive for that particular business. Business marketing strategies frame tasks for a company, from planning to execution and implementation.

The marketing team may well be experts across the board when it comes to marketing channels and strategies. However, only actions that generate more business in measurable ways should be planned for the company. Ultimately, finance partnership with the business assesses whether the metrics in the reports justify ongoing marketing campaigns, so for every strategy the team formulates for business, they should highlight the ratio of expense and profits.

Monitoring assets (In’s) and liabilities(Out’s)

The financial team protects the stability of the business by routinely monitoring its assets and liabilities and the ratio of liabilities and assets. This ongoing activity provides insight into needed improvements and actionable ways to decrease liabilities and increase assets.

Measuring profit and loss

The finance team compiles financial planning reports to support evaluation of organizational profits and loss. These reports also showcase the net profits and their main causes, assisting management in evaluating which strategies worked best for the business.

What are Financial Planning Benefits?

It is easier for businesses that focus on financial planning to grow their revenues at a quicker pace than it is for companies that lack an efficient financial planning process. Corporate financial planning offers decision making support in the form of forecasts or budgets. It assists businesses in managing costs and building revenues by highlighting where they should focus resources for optimal effectiveness. Impactful financial management nurtures more growth by freeing up more funds for expanding operations, marketing, and product development.

As a broader matter, strategic business planning develops tasks and determines who will be responsible for delivering those tasks in a timely way, thus determining the company’s direction. Financial planning aligns to the strategic plan which then translates to actionable outcomes and measurable results.

The financial plan projects the revenues the team thinks will result from implementing the strategies and the expenses taking those actions will require. Senior management, operations, and marketing personnel are all deeply involved in strategic financial planning, and finance is focused on developing deep business partnerships, connecting the business and tracking the results. Here are some of the specific benefits of financial planning:

The starting point for the financial plan as a whole is what the company aims to achieve in the coming quarter, year, three years, five years, and longer. This is because it is essential to establish that a real need for the business exists, and this company in particular fills the need—a product/market fit.

Many startups devote several years to establishing that product/market fit as they build out and refine their product. In fact, achieving that kind of fit, with smaller checkpoints along the way, is a good one-to-two year goal. In these early stages, the financial plan can reveal to the team that it doesn’t yet make sense to set massive marketing KPIs or sales targets as the refinement process continues.

Business alignment

The financial plan sets forth clear cash flow expectations. For new businesses, the amount of cash going out is often more than is coming in, but it remains important to determine an acceptable level of expense, and ensure the business stays on track, and the statement helps achieve this. Cash flow management is also an important part of a financial plan, so that even team members who are not seasoned finance experts can efficiently and accurately track cash flow as needed. For all of these reasons, a solid financial plan assists with sensible cash flow management.

Agility, collaborative and actionable budgeting

Closely related to both cost reductions and cash flow management, it is essential to know the best way to spend the funding that is actually available to the business, whether through investments, revenue, or some other source. The business should break down the overall budget for the quarter or year into separate budgets for specific teams such as customer support, marketing, product development, and sales. This way management can ensure each budget accurately reflects the team’s productivity and relative importance.

Budgets also allow each team to build within a known set of limits. Team members can effectively plan campaigns and other tasks because they know what resources are available. Furthermore, it is always simpler to track team or project budgets than to monitor overspending at the company level.

Identify spend reductions

A financial plan enables the FP&A team to identify ways to reduce spend in advance. Building a financial plan includes a careful look back over the speed of current growth and what has already been spent. The goal with this kind of spend control is to detect over-inflated costs and unnecessary spending in the past to eliminate it in future budgets. The result from this kind of periodic review is keeping spending in line with expectations and making better use of resources.

Mitigated risks

The finance team assists the business in avoiding risk and navigating pitfalls when they occur. Many risks, from fraud and other forms of economic crises, are predictable and avoidable.

A strong financial plan should account for some uncertainty, business insurance expenses, and other unexpected expenses, and set aside resources to cope with them. Some teams create several financial forecasts with various business outcomes: one that shows results under conditions with more revenue, and others under conditions with less.

Especially during economically volatile times, prepare for many contingencies in the financial plan, which should clarify how the roadmap for the business will change as growth fluctuates.

Crisis management

During a crisis in any business, the first move is typically to review and re-build strategic plans. Without strategic plans in place, a crisis response is merely improvisational.

As the coronavirus crisis and surrounding financial crisis in 2020 and beyond have revealed, finance teams and leaders must constantly reforecast to deal with adversity. Businesses are developing new financial plans quarterly or even monthly to cope, and nobody truly knows when the crises will end.

The financial-planning team should help get through this particular challenge and other crises by focusing on several steps, all using their ongoing financial planning process. The first step in crisis management is to reassess new business operational baselines. Next, the team should use the plans and feedback to build a reality-based plan they will review many different business scenarios.

The team will next determine the business’s general direction and align on a financial plan that fits with this possibly new direction, in context. Then they will identify the best actions for the company to take, as well as any trigger points that could require further changes. A strong financial planning process, FP&A team, and store of financial statements can all make these crisis management steps much simpler.

Be opportunistic around fundraising

Any prospective bank, lender, or investor needs to see financial planning in the form of a business plan. A financial plan must tell a story to investors, while communicating the trustworthiness of the projections.

Roadmap for growth

A financial plan clarifies both the current financial situation of a business, and helps it project where it intends to be in the future. This may be reflected in various specifics, such as number of employees to hire; markets to penetrate; or new services or products to sell. The financial plan itself augments these goals with specific data, such as a budget for a particular number of new employees, including talent and recruitment costs and other resourcing needs.

Transparency

Of course transparency in the financial plan is critical for lenders and investors. But it’s just as important for the team and staff. To ensure your team that the business is healthy, following a solid plan towards growth and scale, and in good leadership hands, a transparent financial plan is key.

Does Planful Help With Financial Planning?

Yes. Planful delivers a continuous planning platform elevating the financial conversation, aligning finance’s need for structured planning with the business’ need for dynamic planning, and enabling your organization to make better decisions more confidently, quickly, and strategically by uniting the business together.

Comprehensive budgeting, planning, and forecasting features offer the financial planning and analysis team the control, structure, and partnership with the business they want. Meanwhile, dynamic planning features empower business leaders and finance with individualized, agile models and plans to manage for multiple business outcomes

Planful also delivers complete financial consolidation, including inter-company eliminations, partial ownership rules, and statutory reporting. The platform also ensures your business meets every management, financial, regulatory, and ad hoc reporting need with a robust library of delivery options and reporting formats.

Planful can help your business:

• Reduce reporting time up to 90% by automating manual processes
• Replace annual planning cycles with rolling forecasts to better respond to changing business conditions with increased agility, more accurate financial plans, and optimized financial results in real-time
• Leverage data from across the business to drive strategic planning, long-term value, and growth
• Free up time for collaboration and analysis by automating tedious, manual tasks in the planning process
• Simplify complex ad-hoc financial analysis and explore financial insights with greater confidence and speed
• Reduce time to close by up to 75% by automating data collection, aggregation, and validation across the organization with low risk and high security thanks to robust, searchable audit logs and strong internal controls
• Create impressive, professional financial and management reports that share insights with clarity
• Improve collaboration and workflow with accurate, current data

Find out more about Planful’s Financial Planning solution here.

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The Importance of Financial Planning for your Businesses 

When you’re starting out and putting in the hours to turn that business dream into a functioning reality, it can be difficult to think of next week – never mind next year. However, it always pays to plan ahead, especially when it comes to the financial future of your business.

Business Financial Planning:

Financial planning for your business helps you to forecast future financial results and decide how best to use your company’s current financial resources in order to realise both your short-term and long-term plans. Because planning involves looking well into the future, it is a highly creative thinking process as well as an analytical one, and you might need to call in the experts to help you juggle both these aspects of your financial roadmap.

How can financial planning help me achieve my company goals?

Having a strong financial plan for your business is probably the most important single thing that you can do to help yourself succeed.  It’s your roadmap, your guideline, a reminder of what your goals are–what you are trying to achieve in the short term and the long term. It is so important that possible investors, bankers, and creditors won’t even set up a meeting with you if you don’t have a financial plan in place. We cannot state this clearly enough – get your business’s financial function set up effectively from the start, and the rest will follow. 

Here are 5 benefits of financial planning for your business:

Financial planning can help you:

• Manage your cash flow properly: Good financial planning allows you to set clear expectations regarding your cash flow so that you know where you can spend and where you need to cut back. This is especially important after the initial startup expenditures.
• Allocate your budget: Financial planning for businesses makes for clever budget allocation and allows all players within your company to understand where and how money will be spent, ensuring less friction. 
• Set realistic goals: If you don’t know how much you have to work with, you can’t set realistic financial goals that work within your budget. Your vision might be lofty, but it pays to be realistic.
• Mitigate your risk: A good financial plan should prepare for unexpected expenses, as well as times of lower income. That way you can ride out the bad times, but keep your doors open.
• Plan a roadmap for the future: Financial planning helps you clarify your company goals and communicate them to your employees and other stakeholders. This makes it easier for the business owners and top management to make more good decisions when planning to scale.

Most people have some idea of what they would like to achieve financially, but they don’t always know how to go about setting realistic goals. Companies that put in the time and effort to work out an effective and strategic financial plan , will be able to allocate their time and resources effectively, allowing them to expand while ensuring good cash flow and healthy accounts.

Does my business need a financial plan?

In short – yes. If money is the lifeblood of your business, then you cannot afford NOT to have a sound financial plan in place. A good financial plan that you refer back to, will allow you to spot anomalies and positive or negative trends in your finances so that you can take the necessary corrective action. This means that you can make your money work for you – spending when and where it’s needed for growth, and cutting back on those outgoings that are becoming a financial black hole. 

We have found that business owners and entrepreneurs are often so involved in the day-to-day running of their businesses, that they don’t have the time and energy to think of long-term financial planning and strategy. This is where we recommend a financial consultant or CFO with the expertise to see what you might miss.  Many entrepreneurs are making use of the services of a virtual CFO instead of hiring full-time, as this allows them access to expertise without the cost of a permanent hire.

What should be included in a business financial plan?

All business financial plans , whether you’re just starting a business or building an expansion plan, should include at least the following:

• Revenue or income – what money is actually coming into your business.
• Your basic fixed operating costs such as rent and utilities.
• General monthly expenses such as marketing etc.
• Costing of your goods or services – take the time to note every cent and every minute that you put into producing your product or service.
• Total profit or loss – the formula for this is income minus cost of goods or services.
• Actual operating income (total profit minus expenses).

After you have these basics down and feel that you have at least an overview of the financial health of your business, it is important to remember that ‘big-picture’ higher-order financial planning and strategizing  are also necessary for the long-term viability of your business. Finance is complex and the finance function is often one of the last frontiers to get fortified by the leadership team. It is also one that becomes increasingly more important as you head towards further expansion, possible fundraises and potential acquisitions. Getting the numbers right is critical. So is developing the right strategy based on analysis, forecasts , and smart financial management . This is where you need the advice of an expert CFO or the assistance of a virtual ‘CFO-as service’ company like Outsourced CFO.

At Outsourced CFO we can assist with getting your financial planning off to a solid start,  in order to help you with building long-term profitability for your business. Reach out to us and let’s get your business ready for growth.

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• Business Financial Planning: How to Create a Business Financial Plan?
• Post author: fincart
• Post published: January 8, 2024
• Post category: Financial Planning

Table of Contents

In this fast and competitive world, the success of a business depends on how prepared they are. Prepared to adapt, to keep up with rivals, to handle the unexpected, and to seize opportunities as they arise. Through Business Financial Planning, businesses can fortify their foundation for success. They can gain insights by making use of their past performance data, their current situation, and trends to make predictions about future performances. They can make efficient use of their resources to maximise profit and wealth to keep all stakeholders happy. Since financial planning is so important for businesses, they hire a business financial consultant to help create a solid financial plan for sustained, long-term growth.

In this blog, let us understand the meaning of business financial planning, how it benefits businesses, how you can create a financial plan for your business, and see how different business financial plans are from individual ones.

What is Business Financial Planning?

With business financial planning, you create the blueprint for your business’s financial future. It details the financial management of your overall business plan. Through it, you decide the allocation of resources, monitor cash flows, decide the budget, manage liabilities, make projections and forecasts, manage risk, and much more, ultimately improving efficiency and achieving your short and long-term business goals. Basically, doing financial planning for business gives you insights to make smart and sustainable decisions. It is a comprehensive approach that ensures that your business not only survives but thrives in the ever-changing market dynamics. It needs to be strong and built on a solid foundation because when you try to grow your business and seek investors or loans, your financial plan will become the bedrock of credibility and confidence. 

The importance of financial planning in business

For any business, the Importance of Financial Planning cannot be overstated. It is essential to the success of any business. Here’s why – 

• Through financial planning, entrepreneurs gain insights that keep them informed and improve their decision-making.
• A financial plan outlines the business strategies that an entrepreneur will use over the course of the next month, quarter, or financial year. 
• Entrepreneurs can use financial plans to assess their past and current situation, the progress of their goals, and their resources. It helps them keep track of their financial performance, identify areas of improvement, and make informed decisions to ensure the optimal allocation of resources for sustained growth and success.
• When the resources are optimally allocated, business owners can increase their profitability and sustainability.
• Financial plans can also help identify risk areas in advance which enables business owners to develop strategies to mitigate them. 
• If you are a new business owner or are looking to start a business, it’s important to seek guidance from experts. A business financial planner can make sure you cover every essential component in your plan and ensure it aligns with your business goals. 
• Consider the local aspects of your business and ask yourself, “Can a business financial advisor near me help me get started with my financial planning?” With help from a local business financial consultant, you will receive personalised insights tailored to the specific needs and challenges of your new venture while keeping in mind the competition and market trends in your area. 
• Explore different business finance consulting services, and leverage the expertise of professionals who can help your business grow and succeed.

Benefits of financial planning for business

A well-crafted business financial plan lays the foundation for stable growth. Let’s list down some ways in which making a financial plan can benefit your business – 

1. Cash Flow Management 

As the name suggests, cash flow refers to the money coming in and out of your business. Usually, when a business is new, it will spend more money than it will earn, so your expectations about cash flow should be realistic. Through a financial plan, you will be able to forecast and manage cash flows effectively and avoid underflows or overflows. 

2. Risk Management 

A business faces many different types of financial risks , such as credit risk, liquidity risk, legal risk, operational risk, systematic risk, and market risk. A financial plan helps a business stay prepared for such dangers through forecasts and scenario planning. It will also compel you to create contingencies to tackle unexpected circumstances. 

3. Creates Transparency 

A financial plan creates transparency among investors, executives, and employees. If you want to hire good employees, they would want to know how stable your business is, and how likely it is to succeed in the future. A good and transparent financial plan attracts investors and high-quality employees. 

4. Cost Reduction 

A part of your financial plan is your budget. When you assess your expenses, you will likely find areas where you can make cuts to save more money. Cost cutting will help your bottom line and make sure you utilise your resources more efficiently.

Also Read: What is Cost Reduction Strategy? A complete Guide

5. Funding Opportunities 

A solid financial plan enhances your credibility and attracts potential investors. Investors will see how their money will be used and study your past performances. Similarly, if your business needs loans, banks will scrutinise your liabilities and how you’ve managed them. A good financial plan can ensure your business gets all the funding it needs.

6. Crisis Management 

Through projections, forecasts, and scenario planning, you will see any financial crisis coming from far away. But there are cases when extremely unexpected events happen, such as the 2008 global economic crisis, or the COVID pandemic. A well-prepared financial plan not only enables you to identify potential crises in advance but also equips you with contingency measures to deal with such events. This includes having a comprehensive risk mitigation strategy, maintaining a sufficient cash reserve, and establishing clear communication to keep stakeholders informed. 

7. Professional Guidance 

These benefits highlight why businesses invest heavily in business finance consulting services. Seeking guidance from a business financial consultant comes with its own advantages, the first being benefiting from the specialised knowledge and experience of financial professionals. A business financial planner can also tailor your financial plan according to the unique needs and goals of your business, and help you by regularly reviewing and adapting your financial plan to changes in the market.

How to Develop a Business Financial Plan?

Creating effective financial plans for businesses demands a thoughtful approach, honest assessment, and careful implementation. Understand that this plan is going to be your guide for the future, and how closely and effectively you follow it will determine whether or not you achieve your business goals. Here are three simple steps you can take to start creating a successful business financial plan – 

A. Setting Financial Goals:

Start by setting attainable short-term and long-term financial goals that are aligned with your business vision. These objectives should be clear, measurable, and defined with a time horizon. Ask yourself some questions –  Where do I want my business to be in the next year or five? Do I plan to expand my business? If so, in how many years? Do I want to hit a specific revenue target to attract investors? Be specific with your questions, as the answers will help you set realistic goals. Establishing such goals will provide a strategic framework and help you focus your financial efforts and resources toward specific milestones, which will ultimately steer your business in the direction you wanted and planned for. 

B. Budgeting Techniques

A budget can help you dictate the flow of cash. It is a framework that includes your total income, total expenses, and investments and reserves. Assess your situation and note down all your income and its sources, such as sales income, investments, donors, investors, or other revenue streams. Now take a thorough look at your expenses such as daily operational costs, marketing, advertising, employee salaries, research and development of products, equipment, and technology. Of course, if you want to profit, your revenue should exceed all your expenses. A budget helps with exactly this, and more. It will allow you to allocate resources to different departments efficiently. It is essentially a constraint, and everyone must work within it. When you break down your budget, you’ll find it easy to track and manage it.

Also Read: Understanding Budgeting in Financial Management

C. Forecasting and Projections:

Now you have to create financial projections for different components such as income statements or balance sheets. These take into account the past performance, market trends,  expenses you are expecting, and your sales forecast for the next month, quarter, or year. If you own a business that works with a very tight cash flow, you can also consider making a weekly projection. 

Financial projections are important as they are shared with stakeholders, and help you navigate uncertainties and make sure that you remain on track toward your business goals. Take a look at your goals and work out how much it will cost you to reach them. Do this for a variety of scenarios – best case, worst case, or likely scenarios. This comprehensive scenario planning will help you stay prepared for any challenges and improve your decision-making. 

Other than these steps you should make sure to plan for contingencies. Even though forecasts and projections give you a good idea of where you’re likely headed, they can’t predict the future. The world of finance especially is full of uncertainties, and a business should be prepared for them. 

Make sure you have a decently sized cash reserve during slow periods or market downturns. Other things include making sure you have access to quick credit lines and liquid assets. Remember that financial planning doesn’t just stop after you craft the document. It is a continuous process, which means you should monitor and review your plan regularly and accordingly make adjustments. 

Individual vs. Business Financial Plans

Here is how a business financial plan differs from that of an individual:

Conclusion:

Every business financial plan should clearly state three things – How the business will make its money, what it needs to do to achieve its goals, and its operational budget. We’ve seen the many benefits of a business financial plan, and how assessment, financial goals, budgeting, and projections can help you craft one. We’ve also seen that financial planning for business is a lot more complex and bigger in scope than individual financial planning. As a business owner, you will be answerable to your investors, employees, banks, and other stakeholders, so your financial plan needs to be transparent and have a solid base.

It would be wise for any business owner to consult with a business financial advisor. This professional guidance can provide valuable insights and expertise while crafting a comprehensive financial plan that is suited to your specific industry, goals, and competition. Their expertise will also help you with other aspects, such as risk management, investment decisions, and your optimising capital structure. By having them by your side, you can make informed decisions, and ensure the financial stability and growth of your business.

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What is Business Financial Planning? Processes and Definition

What is Business Financial Planning? Definition

Business financial planning (BFP) is the process of creating a financial roadmap to help a business achieve its objectives. 

For example, a business might want to increase profit by 10% in a given year.

To that end, they will embark on some business financial planning to determine areas to improve sales, cut costs or improve profit margin in order to achieve that goal. 

Who Conducts Business Financial Panning (BFP)?

BFP is performed by both startups and established companies.

When a new business is launched, strong business financial planning is an important part of standing up that business.

Image Source:  Business Financial Planning

A new company needs to have a firm grasp of the numbers at play in their industry.

They should have a plan for how much money they need to run their operation, how much money they need to make to stay operational and a firm grasp of where all that money will come from. 

Business financial planning is also very important for established companies .

Every month, quarter or year a business will have goals that they are working towards, and a strong plan helps them to achieve those benchmarks. 

Business financial planning is also important when a business plans to take a significant business strategy, such as expanding a product line or expanding into a new territory. A clear financial plan can help managers understand if these types of strategic objectives are feasible. 

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What Is Financial Planning & Analysis? Definition, Process & Examples 

What is Financial Planning & Analysis (FP&A)?  At its core, FP&A is a holistic approach to strategic financial management.  The approach includes planning, budgeting, forecasting and analysis to secure a company’s health and growth trajectory.  FP&A combines financial data, operational data and market insights to provide a systematic view of the company’s current and future financial health. 

FP&A requires a deep understanding of the operational dynamics of the business, relevant industry trends and the broader economic landscape.  Serving as the architects of financial strategy, FP&A professionals craft detailed plans aligned with the company’s long-term goals and objectives.  How?  By providing a bridge between the raw data of day-to-day business operations and the strategic insights needed by senior management to make pivotal decisions. 

The FP&A team typically reports to the CFO.  In turn, the CFO seeks to better understand the current state of the company’s financial position and predict future revenue, expenses, profits and cash flows through data.  CFOs therefore often invest in dedicated FP&A software to aid in FP&A analysis. 

Why is FP&A so important? What does process entail, and how does it work in action? Keep reading to find out (and to check out some of our industry examples). 

The Strategic Importance of FP&A 

FP&A’s strategic importance cannot be overstated.  In today’s volatile and competitive business environment, the ability to plan effectively, anticipate future financial challenges and navigate strategic decisions with confidence is critical.  FP&A provides the foundation for this capability; it offers a comprehensive and forward-looking view of the company’s financial health.  Ultimately, FP&A enables businesses to be proactive rather than reactive, positioning them for sustainable growth and success. 

What Is the FP&A Process? 

FP&A aims to answer important financial business questions.  Below are just some of the key questions FP&A teams seek to answer throughout the process: 

• What is our breakeven point? 
• If revenue declines by 10%, will the company still be profitable? 
• What are the financial forecasts for the next year/quarter, and how do they align with strategic goals? 
• How do currency fluctuations, interest rate changes and other external economic factors affect financial performance? 
• What impact will an acquisition or divestiture have on the bottom line? 
• Should we raise debt or equity financing? 
• What is the path forward for AI/ML Finance Transformation? 

To address these complicated, organization-defining questions, FP&A uses 5 core steps to create comprehensive financial plans and analyses. Typically, these steps come after the long-range planning (LRP) and the annual operating plan (AOP) process.  

1. Strategic Planning

The journey of FP&A begins with strategic planning , through which the overarching organizational goals and ambitions are set.  As a crucial first step, this stage defines the direction and scope of all subsequent financial planning and analysis efforts.  Strategic planning thus involves high-level collaboration with various departments to ensure the financial strategy aligns with operational capabilities and market realities. 

2. Budgeting and Forecasting

Central to FP&A is the dual process of budgeting and forecasting .  Budgeting involves tactically allocating resources based on the strategic plan to set financial targets for revenues, expenses and capital expenditures.  Acting as a financial blueprint, budgeting guides spending and investment decisions over a specific period.  Forecasting, on the other hand, extends the vision further into the future using historical data, market analysis and economic indicators to predict financial outcomes.  Providing a dynamic view of the company’s financial trajectory, forecasting allows for adjustments in strategy in response to changing market conditions or internal factors. 

3. Financial Modeling and Analysis

Financial modeling is another cornerstone of FP&A, providing a framework for analyzing the financial implications of various strategic decisions and scenarios.  Through models, FP&A professionals can simulate the impact of different strategies, market conditions and operational changes on the company’s financial performance.  This analysis supports risk assessment and thus helps companies mitigate potential financial setbacks and capitalize on opportunities. 

4. Variance Analysis and Performance Measurement

An essential aspect of FP&A is the ongoing analysis of the company’s financial performance against organizational plans and forecasts.  Through identifying discrepancies between actual results and budgeted or forecasted figures, variance analysis offers insights into why these discrepancies occurred.  This continuous evaluation process helps companies refine financial strategies, optimize performance and achieve strategic goals more effectively. 

5. Reporting and Decision Support

FP&A culminates in the synthesis and presentation of financial insights to senior management and stakeholders.  This stage involves the preparation of detailed reports, dashboards and presentations that highlight key financial metrics, trends and analysis.  By providing a concise view of the company’s financial status and outlook, this step supports strategic decision-making and ensures all stakeholders are aligned with the financial objectives. 

Examples of Financial Planning & Analysis in Action 

To illustrate the real-world application and importance of FP&A, let’s explore a few examples across different industries: 

• Technology Startup:   For a fast-growing tech startup, FP&A might focus on cash flow forecasting and burn rate analysis.  FP&A essentially predicts when the company will need additional funding.  By doing so, the process helps the startup plan for capital raising activities and strategically manage its growth trajectory. 
• Manufacturing Company:  For a manufacturing company, FP&A plays a critical role in capital budgeting and cost control.  FP&A essentially analyzes the financial viability of investing in new machinery or entering a new market.  By doing so, the process helps the company efficiently allocate resources and maximize ROI. 
• Retail Chain:   For a retail chain, FP&A is crucial in inventory management and sales forecasting.  FP&A essentially analyzes sales trends and market demand.  By doing so, the process enables the company to optimize inventory levels, reduce holding costs and plan for seasonal fluctuations. 
• Healthcare Provider:   For the healthcare sector, FP&A might focus on revenue cycle management and profitability analysis by service line.  This process helps the provider understand where to focus efforts to improve financial performance and patient care. 

Conclusion 

What is Financial Planning & Analysis?  As the post above establishes, FP&A is an indispensable business partner and function that helps organizations navigate uncertainty, capitalize on opportunities and mitigate risks.  FP&A combines strategic insight with financial acumen, giving FP&A professionals a way to empower companies to make informed decisions and drive sustainable growth.  As businesses continue to operate in increasingly complex and volatile environments, the role of FP&A will only grow in importance. 

Learn More 

Looking to get started with FP&A? Check out our ebook called “ Budgeting, Planning and Forecasting .” No form fill required!  

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What is financial planning?

Key takeaways

• Financial planning involves defining your goals, understanding your financial picture, and taking steps to advance those goals.
• Financial planning professionals can help you with a variety of needs, including budgeting, investment management, and retirement planning.
• Wherever you are on your financial journey, a sound financial plan can give you peace of mind and confidence.

Financial planning can help you chart a course to get what you want out of life. By helping you figure out how much money you have and where it should go, financial planning is a way to set goals and get on a path to achieve them.

Feed your brain. Fund your future.

Financial planning is creating a comprehensive plan to reach your financial goals. By considering your whole financial life, it provides guidance on reaching both small, short-term targets as well as larger, long-term ones.

You can create a financial plan on your own or work with a professional financial planner who has the knowledge and time to integrate many aspects of finances into a plan, can identify risks and opportunities, and can help keep you on track in making progress toward your goals.

Why is financial planning important?

Financial planning is important because it helps you identify and prioritize your goals. It also aims to give you a complete picture of where you stand financially and identify changes you may need to make to increase the likelihood of achieving your goals—for example, which account types and financial products make sense for your personal situation. Some advantages of investing like compounding potential returns are realized over time so having a plan and starting early is important for the long term.

A financial plan can also help you uncover vulnerabilities, like not having enough saved in emergency savings or being underinsured. And it may make you feel more confident and comfortable with the choices in your investment portfolio when the markets go up and down. That's why having a financial plan is important for people of all ages and financial backgrounds—not just older, wealthy people. Note that a financial plan is not a set-it-and-forget-it exercise, but an ongoing process that changes as your circumstances do. Your goals as a single person may be different from those of a married couple with children, for example.

Types of financial planning

Financial planning is a broad term that can cover a range of different techniques and goals. Most financial plans include multiple types of financial planning to take a holistic view and may address some or all of the following.

Cash-flow analysis

You may think of this as budgeting . Cash flow analysis helps you get a sense of what you have coming in each month and how you're using it. You need positive cash flow so that you can generate funds to pay down debt, build emergency savings, or invest. By getting into the nitty-gritty of your cash flow, you can make conscious choices about where you want your money going and identify areas you may be able to trim or cut out entirely.

Debt management When you have multiple types of debt repayments competing for your dollars (think: credit card debt, student loans , and a mortgage), it can be difficult to figure out which you should prioritize paying first. Financial planning focused on debt management can help you identify ways to lower interest payments and strategize ways to repay your debts that work best for you while keeping you on track to meet your other financial goals and budgeting demands.

Retirement planning We all know we should be saving for later, but the question of how much to save for retirement —and in what accounts—can be tricky, particularly as you get closer to the age you hope to set up your permanent out-of-office message.

Retirement planning for those decades from retirement may be as simple as working their way up to contributing the maximum pre-tax salary allowance to a retirement account, like a 401(k) or individual retirement account (IRA) . For those near retirement, it may involve how to generate retirement income, such as figuring out which retirement accounts to draw from first, covering essential expenses, and how to manage Social Security income. A plan could give you peace of mind that you won't outlive your assets.

Investment planning Both retirement savers and those who are looking to build wealth outside of a retirement account can benefit from investment planning that aligns with their time horizon, financial situation, and risk tolerance . Investment planning can help you analyze and manage your portfolio holdings to better ensure your investments are working as well as they can for you. It may also reinforce the nature of market cycles—short-term downturns are expected but have historically always been followed by upturns, for example. Good investment planning may help keep you calm during rough stretches in the market and resist panic selling.

Education planning There are no ifs, ands, or buts—paying for an education is expensive. And it becomes even pricier if you're hoping to set aside enough for multiple children's educations. Education planning helps you figure out how much you need to save and the best strategies and accounts to cover education costs from pre-K to post-grad.

Tax planning If you're a W-2 worker (most 9-to-5ers are) without a complex financial situation, you may not need much more to do your taxes than self-service tax software. But for those with more complicated finances or people trying to determine the best way to manage income in retirement, financial planning can help you figure out the most tax-efficient way to manage your money. From taking advantage of tax deferral for savings goals, to qualifying for deductions and credits, to minimizing taxes to heirs, taxes touch many areas of financial planning.

Estate planning Don't let the name fool you. When it comes to financial planning, estate planning is less about sprawling manor homes and more about making sure you make your wishes known through documents like wills and trusts. Many estate planning techniques start with careful planning while you're living. Planning for what happens after you or your partner is gone can be hard to think about, but it's an important step in financial planning for all types of people, even those who are younger and who don't have large bank balances. It also helps you plan for who makes decisions if you become unable to and who becomes guardian for your children if necessary—important things regardless of wealth level.

Insurance planning Managing risk is fundamental so you don't encounter financial catastrophe that prevents you from achieving your goals. You probably know the importance of having health insurance, but there are countless other types of insurance that might help you during times of hardship. Financial planning can make sure you understand how disability and  life insurance , as well as long-term care coverage, among other types of insurance, fit into your financial picture to help protect you and those you love.

How much does financial planning cost?

How much financial planning costs depends on whether you decide to go it alone or work with a professional. If you DIY, there are low- to no-cost online tools and resources that can help you put together your own financial plan . For instance, Fidelity has a range of online calculators you can use to estimate how much you need to save to retire by a certain age, or you could a use a robo-advisor to manage your investments. If you prefer to work with a pro, they may charge based on a percentage of the assets they handle for you, by the hour, or a one-time flat fee.

How to create a financial plan

Ready to start financial planning ? Check out our guide on how to make a financial plan . As you draft your plan, either on your own or with a pro, remember that a solid financial plan is more than just numbers. It's a map that puts you in the driver's seat to fund the life you envision for yourself now and in the future.

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Strategic Financial Management: Definition, Benefits, and Example

Investopedia / Dennis Madamba

What Is Strategic Financial Management?

Strategic financial management means not only managing a company's finances but managing them with the intention to succeed—that is, to attain the company's long-term goals and objectives and maximize shareholder value over time.

Key Takeaways

• Strategic financial management is about creating profits for the business over the long run.
• It seeks to maximize return on investment for stakeholders.
• This differs from tactical management, which looks to seize near-term opportunities.
• A financial plan is strategic and focuses on long-term gain. 
• Strategic financial planning varies by company, industry, and sector.

Understanding Strategic Financial Management

Strategic financial management is about creating profit for the business and ensuring an acceptable return on investment (ROI). Financial management is accomplished through business financial plans, setting up financial controls, and financial decision-making.

Before a company can manage itself strategically, it first needs to define its objectives precisely, identify and quantify its available and potential resources, and devise a specific plan to use its finances and other capital resources toward achieving its goals.

Strategic management also involves understanding and properly controlling, allocating, and obtaining a company's assets and liabilities, including monitoring operational financing items like expenditures, revenues, accounts receivable and payable, cash flow, and profitability.

Strategic financial management encompasses furthermore involves continuous evaluating, planning, and adjusting to keep the company focused and on track toward long-term goals. When a company is managing strategically, it deals with short-term issues on an ad hoc basis in ways that do not derail its long-term vision.

Strategic financial management includes assessing and managing a company's capital structure, the mix of debt and equity finance employed, to ensure a company's long-term solvency.

Strategic Versus Tactical Financial Management

The term "strategic" refers to financial management practices that are focused on long-term success, as opposed to "tactical" management decisions, which relate to short-term positioning. If a company is being strategic instead of tactical, it makes financial decisions based on what it thinks would achieve results ultimately—that is, in the future—which implies that to realize those results, a firm sometimes must tolerate losses in the present.

"Strategic" management focuses on long-term success and "tactical" management relates to short-term positioning.

Part of effective strategic financial management thus may involve sacrificing or readjusting short-term goals in order to attain the company's long-term objectives more efficiently. For example, if a company suffered a net loss for the previous year, then it may choose to reduce its asset base through closing facilities or reducing staff, thereby decreasing its operating expenses. Taking such steps may result in restructuring costs or other one-time items that negatively affect the company's finances further in the short term, but which position the company better to succeed in the long term.

These short-term versus long-term tradeoffs often need to be made with various stakeholders in mind. For instance, shareholders of public companies may discipline management for decisions that negatively affect a company's share price in the short term, even though the long-term health of the company becomes more solid by the same decisions.

The Elements of Strategic Financial Management

A company will apply strategic financial management throughout its organizational operations, which involves designing elements that will maximize the firm's financial resources and use them efficiently. Here a firm needs to be creative, as there is no one-size-fits-all approach to strategic management, and each company will devise elements that reflect its own particular needs and goals. However, some of the more common elements of strategic financial management could include the following.

• Define objectives precisely.
• Identify and quantify available and potential resources.
• Write a specific business financial plan.
• Help the company function with financial efficiency, and reduce waste.
• Identify areas that incur the most operating costs, or exceed the budgeted cost.
• Ensure sufficient liquidity to cover operating expenses without tapping external resources.
• Uncover areas where a firm may invest earnings to achieve goals more effectively.

Managing and Assessing Risk

• Identify, analyze, and mitigate uncertainty in investment decisions.
• Evaluate the potential for financial exposure; examine capital expenditures (CapEx) and workplace policies.
• Employ risk metrics such as degree of operating leverage calculations, standard deviation, and value-at-risk (VaR) strategies.

Establishing Ongoing Procedures

• Collect and analyze data.
• Make financial decisions that are consistent.
• Track and analyze variance—that is, differences between budgeted and actual results.
• Identify problems and take appropriate corrective actions.

Strategies Based on Industry

Just as financial management strategies will vary from company to company, they also can differ according to industry and sector .

Firms that operate in fast-growing industries—like information technology or technical services—would want to choose strategies that cite their goals for growth and specify movement in a positive direction. Their objectives, for example, might include launching a new product or increasing gross revenue within the next 12 months.

On the other hand, companies in slow-growing industries—like sugar manufacturing or coal-power production—could choose objectives that focus on protecting their assets and managing expenses, such as reducing administrative costs by a certain percentage.

What Are the Benefits of Strategic Management?

Having a long-term focus helps a company maintain its goals, even as short-term rough patches or opportunities come and go. As a result, strategic management helps keep a firm profitable and stable by sticking to its long-run plan. Strategic management not only sets company targets but sets guidelines for achieving those objectives even as challenges appear along the way.

What Is the Scope of Strategic Financial Management?

Strategic management can encompass all aspects of a firm's long-term objectives. Financial management often plays a key role in this, which involves cost reduction, risk management, and budgeting.

What Is the Ultimate Objective of Strategic Financial Management?

The goal of strategic financial management is to ensure that long-term goals are properly planned for and ultimately met.

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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.

(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.

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6 responses to “financing decision”.

Distinguish between financing decision and investing decision

Make a detail discussion how firms deal with their daily financial decisions?

How does finance functions of financing, investment, dividend, liquidity decisions affects start up,identifying a project, executing the project and rewarding the owners of the business? Use a real life example of manufacturing, hotel, eatery,transportation, private etc. to amplify your answer.

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Financial Planning: A Step-by-Step Guide

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What is a financial plan?

A financial plan is a comprehensive picture of your current finances, your financial goals and any strategies you've set to achieve those goals. Good financial planning should include details about your cash flow, savings, debt, investments, insurance and any other elements of your financial life.

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What is financial planning?

Financial planning is an ongoing process that looks at your entire financial situation in order to create strategies for achieving your short- and long-term goals. It can reduce your stress about money, support your current needs and help you build a nest egg for goals such as retirement.

Creating a financial plan is important because it allows you to make the most of your assets and gives you the confidence to weather any bumps along the way. You can make a financial plan yourself or get help from a financial planning professional. Online services like robo-advisors have also made getting assistance with financial planning more affordable and accessible than ever.

» Ready to get started? See our roundup of the best financial advisors

via Zoe Financial

9 steps in financial planning

1. set financial goals.

A good financial plan is guided by your financial goals. If you approach your financial planning from the standpoint of what your money can do for you — whether that's buying a house or helping you retire early — you'll make saving feel more intentional.

Make your financial goals inspirational. Ask yourself: What do I want my life to look like in five years? What about in 10 and 20 years? Do I want to own a car, or a house? Do I want to be debt-free? Pay off my student loans? Are kids in the picture? How do I imagine my life in retirement?

Having concrete goals can make it easier to identify and complete the next steps, and provide a guiding light as you work to make those aims a reality.

Financial Goals: Where to Begin

How to Set Financial Goals

2. Track your money

Get a sense of your monthly cash flow — what’s coming in and what’s going out. An accurate picture is key to creating a financial plan and can reveal ways to direct more to savings or debt pay-down. Seeing where your money goes can help you develop immediate, medium-term and long-term plans.

For example, developing a budget is a typical immediate plan. NerdWallet recommends the 50/30/20 budget principles: Put 50% of your take-home pay toward needs (housing, utilities, transportation and other recurring payments), 30% toward wants (dining out, clothing, entertainment) and 20% toward savings and debt repayment. Reducing credit card or other high-interest debt is a common medium-term plan, and planning for retirement is a typical long-term plan.

Budgeting 101: How to Budget Money

Free Budget Planner Worksheet

3. Budget for emergencies

The bedrock of any financial plan is putting cash away for emergency expenses. You can start small — $500 is enough to cover small emergencies and repairs so that an unexpected bill doesn’t run up credit card debt. Your next goal could be $1,000, then one month’s basic living expenses, and so on.

Building credit is another way to shockproof your budget. Good credit gives you options when you need them, like the ability to get a decent rate on a car loan. It can also boost your budget by getting you cheaper rates on insurance and letting you skip utility deposits.

How to Build Credit

Emergency Fund: What It Is and Why It Matters

Emergency Fund Calculator

4. Tackle high-interest debt

A crucial step in any financial plan: Pay down high-interest debt, such as credit card balances, payday loans, title loans and rent-to-own payments. Interest rates on some of these may be so high that you end up repaying two or three times what you borrowed.

If you’re struggling with revolving debt, a debt consolidation loan or debt management plan may help you wrap several expenses into one monthly bill at a lower interest rate.

Pay Off Debt: Tools and Tips

How to Pay Off Debt Fast: 7 Tips

5. Plan for retirement

If you visit a financial advisor , they will be sure to ask: Do you have an employer-sponsored retirement plan such as a 401(k) , and does your employer match any part of your contribution? True, 401(k) contributions decrease your take-home pay now, but it’s worth it to consider putting in enough to get the full matching amount. That match is free money.

If you have a 401(k), 403(b) or similar plan, financial advisors also generally suggest that you gradually expand your contributions toward the IRS limit. $23,000 in 2024 ($30,500 for those age 50 or older)

Another savings vehicle for retirement planning is an IRA , or individual retirement arrangement. These tax-advantaged investment accounts can further build retirement savings. The contribution limit is $7,000 in 2024 ($8,000 if age 50 or older) .

How Much Should I Contribute to a 401(k)?

IRA Contribution Limits Explained

6. Optimize your finances with tax planning

For many of us, taxes take center stage during filing season, but careful tax planning means looking beyond the Form 1040 you submit to the IRS each year.

For example, if you're netting a sizable refund each year, you may be needlessly living on less throughout the year. Learning how and when to review your W-4 , the form you fill out with employers, can help you to take control of your future. Adjust your withholdings on your W-4, and you either can keep more of your paycheck, or pay a smaller tax bill.

Getting cozy with the tax law also means looking into tax credits and deductions ahead of time to understand which tax breaks could make a difference when it comes time to file. The government offers many incentives for taxpayers who have children, invest in green home improvements or technologies, or are even pursuing higher education.

Tax Planning for Beginners: 6 Tax Strategies & Concepts to Know

Federal Brackets and Income Tax Rates

Popular Tax Deductions and Tax Credits

7. Invest to build your future goals

Investing might sound like something for rich people or for when you’re established in your career and family life. It’s not. Investing can be as simple as putting money in a 401(k) and as easy as opening a brokerage account (many have no minimum to get started). Financial plans use a variety of tools to invest for retirement, a house or college.

How to Invest Money: Choosing the Best Way To Invest for You

How To Invest in Stocks

Saving for Education: 529 Plan Rules and Contribution Limits

8. Grow your financial well-being

With each of these steps, you're protecting yourself from financial setbacks. If you can afford it, decide whether you'd like to do more, such as:

Increasing contributions to your retirement accounts.

Padding your emergency fund until you have three to six months of essential living expenses.

Using insurance to protect your financial stability, so a car crash or illness doesn’t derail you. Life insurance protects loved ones who depend on your income. Term life insurance, covering 10-year to 30-year periods, is a good fit for most people’s needs.

Backdoor Roth IRA: What It Is and How to Set One Up

What Is Life Insurance and How Does It Work?

9. Estate planning: Protect your financial well-being

Financial planning also means looking out for your future needs, as well as mapping things out for your loved ones. Creating a will can help ensure your assets are distributed according to your wishes. Other types of estate-planning documents can also provide your relatives with clarity on how you would like to be cared for, and who should manage your affairs.

Estate Planning Checklist

Estate Tax Planning: How Does Your Strategy Look?

Types of financial planning help

A financial plan isn’t a static document — it's a tool to track your progress, and one you should adjust as your life evolves. It's helpful to reevaluate your financial plan after major life milestones, such as getting married, starting a new job, having a child or losing a loved one.

If you're not the DIY type — or if you want professional help managing some tasks and not others — you don't have to go it alone. Consider what kind of help you need:

Complete financial plan and investment advice

Online financial planning services offer virtual access to human advisors. A basic service would include automated investment management (like you’d get from a robo-advisor), plus the ability to consult with a team of financial advisors when you have other financial questions. More comprehensive providers basically mirror the level of service offered by traditional financial planners : You're matched with a dedicated human financial advisor who will manage your investments, create a comprehensive financial plan for you, and do regular check-ins to see if you're on track or need to adjust your financial plan.

» Want to work with a local advisor ? Learn how to find a financial advisor near you

Specialized guidance and/or want to meet with an advisor face-to-face

If you have a complicated financial situation or need a specialist in estate planning, tax planning or insurance, a traditional financial advisor in your area may fit the bill. To avoid conflicts of interest, consider fee-only financial advisors who are fiduciaries (meaning they've signed an oath to act in the client's best interest). Note that some traditional financial advisors decline clients who don’t have enough to invest; the definition of “enough” varies, but many advisors require $250,000 or more. If you want to know more about how much seeing an advisor will cost, read our guide to financial advisor fees .

» Need some help? Check out our roundup of the best wealth advisors

Portfolio management only

Robo-advisors offer simplified, low-cost online investment management. Computer algorithms build an investment portfolio based on goals you set, and your answers to questions about your risk tolerance. After that, the service monitors and regularly rebalances your investment mix to ensure you stay on track. Because it's all digital, it comes at a much lower cost than hiring a human portfolio manager.

» Need help investing? See our list of the best robo-advisors

Why is financial planning important?

Financial planning can help you feel more confident about navigating bumps in the road — like, say, a recession or historic inflation . According to Charles Schwab's 2023 Modern Wealth Survey, Americans who have a written financial plan feel more in control of their finances compared with those without a plan [0] Charles Schwab . Charles Schwab Modern Wealth Survey 2023 . Accessed Aug 7, 2023. View all sources .

Once your basic needs and short-term goals have been addressed, a financial plan can also help you tackle big-picture goals. Thoughtful investing, for example, can help build generational wealth , and careful estate planning can ensure that wealth gets passed down to your loved ones.

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Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on February 15, 2024

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Table of contents, what is the financial planning process.

The financial planning process is a systematic approach to managing one's finances.

It involves evaluating an individual's or family's current financial situation, identifying financial goals, creating a plan to achieve those goals, implementing the plan, and regularly monitoring and adjusting the plan as needed.

The process can help individuals make informed decisions about their money, which can have a significant impact on their quality of life.

The financial planning process typically includes several key steps, such as gathering financial information, setting financial goals, analyzing the financial situation, developing a financial plan , implementing the plan, monitoring the plan, and making adjustments as needed.

By following this process, individuals can create a roadmap for achieving their financial objectives , such as saving for retirement, paying off debt, buying a home, or funding a child's education.

The process can be done on one's own, or with the help of a financial planner, who can provide expertise and guidance in areas such as investment planning, retirement planning, tax planning, and risk management.

The financial planning process is an ongoing one, as financial situations and goals can change over time, and it's important to regularly review and adjust the plan as necessary.

Stages of the Financial Planning Process

Establishing goals, short-term goals.

Short-term goals typically range from three months to three years. Examples include building an emergency fund, paying off credit card debt, and saving for a vacation.

Medium-Term Goals

Medium-term goals have a time horizon of three to ten years. Examples include saving for a down payment on a house, funding a child's education, or starting a business.

Long-Term Goals

Long-term goals have a time horizon of more than ten years. Examples include saving for retirement, paying off a mortgage , or leaving a legacy .

Gathering Financial Data

Personal information.

Collect relevant personal information, such as age, marital status, number of dependents, and employment status.

Financial Assets and Liabilities

Compile a list of all financial assets (e.g., savings, investments, real estate ) and liabilities (e.g., loans, credit card debt).

Income and Expenses

Record all sources of income and monthly expenses to understand your cash flow.

Analyzing Financial Data

Net worth calculation.

Calculate net worth by subtracting total liabilities from total assets.

Cash Flow Analysis

Analyze income and expenses to identify patterns, potential savings, and areas for improvement.

Debt-To-Income Ratio

Calculate the debt-to-income ratio by dividing total monthly debt payments by gross monthly income. This ratio helps assess overall financial health.

Risk Tolerance Assessment

Evaluate your risk tolerance based on factors such as age, investment horizon, and financial goals .

Developing a Financial Plan

Budgeting and cash flow management.

Create a budget to manage income, expenses, and savings effectively.

Investment Strategies

Develop an investment strategy that aligns with your risk tolerance and financial goals.

Tax Planning

Implement strategies to minimize tax liabilities and maximize tax-advantaged opportunities.

Risk Management and Insurance

Evaluate and obtain appropriate insurance coverage to protect against potential financial losses.

Retirement Planning

Create a retirement plan that meets your desired lifestyle and financial needs in retirement .

Estate Planning

Develop an estate plan that ensures the efficient transfer of assets to beneficiaries and minimizes potential tax liabilities.

Implementing the Financial Plan

Prioritizing actions.

Determine which financial goals and strategies are most important and should be addressed first.

Allocating Resources

Allocate financial resources (e.g., savings, investments) to achieve your financial goals effectively.

Seeking Professional Advice

Consult financial professionals, such as financial planners or investment advisors, to ensure a well-informed financial plan.

Monitoring and Adjusting the Financial Plan

Periodic reviews.

Conduct regular reviews of your financial plan to track progress and make adjustments as needed.

Adapting to Life Changes and External Factors

Update your financial plan to account for changes in personal circumstances or external factors, such as job loss, marriage, or economic conditions.

Updating Goals and Strategies

Revise financial goals and strategies to align with your evolving financial situation and priorities.

Role of Financial Professionals

Financial planners.

Financial planners help clients create comprehensive financial plans tailored to their unique goals and circumstances.

Certified Public Accountants (CPAs)

CPAs provide tax planning and preparation services, as well as financial advice on various aspects of personal finance .

Investment Advisors

Investment advisors assist clients in developing and managing investment portfolios based on their risk tolerance and financial objectives.

Insurance Agents

Insurance agents help clients identify their insurance needs and select appropriate coverage to protect against potential financial losses.

Estate Planning Attorneys

Estate planning attorneys assist clients in creating estate plans, including wills and trusts , to ensure the efficient transfer of assets and minimize potential tax liabilities.

Common Financial Planning Mistakes

Procrastination.

Delaying financial planning can lead to missed opportunities and increased financial stress. Start planning early to maximize your financial potential.

Lack of Diversification

A well-diversified investment portfolio can help reduce risk and increase the potential for long-term returns. Avoid concentrating your investments in a single asset class or market sector.

Insufficient Insurance Coverage

Failing to obtain adequate insurance coverage can leave you vulnerable to financial losses. Regularly review your insurance needs and adjust coverage as necessary.

Inadequate Retirement Planning

Neglecting retirement planning can result in insufficient savings to maintain your desired lifestyle during retirement. Start saving early and regularly review your retirement plan.

Neglecting Estate Planning

Failing to create an estate plan can lead to confusion and disputes among your beneficiaries. Consult an estate planning attorney to develop a plan that reflects your wishes and minimizes potential tax liabilities.

The financial planning process is essential for achieving financial goals and maintaining overall financial well-being.

By establishing goals, gathering and analyzing financial data, developing a plan, implementing it, and regularly monitoring and adjusting the plan, individuals can take control of their personal finances.

Seeking the advice of financial professionals and avoiding common mistakes can further enhance the effectiveness of the financial planning process.

Financial Planning Process FAQs

What is the financial planning process.

The Financial Planning Process is a comprehensive and ongoing approach to managing one's finances. It involves evaluating one's current financial situation, identifying financial goals, creating a plan to achieve those goals, implementing the plan, and regularly monitoring and adjusting the plan as needed.

Why is the Financial Planning Process important?

The Financial Planning Process is important because it helps individuals and families make informed decisions about their money, which can have a significant impact on their quality of life. It provides a roadmap for achieving financial goals, such as buying a home, saving for retirement, or paying for a child's education.

What are the steps in the Financial Planning Process?

The steps in the Financial Planning Process typically include: (1) gathering financial information, (2) setting financial goals, (3) analyzing the financial situation, (4) developing a financial plan, (5) implementing the plan, (6) monitoring the plan, and (7) making adjustments as needed.

Do I need a financial planner to go through the Financial Planning Process?

While it is possible to go through the Financial Planning Process on your own, many people find it helpful to work with a financial planner. A financial planner can provide expertise and guidance in areas such as investment planning, retirement planning, tax planning, and risk management.

How often should I review my financial plan as part of the Financial Planning Process?

It is recommended that you review your financial plan at least once a year or whenever there is a significant change in your financial situation, such as a change in income or an unexpected expense. Regular reviews can help ensure that your plan remains relevant and effective in helping you achieve your financial goals.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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• Financial Planning

What is Financial Planning?

Financial Planning includes all the activities that apply general management standards to the financial resources of a firm such as planning, directing, organizing, procurement of funds, investment, and return of the funds. In this article, students will learn about the meaning, objectives, and features of financial planning. 

Financial Planning is one of the major planning that is required to be conducted by the management. Financial Planning includes all the activities which are related to the procurement of funds, investing those funds, and the return expected from the investment done. Financial Planning also ranges from tax planning which is an important activity. This planning is very important for a business to function, in this regard we have initiated the discussion on this topic ‘Financial Planning’ which is to be studied in greater detail. The scope of this topic is vast hence for a conceptualized study this is to be referred to. 

Definition and Meaning

Financial planning is defined as a document that has records of a business owner or firm's financial situation along with planning on the spending of money to achieve a certain goal by working by a well-devised plan. Financial planning may be made independently or by an experienced planner.

It is basically a financial budget plan, which helps organize the business and includes a set of goals that are supposed to be followed by the firm or business owner to save and spend accordingly. It helps distribute various monetary expenses such as rent, while at the same time saving some amount of money as short-term or long-term savings. 

Financial Planning is the process of estimating the capital requirement and also determining the competitive elements required for financial planning. This is a plan which has been defined as a document that contains a person's current money situation with the long-term monetary goals, the strategies to achieve those goals on the basis of the current fund. A financial plan may be devised and drafted independently or with the assistance of a financial planner. The first step in the creation of a financial plan is to involve collecting the numbers from the web-based accounts into a document or a spreadsheet. 

This type of planning is also known as an investment plan as it manages various types of liquid and other assets that involve risk and uncertainty. Financial planning done by individuals is not as risky as they do not involve huge investment or undertaking, such as funds kept separate for college or university, estates, healthcare, or retirement.

Financial Planning in Financial Management

A financial plan is an overall evaluation of an individual's current pay and future financial state by using the current known variables to predict the future income, asset values, and withdrawal plans. Financial Planning includes the budget which organizes the business and the individual finances and at times includes a series of steps or specific goals for spending and saving for the future. This plan distributes the future income to various types of expenses such as rent or utilities and also reserves some income for the short-term and long-term savings as well. A financial plan is sometimes referred to as an investment plan, while personal financing focuses on specific areas like risk management, estates, colleges, or retirement. 

There two main objectives of financial planning which are given below:

Ensuring Availability of Funds When Required: The foremost and most important objective of financial planning is to keep in check that funds are available in cases of emergency or whenever it is required for use. Sufficient funds should be available with the firms for various purposes.

Check Unnecessary Fundraising by the Firms: Insufficient funds are just as bad as surplus funds. Idle money will only result in a loss for a firm as against investment. Therefore, proper allocation of funds is a very important part of financial planning.

The Objectives of Financial Planning are Enumerated as Follows - 

To Ensure Availability of Funds Whenever Required:  

The foremost objective of financial planning is assuring that sufficient fund is available with the company for different purposes. 

To Check if the Firm Raises the Resources Unnecessarily:

Excess funding is as bad as inadequate funds. If there is a surplus amount of money, then the financial planning is to invest it in the best possible manner as keeping financial resources idle is a great loss for an organization as it will be in vain.

There are a number of features of financial planning that are important for firms and individuals. These are listed below:

Foresight: A plan made without foresight will only result in a disaster. Foresight is needed in planning for estimating risks and the need for liquid and other assets. It may not be 100% accurate but it should be able to give an estimate of the future risks.

Flexibility: A plan made should be flexible as it will help in the future to make adjustments according to the needs. 

Optimal Usage of Funds: A financial plan should be able to utilize idle money and assets so that they can prove to be fruitful in the future. It does not involve funds kept aside for unforeseen circumstances but the assets that could be otherwise utilized.

Simplicity: Financial planning should be simple in terms of structure and should be able to provide a sound allocation of resources that can be easily understood even by a layman.

Liquidity: It is also a very important aspect of financial planning which involves keeping current assets in the form of money. This will help in easy allocation and payment of various kinds like salary, fees, and other kinds.

Features of Financial Planning is Enumerated as below - 

Simplicity: A sound financial structure must provide a simple financial structure that could be managed easily and understandable even to a layman.

Foresight: Foresight must be used in planning to know the estimate and the need for capital which may be estimated as accurately as possible. A plan visualized without any foresight will outcast disaster for the company.

Flexibility: Repeating the financial adjustments becomes necessary hence its flexibility is required so that it is easily adaptable

Optimum use of Funds: Capital should not only be adequate but should also employ productive effects. A financial plan should prevent wasteful use of the capital, thus avoiding idle capacity to ensure proper utilization of funds to earn the capacity in an enterprise.

Liquidity: Current assets are to be kept in the form of liquid cash. Cash is also required to finance purchases, to pay the daily needs like paying salaries, wages, and other incidental expenses.

Conclusion:

Financial Planning is an important aspect of the individual as well as business life. This article gives you an insight into what financial planning comprises and what are its key aspects.

FAQs on Financial Planning

1. What is meant by financial planning?

Financial planning refers to short-term and long-term planning of allocation of available funds according to the requirements of a business firm by estimating the requirements of the firm and determining the sources of funds.

2. What are the two objectives of financial planning?

The two objectives of financial planning are:

To ensure availability of funds whenever required

To see that funds are not sitting idle or are not raised unnecessarily.

3. How does financial planning act as a link between the present and the future?

Financial planning is made by keeping in mind the future requirements of the firm by allocating liquid assets for proper investment and return.

4. What is the role of financial planning in financial corporate firms?

Financial planning in financial corporate firms helps in determining short term and long term capital requirements like the cost of assets, promotional expenses, and long term planning as well as determining the amount and proportion of capital required by the firm in terms of investment which includes making decisions on debt-equity ratio. Financial planning also helps optimal allocation of resources and funds available and framing financial policies related to investments and cash control.

5. Why is Financial Planning useful?

Finance is the lifeblood of a business, this is very crucial to any organization. Hence, utilizing finance without proper planning will be a fool’s act. The organizations force a special team for planning this fundamental factor. Planning involves estimating the future need of finance, its investment in key areas, and executing the return estimate – these activities are required to proceed on for adequate functioning.

6. Who is a Financial Planner?

A financial planner or a personal financial planner is also a professional person who prepares financial plans for his clients. These financial plans often cover cash flow management, retirement planning, investment planning, financial risk management, insurance planning, tax planning, estate planning, and business succession planning which attracts both individual clients as well as business firms.

7. Why is ‘Investment Plan’ also known as ‘Financial Plan’?

An ‘investment plan’, precisely, is a part of a ‘financial plan’ which means that in order to invest in a particular event or activity, the plan is to be devised to know the requirement of the fund needed in the investment, the return from the investment and its factors related. Thus, we see there is planning involved in the finance of the investment, hence, they can be used as synonyms to each other.

8. Enumerate Principles on Financial Planning.

The Principles are –

Think long-term with goals and investing.

Spend less than you earn.

Maintain liquidity (emergency savings).

Minimize the use of debt.

• 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.

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 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, financial advisor, or financial consultant 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 the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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Artificial intelligence in strategy

Can machines automate strategy development? The short answer is no. However, there are numerous aspects of strategists’ work where AI and advanced analytics tools can already bring enormous value. Yuval Atsmon is a senior partner who leads the new McKinsey Center for Strategy Innovation, which studies ways new technologies can augment the timeless principles of strategy. In this episode of the Inside the Strategy Room podcast, he explains how artificial intelligence is already transforming strategy and what’s on the horizon. This is an edited transcript of the discussion. For more conversations on the strategy issues that matter, follow the series on your preferred podcast platform .

Joanna Pachner: What does artificial intelligence mean in the context of strategy?

Yuval Atsmon: When people talk about artificial intelligence, they include everything to do with analytics, automation, and data analysis. Marvin Minsky, the pioneer of artificial intelligence research in the 1960s, talked about AI as a “suitcase word”—a term into which you can stuff whatever you want—and that still seems to be the case. We are comfortable with that because we think companies should use all the capabilities of more traditional analysis while increasing automation in strategy that can free up management or analyst time and, gradually, introducing tools that can augment human thinking.

Joanna Pachner: AI has been embraced by many business functions, but strategy seems to be largely immune to its charms. Why do you think that is?

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Yuval Atsmon: You’re right about the limited adoption. Only 7 percent of respondents to our survey about the use of AI say they use it in strategy or even financial planning, whereas in areas like marketing, supply chain, and service operations, it’s 25 or 30 percent. One reason adoption is lagging is that strategy is one of the most integrative conceptual practices. When executives think about strategy automation, many are looking too far ahead—at AI capabilities that would decide, in place of the business leader, what the right strategy is. They are missing opportunities to use AI in the building blocks of strategy that could significantly improve outcomes.

I like to use the analogy to virtual assistants. Many of us use Alexa or Siri but very few people use these tools to do more than dictate a text message or shut off the lights. We don’t feel comfortable with the technology’s ability to understand the context in more sophisticated applications. AI in strategy is similar: it’s hard for AI to know everything an executive knows, but it can help executives with certain tasks.

When executives think about strategy automation, many are looking too far ahead—at AI deciding the right strategy. They are missing opportunities to use AI in the building blocks of strategy.

Joanna Pachner: What kind of tasks can AI help strategists execute today?

Yuval Atsmon: We talk about six stages of AI development. The earliest is simple analytics, which we refer to as descriptive intelligence. Companies use dashboards for competitive analysis or to study performance in different parts of the business that are automatically updated. Some have interactive capabilities for refinement and testing.

The second level is diagnostic intelligence, which is the ability to look backward at the business and understand root causes and drivers of performance. The level after that is predictive intelligence: being able to anticipate certain scenarios or options and the value of things in the future based on momentum from the past as well as signals picked in the market. Both diagnostics and prediction are areas that AI can greatly improve today. The tools can augment executives’ analysis and become areas where you develop capabilities. For example, on diagnostic intelligence, you can organize your portfolio into segments to understand granularly where performance is coming from and do it in a much more continuous way than analysts could. You can try 20 different ways in an hour versus deploying one hundred analysts to tackle the problem.

Predictive AI is both more difficult and more risky. Executives shouldn’t fully rely on predictive AI, but it provides another systematic viewpoint in the room. Because strategic decisions have significant consequences, a key consideration is to use AI transparently in the sense of understanding why it is making a certain prediction and what extrapolations it is making from which information. You can then assess if you trust the prediction or not. You can even use AI to track the evolution of the assumptions for that prediction.

Those are the levels available today. The next three levels will take time to develop. There are some early examples of AI advising actions for executives’ consideration that would be value-creating based on the analysis. From there, you go to delegating certain decision authority to AI, with constraints and supervision. Eventually, there is the point where fully autonomous AI analyzes and decides with no human interaction.

Because strategic decisions have significant consequences, you need to understand why AI is making a certain prediction and what extrapolations it’s making from which information.

Joanna Pachner: What kind of businesses or industries could gain the greatest benefits from embracing AI at its current level of sophistication?

Yuval Atsmon: Every business probably has some opportunity to use AI more than it does today. The first thing to look at is the availability of data. Do you have performance data that can be organized in a systematic way? Companies that have deep data on their portfolios down to business line, SKU, inventory, and raw ingredients have the biggest opportunities to use machines to gain granular insights that humans could not.

Companies whose strategies rely on a few big decisions with limited data would get less from AI. Likewise, those facing a lot of volatility and vulnerability to external events would benefit less than companies with controlled and systematic portfolios, although they could deploy AI to better predict those external events and identify what they can and cannot control.

Third, the velocity of decisions matters. Most companies develop strategies every three to five years, which then become annual budgets. If you think about strategy in that way, the role of AI is relatively limited other than potentially accelerating analyses that are inputs into the strategy. However, some companies regularly revisit big decisions they made based on assumptions about the world that may have since changed, affecting the projected ROI of initiatives. Such shifts would affect how you deploy talent and executive time, how you spend money and focus sales efforts, and AI can be valuable in guiding that. The value of AI is even bigger when you can make decisions close to the time of deploying resources, because AI can signal that your previous assumptions have changed from when you made your plan.

Joanna Pachner: Can you provide any examples of companies employing AI to address specific strategic challenges?

Yuval Atsmon: Some of the most innovative users of AI, not coincidentally, are AI- and digital-native companies. Some of these companies have seen massive benefits from AI and have increased its usage in other areas of the business. One mobility player adjusts its financial planning based on pricing patterns it observes in the market. Its business has relatively high flexibility to demand but less so to supply, so the company uses AI to continuously signal back when pricing dynamics are trending in a way that would affect profitability or where demand is rising. This allows the company to quickly react to create more capacity because its profitability is highly sensitive to keeping demand and supply in equilibrium.

Joanna Pachner: Given how quickly things change today, doesn’t AI seem to be more a tactical than a strategic tool, providing time-sensitive input on isolated elements of strategy?

Yuval Atsmon: It’s interesting that you make the distinction between strategic and tactical. Of course, every decision can be broken down into smaller ones, and where AI can be affordably used in strategy today is for building blocks of the strategy. It might feel tactical, but it can make a massive difference. One of the world’s leading investment firms, for example, has started to use AI to scan for certain patterns rather than scanning individual companies directly. AI looks for consumer mobile usage that suggests a company’s technology is catching on quickly, giving the firm an opportunity to invest in that company before others do. That created a significant strategic edge for them, even though the tool itself may be relatively tactical.

Joanna Pachner: McKinsey has written a lot about cognitive biases  and social dynamics that can skew decision making. Can AI help with these challenges?

Yuval Atsmon: When we talk to executives about using AI in strategy development, the first reaction we get is, “Those are really big decisions; what if AI gets them wrong?” The first answer is that humans also get them wrong—a lot. [Amos] Tversky, [Daniel] Kahneman, and others have proven that some of those errors are systemic, observable, and predictable. The first thing AI can do is spot situations likely to give rise to biases. For example, imagine that AI is listening in on a strategy session where the CEO proposes something and everyone says “Aye” without debate and discussion. AI could inform the room, “We might have a sunflower bias here,” which could trigger more conversation and remind the CEO that it’s in their own interest to encourage some devil’s advocacy.

We also often see confirmation bias, where people focus their analysis on proving the wisdom of what they already want to do, as opposed to looking for a fact-based reality. Just having AI perform a default analysis that doesn’t aim to satisfy the boss is useful, and the team can then try to understand why that is different than the management hypothesis, triggering a much richer debate.

In terms of social dynamics, agency problems can create conflicts of interest. Every business unit [BU] leader thinks that their BU should get the most resources and will deliver the most value, or at least they feel they should advocate for their business. AI provides a neutral way based on systematic data to manage those debates. It’s also useful for executives with decision authority, since we all know that short-term pressures and the need to make the quarterly and annual numbers lead people to make different decisions on the 31st of December than they do on January 1st or October 1st. Like the story of Ulysses and the sirens, you can use AI to remind you that you wanted something different three months earlier. The CEO still decides; AI can just provide that extra nudge.

Joanna Pachner: It’s like you have Spock next to you, who is dispassionate and purely analytical.

Yuval Atsmon: That is not a bad analogy—for Star Trek fans anyway.

Joanna Pachner: Do you have a favorite application of AI in strategy?

Yuval Atsmon: I have worked a lot on resource allocation, and one of the challenges, which we call the hockey stick phenomenon, is that executives are always overly optimistic about what will happen. They know that resource allocation will inevitably be defined by what you believe about the future, not necessarily by past performance. AI can provide an objective prediction of performance starting from a default momentum case: based on everything that happened in the past and some indicators about the future, what is the forecast of performance if we do nothing? This is before we say, “But I will hire these people and develop this new product and improve my marketing”— things that every executive thinks will help them overdeliver relative to the past. The neutral momentum case, which AI can calculate in a cold, Spock-like manner, can change the dynamics of the resource allocation discussion. It’s a form of predictive intelligence accessible today and while it’s not meant to be definitive, it provides a basis for better decisions.

Joanna Pachner: Do you see access to technology talent as one of the obstacles to the adoption of AI in strategy, especially at large companies?

Yuval Atsmon: I would make a distinction. If you mean machine-learning and data science talent or software engineers who build the digital tools, they are definitely not easy to get. However, companies can increasingly use platforms that provide access to AI tools and require less from individual companies. Also, this domain of strategy is exciting—it’s cutting-edge, so it’s probably easier to get technology talent for that than it might be for manufacturing work.

The bigger challenge, ironically, is finding strategists or people with business expertise to contribute to the effort. You will not solve strategy problems with AI without the involvement of people who understand the customer experience and what you are trying to achieve. Those who know best, like senior executives, don’t have time to be product managers for the AI team. An even bigger constraint is that, in some cases, you are asking people to get involved in an initiative that may make their jobs less important. There could be plenty of opportunities for incorpo­rating AI into existing jobs, but it’s something companies need to reflect on. The best approach may be to create a digital factory where a different team tests and builds AI applications, with oversight from senior stakeholders.

The big challenge is finding strategists to contribute to the AI effort. You are asking people to get involved in an initiative that may make their jobs less important.

Joanna Pachner: Do you think this worry about job security and the potential that AI will automate strategy is realistic?

Yuval Atsmon: The question of whether AI will replace human judgment and put humanity out of its job is a big one that I would leave for other experts.

The pertinent question is shorter-term automation. Because of its complexity, strategy would be one of the later domains to be affected by automation, but we are seeing it in many other domains. However, the trend for more than two hundred years has been that automation creates new jobs, although ones requiring different skills. That doesn’t take away the fear some people have of a machine exposing their mistakes or doing their job better than they do it.

Joanna Pachner: We recently published an article about strategic courage in an age of volatility  that talked about three types of edge business leaders need to develop. One of them is an edge in insights. Do you think AI has a role to play in furnishing a proprietary insight edge?

Yuval Atsmon: One of the challenges most strategists face is the overwhelming complexity of the world we operate in—the number of unknowns, the information overload. At one level, it may seem that AI will provide another layer of complexity. In reality, it can be a sharp knife that cuts through some of the clutter. The question to ask is, Can AI simplify my life by giving me sharper, more timely insights more easily?

Joanna Pachner: You have been working in strategy for a long time. What sparked your interest in exploring this intersection of strategy and new technology?

Yuval Atsmon: I have always been intrigued by things at the boundaries of what seems possible. Science fiction writer Arthur C. Clarke’s second law is that to discover the limits of the possible, you have to venture a little past them into the impossible, and I find that particularly alluring in this arena.

AI in strategy is in very nascent stages but could be very consequential for companies and for the profession. For a top executive, strategic decisions are the biggest way to influence the business, other than maybe building the top team, and it is amazing how little technology is leveraged in that process today. It’s conceivable that competitive advantage will increasingly rest in having executives who know how to apply AI well. In some domains, like investment, that is already happening, and the difference in returns can be staggering. I find helping companies be part of that evolution very exciting.

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Financial plan in Entrepreneurship: Meaning and Components

A financial plan is a comprehensive strategy outlining how a business intends to manage its finances to achieve its goals and objectives. The primary purpose of a financial plan is to ensure that the business has adequate financial resources to operate efficiently, pursue growth opportunities, and remain sustainable in the long term. It serves as a roadmap for making informed financial decisions and helps entrepreneurs track their progress toward financial targets.

Geeky Takeaways: Finance is vital for starting a firm, enabling entrepreneurs to gather the necessary resources for production. A sound financial plan involves determining funding needs and funding sources and assessing factors like revenue, costs, profits, cash flow, and inventory. The components of a financial plan encompass proforma investment decisions, proforma financing decisions, proforma income statements, proforma cash flow projections, proforma balance sheets, break-even analysis, and consideration of economic and social variables. A comprehensive financial plan is crucial for business success, incorporating various elements to establish a robust financial framework, secure funding, and foster sustainable growth.

Table of Content

What is a Financial Plan?

Components of the financial plan, 1. proforma investment decisions, 2. proforma financing decisions, 3. proforma income statements, 4. proforma cash flow, 5. proforma balance sheet, 6. break-even analysis, 7. economic and social variables.

Finance is pivotal for starting a business, as it enables entrepreneurs to gather the necessary resources like manpower, materials, machinery, and methods to create goods or services. To ensure success, entrepreneurs need to plan their finances with caution. This involves determining how much funding they need, where they can obtain it, and accurately assessing factors like revenue , costs , profits, cash flow , and inventory. By developing a sound financial plan, entrepreneurs can secure the right amount of funding at the right time, setting the stage for their venture’s success.

a. Definition: Proforma Investment Decisions within an enterprise’s financial plan involve strategically allocating funds across distinct assets to maximize investment returns. This process includes estimating capital components like fixed assets and working capital to ensure efficient financial resource utilization.

b. Various Investment Decisions : The following are the various investment decisions that have to be considered by all entrepreneurs.

• Land and Building: Investment is required for land purchase, leasing , and constructing buildings for business operations. This involves considering factors like location, zoning regulations, size, and infrastructure requirements.
• Machinery and Plant: Funds are allocated for acquiring machinery, equipment, and technology needed for production processes. This includes evaluating equipment specifications, capacity, efficiency, and maintenance costs.
• Installation Cost: Expenses related to machinery and plant installation, setup, and commissioning are included. This covers transportation, assembly, testing, and personnel training costs.
• Preliminary Expenses: Initial costs incurred before commencing operations, such as legal fees, registration expenses, and market research , are considered. This encompasses business incorporation, licensing, permits, and regulatory compliance expenses.
• Margin for Working Capital : Provision is made for working capital needs to support daily operations, manage cash flow, and meet short-term obligations. This ensures liquidity for inventory purchases, salary payments, and operational expenses.
• Research and Development Expenses: Investment in innovation, product development, and process enhancement to improve competitiveness and boost growth is accounted for. This includes costs for market research, product testing, prototype development, and intellectual property protection.
• Investment in Short-Term Assets: Allocation of funds for short-term assets like raw materials, inventory, finished goods, and cash reserves is made. It involves balancing inventory levels, cash flow management, and optimizing working capital efficiency.

a. Definition: Proforma Financing Decisions involve strategically planning and selecting the optimal mix of financing sources to fund the enterprise’s operations and investments. This section of the financial plan outlines the projected sources of funds, including both owner’s equity and external debt, aiming to minimize capital costs and financial risks while maximizing return on investment and profitability. It summarizes all the anticipated sources of funds available to the venture, including owner’s funds and borrowed funds.

b. Sources of Funds: In the business financing world, funds typically originate from two primary sources:

• Owner’s Funds: These funds stem from the capital injected into the firm by its proprietor or proprietors. This capital may include personal savings, investments, or contributions from partners or shareholders.
• Borrowed Funds: Alternatively, businesses can acquire funds from external sources, such as financial institutions, investors, or lenders. These borrowed funds often come in the form of loans, lines of credit, or investments from third parties.

c. Entrepreneurial Responsibility: As the driving force behind the venture, the entrepreneur shoulders the critical task of judiciously selecting the most appropriate blend of financing options for the enterprise. This pivotal role involves:

• Minimizing Costs and Risks: The entrepreneur must navigate the financial landscape to minimize both the overall cost of capital and the associated financial risks inherent in the chosen financing mix. It will include careful consideration of interest rates, repayment terms, and potential liabilities.
• Maximizing Returns: While mitigating risks, the entrepreneur simultaneously endeavors to optimize the return on investment and enhance the overall profitability of the venture. By strategically allocating funds and leveraging available resources, the entrepreneur aims to generate sustainable growth and long-term success.

a. Definition: A Proforma Income Statement serves as a financial blueprint that predicts the anticipated net profit of a business by deducting projected costs and expenses from expected revenue. It offers a concise overview of the projected profitability during the initial year of operations for a growing enterprise, shedding light on its financial performance and potential viability.

b. Calculation Process: The Proforma Income Statement initiates by computing sales projections every month, employing various forecasting methodologies as its cornerstone. The forecasting techniques are:

• Marketing Research: It collects data on market trends, consumer behavior , and industry dynamics to estimate sales potential.
• Industry Sales Analysis: It examines sales data and trends specific to the industry to project the business’s sales performance.
• Buyers’ Intentions Survey: This includes conducting surveys to discern customer preferences, purchasing patterns, and future buying intentions.
• Expert Opinions: This involves seeking insights from industry professionals, consultants, or advisors to validate sales forecasts and assumptions.
• Financial Data Comparison: This helps in analyzing financial data from similar start-ups to benchmark sales projections and performance.
• Trial Experience: This involves drawing on personal or shared trial experiences to refine sales estimates and enhance forecasting accuracy.

c. Conservative Estimates: While projecting sales and expenses, it is mandatory to strike a balance between conservatism and optimism. Achieving a reasonable profit margin through conservative estimates enhances the credibility of financial projections and underscores a prudent approach to financial planning.

a. Definition: The Proforma Cash Flow is a financial forecast that calculates the net cash available to the enterprise by deducting projected cash disbursements from projected cash accumulations. Unlike traditional profit and loss calculations, it focuses on actual cash inflows and outflows.

b. Profit vs. Cash Flow: Profit represents the result of deducting sales revenue from expenses, whereas cash flow indicates the disparity between cash receipts and payments. Sales made on credit do not immediately generate cash, leading to differences between profit and cash flow.

c. Simplifying Cash Flow Projections: Many new entrepreneurs opt for a straightforward cash-in, less cash-out method to swiftly assess the enterprise’s cash position. Given the challenges of projecting exact monthly cash receipts and disbursements, entrepreneurs often adopt a conservative approach with necessary assumptions.

d. Conservative Approach: Entrepreneurs commonly adopt a conservative stance when projecting cash flows, incorporating assumptions to guarantee sufficient funds are available. This proactive measure helps the enterprise prepare for potential cash flow hurdles and maintain a robust financial standing.

e. Monitoring and Adjustments: Regular monitoring and updating of the Proforma Cash Flow are essential to reflect changes in the business landscape, customer behavior, and other factors impacting cash inflows and outflows. Adjustments to the cash flow projections ensure the enterprise remains financially strong and adaptable to evolving conditions.

a. Definition: A Proforma Balance Sheet is a financial projection that presents the estimated assets, liabilities, and net worth of an enterprise after its inaugural year. Serving as a snapshot of the firm’s financial state, it aids entrepreneurs and investors in assessing the business’s financial stability and potential for expansion.

b. Financial Position: The Proforma Balance Sheet offers a comprehensive depiction of the enterprise’s financial standing, representing its assets, liabilities, and owner’s equity. Outlining these components provides insights into the company’s solvency, liquidity, and overall financial health. This allows stakeholders to gauge the organization’s capacity to meet its financial obligations and sustain operations over the long term.

c. Comparative Analysis: One of the pivotal advantages of the Proforma Balance Sheet is its utility in conducting comparative analyses over time. By comparing subsequent balance sheets with the initial projection, entrepreneurs can assess the firm’s performance, identify evolving trends, and pinpoint areas requiring attention or improvement. This iterative process facilitates dynamic decision-making, enabling the enterprise to adapt its strategies and optimize outcomes in alignment with its objectives.

a. Definition: The Break-Even Point (BEP) denotes the threshold of production or sales volume at which a firm’s total revenue matches its total cost, resulting in neither profit nor loss. Essentially, it signifies the minimum level of output or sales necessary for a business to offset its fixed and variable expenses.

b. Minimum Level of Output: The BEP serves as a critical benchmark, indicating the minimum output quantity required to limit financial losses and achieve the break-even threshold. Understanding this minimum threshold enables entrepreneurs to establish realistic production goals and operational targets.

c. Impact of Output Changes: Conducting BEP analysis empowers entrepreneurs to evaluate the ramifications of output quantity alterations on the firm’s profitability. By simulating various production scenarios, entrepreneurs can assess the feasibility of scaling operations and anticipate the corresponding impact on financial performance.

d. Selling Price Determination: Utilizing BEP calculations aids in determining the optimal selling price for goods or services. By detecting the volume at which revenue equals costs, entrepreneurs can establish pricing strategies that ensure profitability while remaining competitive within the market .

e. Identification of Profitable Production Options: Through BEP analysis, entrepreneurs can discern the most lucrative production alternatives for their business. By comparing break-even points across different products or services, entrepreneurs can prioritize resources towards offerings with the highest profit potential, thereby maximizing overall profitability.

a. Definition: In acknowledgment of the social responsibility owned by businesses, it is imperative to integrate diminishing costs into the business plan. These costs, having the expenses associated with mitigating environmental damage, not only ensure compliance with environmental regulations but also underscore the company’s dedication to sustainability and ethical business practices.

b. Importance of Mentioning Socio-Economic Benefits: The significance of mentioning socio-economic benefits is given as follows:

• Employment Generation: Highlighting the creation of new job opportunities within the business plan can significantly impact the local economy and community. By supporting employment growth, businesses contribute to overall development and prosperity in the area.
• Import Substitution: By manufacturing goods locally, firms can diminish dependence on imports, thereby boosting the country’s trade deficit and supporting indigenous economic growth.
• Ancillarisation: Investments in ancillary industries can stimulate job creation and economic expansion by providing a local supply chain for raw materials and resources, thus bolstering the main industry’s growth.
• Export Promotion: Exporting products to foreign markets not only generates foreign exchange earnings but also supports the country’s economic trajectory, contributing to sustained growth and development.
• Local Resource Utilization: Utilizing local resources reduces reliance on external suppliers, fostering regional economic growth while fortifying the area’s economic infrastructure.
• Area Development: Business investments can catalyze infrastructure development, including roads, transportation, and utilities, thus enhancing the quality of life for residents and fostering overall area advancement.

A financial plan is pivotal for any business venture, as it outlines the strategies for managing finances effectively. By incorporating elements such as proforma investment decisions, financing decisions, income statements, cash flow projections, balance sheets, break-even analysis, and consideration of economic and social variables, entrepreneurs can establish a robust financial framework. This framework not only aids in securing funding and assessing profitability but also ensures compliance with regulations and fosters sustainable business practices. Through careful planning and analysis, entrepreneurs can lay the groundwork for success and navigate the complexities of the business landscape with confidence.

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Financial advisors can help clients "give themselves permission to place proper importance on their wealth accumulation," planner Preston Cherry said. 

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As we've been reporting in the Money blog over the last few months, an increasing number of cities are either imposing or increasing the cost of tourist taxes on visitors. 

Many say they are preventing damages from overtourism, as well as funding local infrastructure and businesses. 

Here are the latest tourist fees for the most popular spots in Europe...

Tourists visiting Venice for the day will have to pay a €5 entry fee to enter the city between the hours of 8.30am and 4pm.

Meanwhile, those staying overnight in Venice are charged a fee between €1 to €5 within the accommodation price for the first five consecutive nights.

People visiting the Spanish city now have to pay €3.25 if they're staying in official accommodation, up from €2.75.

Manchester 

Visitors must pay £1 per room, per night across 73 hotels. 

The scheme, which has raised more than £2m within a year, is for improvements to attract more tourists.

Tourists must pay €2 per person for every night they stay, although this is only applied for a maximum of seven nights.

The Greek government has introduced a Climate Crisis Resilience Fee to charge tourists anywhere from €0.50 to €10 per room, per night.

The amount depends on the hotel category and the time of year.

Visitors to the Croatian city must pay €2.65 per person, per night throughout April to September. 

However, the fee has been temporarily reduced to €1.86 for the rest of this year.

Different amounts are charged depending on the type of accommodation.

The most expensive charge is €14.95 for a stay in palaces, and €0.65 at one or two-star campsites, per person, per night. 

Those staying in a typical four-star hotel are charged around €8.

Those staying in the Hungarian capital are charged an additional 4% each night, which is calculated based on the price of the room.

Tourists in Berlin must pay 5% of the room price, excluding VAT and service fees.

The tourist tax here has increased from €0.82 to €1.97 per day. 

Prices researched by travel insurance site Quotezone.co.uk

By Ollie Cooper , Money team

Estate agent fees are one of the big expenses in selling a house - but rule changes and the rise of private sale websites have made it more common for people to go it alone.

But how easy is it - and what do you need to know? We spoke to industry experts to find out.

Firstly, what do estate agents do for their money?

An estate agent will typically charge in the range of 1%-3.5% of the sale price. 

That means for the average house price (£284,691 from December) you could pay anywhere from £2,846 to £9,964 in commission fees.

"When you use an estate agent, their fee includes taking professional photographs, advertising your home, conducting property viewings, and negotiating a price on your behalf," says Jack Smithson  from the home ownership site  Better.co.uk .

In addition, an estate agent will compile comprehensive details of your house, including room sizes and descriptions of fixtures and fittings. 

"They will also provide a concise write-up about the local area, highlighting amenities, schools, and transportation links," Jack adds. 

And they'll conduct checks on buyers for you (more on this later).

It sounds like a lot, but...

"Selling your home yourself can be a manageable process with a few key steps," Jack says.

Preparation 

You should begin by thoroughly researching house prices in your area, using websites like Rightmove and Zoopla - but seek free valuations from local estate agents to ensure you have a realistic asking price in mind.

Next, you want to take high-quality photos of your house.

Jack advises using tutorials on YouTube to learn new shooting and editing techniques that can take you to the next level.

You then want to write down what makes your home unique.

"While browsing other listings for inspiration, take it a step further by emphasising what you love about living in your home and the surrounding area," Jack suggests.

"Whether it's the refreshing scent of the coastline or the tranquil sounds of village life, incorporating these details can help potential buyers visualise living there," he advises. 

Like using YouTube for photography tips, you can use free tools such as ChatGPT and Grammarly if you need help with your writing, Jack says. 

Advertising

This is probably the biggest perk of going through an established estate agent - your home is much more likely to be viewed because they will have an established audience and a market. But it's very possible to do it alone. 

"When it comes to advertising your home, explore a variety of avenues including local newspapers and social media," Jack says.

"Consider using websites like Strike, which allow individuals to list their properties for free on platforms like Rightmove," he suggests.

Viewings 

Once you've secured some viewings, you've got the opportunity to make it a bit more personal than estate agents ever could - a real advantage. 

"Explain the reasons behind your decision to purchase the property, highlight its unique features, and share the aspects of your neighbourhood that make it a desirable place to live," Jack says. 

The small things matter when showing people round - so try to take an objective look around before you bring anyone in.

Do the things you'd do normally - make sure it smells nice and it's clean and tidy.

"Lastly, it's worth knowing that you must legally provide potential buyers with a free Energy Performance Certificate (EPC)."

The sale itself

Perhaps the most daunting aspect is the physical exchange of contracts and money. 

An estate agent would typically oversee the process of the initial offer acceptance to the transfer of keys to the new owner.

However, if you go it alone, you'll need to become the central point of contact - bridging the gap between your solicitor or conveyancer and the buyer and their legal representative.

"Once you've accepted an offer on your property, your first task is to draft what's called a memorandum of sale," Jack says.  

This document is a written confirmation of your acceptance of the offer and details the agreed price along with any specific conditions you've both agreed to.

"It's then recommended to engage the services of a solicitor or conveyancer to ensure all legal obligations are met," Jack says (of course, you'll need to do this even if you have an estate agent).

The cost of hiring one typically ranges from a few hundred to over £1,000, depending on factors such as fixed fees, hourly rates, the complexity of the sale and additional costs like property searches or land registry fees.

"In the absence of an estate agent, you'll be responsible for keeping your buyer informed about the progress of the sale. This involves regular updates on the status of legal procedures and any relevant developments," Jack says, before adding that this can actually be a good thing.

"By taking on these responsibilities independently, you'll have greater control over the sale process. However, it will require you to be exceptionally organised, and you'll need to be very good at communicating too."  

Any risks to be aware of?

Rita Patel, legal director at law firm  Browne Jacobson , tells us the biggest risk for people selling their properties without an estate agent is the lack of a vetting and verification process of the potential buyer.

Estate agents will verify the buyer's identity and check the buyer's proof and source of funds - without this, there's no way to assess the buyer is legitimate and can afford to buy.

"Whilst this process is something lawyers can help with, this is often at an additional cost, and you'll need to start from square one if there is an issue with a potential buyer's identification and/or financial eligibility," Rita says. 

More generally, selling without an agent can extend the time it takes to sell. 

"Zoopla suggests this timeframe is normally around 17-34 weeks, but with no one on hand to consistently promote and drive the property sale at all stages, going solo drags this process out," Rita says. 

"Agents can also help mediate any potential breakdowns in communication between the buyer and seller - reducing the likelihood of having to go back to market and start again."

The advantages

Laura Owen-Brown, a PR manager from Gloucestershire, tells us she is set to sell her house without an estate agent in the near future.

"My disappointment with estate agents stems from their lack of familiarity with the properties they attempted to sell me when I was buying my current house," she says. 

"They couldn't tell me about the details that truly matter, like the optimal times for sunlight in the garden, how much council tax I'd pay, what the roof was made of, the places I could walk my dog off lead or the impact of post-football match traffic on Sundays.

"These types of details can shape the experience of living in a house for years and are just as important as the square footage, EPC rating or how many bedrooms a property has," she adds. 

She says the current "transactional" approach to selling houses feels "impersonal and outdated" to her. 

"Yes, I'll have to handle more admin, but the savings in both money and time will make it worthwhile. Liaising with buyers and solicitors directly without a third party slowing everything down will mean I can be in control and have transparency throughout the process, especially during negotiations," she says.

All in all...

As Laura says, it's very much a case of whether you can stomach the admin and are happy to take the risks on background financial checks. 

If you are aware of all the above and willing to take on the organisational burden, you could save yourself a serious chunk of cash. 

The main topics from the Money blog that got you commenting this week were...

Government-funded childcare

• Michel Roux Jr's comments about the future of the restaurant industry 

Nearly 600 new skyscrapers for London

From last Sunday, eligible working parents of children from nine-months-old in England have been able to register for access to up to 15 free hours of government-funded childcare per week.

Those hours can be claimed from September. 

Some readers pointed out the T&Cs... 

This 15 hrs a week is for term time ONLY. So full-time working parents will have to either tell their employer they can't work in school holidays or pro-rata it across the year which is 10 hours a week. Yvonne grandma

Others said it spoke to issues in the wider childcare sector...

Is the government going to give pay rises to nursery staff? They are very low paid staff, and can't get enough staff as it is!! Nurseries may have to close if they don't get staff, so parents won't be able to take up the offer!! What is the government going to do about it? Carol

Chefs or delivery drivers?

Celebrity chef Michel Roux Jr has suggested that restaurants may only open three days per week because young people prefer other jobs - like delivering parcels. 

"Just because I worked 80 hours a week or more doesn't mean the next generation should," he said. 

"Quite the contrary. That is something that we have to address in our industry."

Readers said...

That's because one [job] is on the verge of slave labour and one definitely is slave labour. And the latter I'm referring to is working in a kitchen for a chef.  Realist2024

Spent 35 years working as a chef. Young people nowadays are not willing to do the extra hours (usually unpaid) and work every weekend. Godsends like my generation of chefs did and do.  Bucks

There's been considerable backlash in our comments section after a thinktank said a total of 583 skyscrapers are "queuing up in the pipeline" to be built across central London.

That is more than double the 270 built in the past decade...

"600 new skyscrapers on way for London" while the majority are struggling. When will something serious be done about growing wealth inequality in the UK? A growing economy is useless while the gap between the ultra rich and everyone else increases. Qwerty1

How many unnecessary skyscrapers for London? It's fine, as long as they are not made using steel, glass, concrete or bricks - don't people know there's a climate emergency? Shanghaiwan

Who's paying for it? What about the North? treelectrical

The energy price cap is set to fall by about 7% in July, a respected energy markets researcher has said.

Ahead of next Friday's announcement by Ofgem for the July-September period, Cornwall Insights said: "For a typical dual fuel household, we predict the July price cap to be £1,574 per annum" - a drop from £1,690.

Looking further ahead, it forecasted the cap will rise again slightly in October, before falling in January next year. 

"A predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years," a spokesperson for Uswitch said. 

Around 100 more prosecutions of sub-postmasters unrelated to the Horizon scandal could be "tainted" , a Sky News investigation has found, as officials worked with now discredited Post Office investigators to secure convictions.

The prosecutions of Post Office staff were led by the Department for Work and Pensions (DWP) between 2001 and 2006.

It is understood these usually involved the cashing in of stolen order books.

The Post Office itself wrongly prosecuted hundreds of sub-postmasters between 1999 and 2015 - based on evidence from the faulty Horizon accounting system.

Read more from our business correspondent Adele Robinson  by clicking  here ...

The UK's mega rich are dwindling in a sign Britain's "billionaire boom has come to an end" , according to the latest Sunday Times Rich List.

The list reveals the largest fall in billionaires in the guide's history - from a peak of 177 in 2022 to 165 this year.

While the combined wealth of the list's 350 wealthiest individuals amounts to more than £795bn - larger than the GDP of Poland - the guide's compiler says time will tell what impact a drop in billionaires could have.

"This year's Sunday Times Rich List suggests Britain's billionaire boom has come to an end," Robert Watts said.

Read on here ...

The Money blog is your place for consumer news, economic analysis and everything you need to know about the cost of living - bookmark news.sky.com/money.

It runs with live updates every weekday - while on Saturdays we scale back and offer you a selection of weekend reads.

Check them out this morning and we'll be back on Monday with rolling news and features.

The Money team is Emily Mee, Bhvishya Patel, Jess Sharp, Katie Williams, Brad Young and Ollie Cooper, with sub-editing by Isobel Souster. The blog is edited by Jimmy Rice.

The Body Shop’s administrators are to launch an auction of the chain after concluding that an alternative restructuring of one of Britain’s best-known high street retailers was not viable.

Sky News has learnt that FRP Advisory, which has been overseeing the collapsed business since January, is to begin formally sounding out potential buyers in the coming weeks.

The move raises the prospect of new owners taking control of The Body Shop, which was founded nearly half a century ago.

Read more here ...

The UK's mega rich are dwindling - in a sign Britain's "billionaire boom has come to an end", according to the latest Sunday Times Rich List.

Published today, the list reveals the largest fall in billionaires in the guide's history - from a peak of 177 in 2022 to 165 this year.

"Many of our home-grown entrepreneurs have seen their fortunes fall and some of the global super rich who came here are moving away."

Top of the list is British-Indian businessman Gopi Hinduja and his family, whose wealth of £37.2bn is the largest fortune in the ranking's history.

But other familiar names in the list saw their riches fall, with Sir Richard Branson's total dropping by £2.4bn, which is back to his 2000 level.

Last year's top climber Sir Jim Ratcliffe, who bought a stake in Manchester United this year, fell two positions with a decline of £6.1bn.

Euan Blair, Tony Blair's eldest son, made the list for the first time, as did Sir Lewis Hamilton.

It comes as the UK continues to deal with a cost-of-living crisis, with new figures this week revealing a record 3.1 million food bank parcels were distributed over the course of a year.

The top 10:

• Gopi Hinduja - £37.2bn
• Sir Leonard Blavtanik - £29.2bn
• David and Simon Reuben and family - £24.9bn
• Sir Jim Ratcliffe - £23.5bn
• Sir James Dyson and family - £20.8bn
• Barnaby and Merlin Swire and family - £17.2bn
• Idan Ofer - £14.9bn
• Lakshmi Mittal and family - £14.9bn
• Guy, George, Alannah and Galen Weston and family - £14.4bn
• John Fredriksen and family - £12.8bn

A group of social media influencers have been charged in relation to promoting an unauthorised investment scheme.

The Only Way Is Essex (TOWIE) original cast member Lauren Goodger, 37, former Love Island star Biggs Chris, 32, and Celebrity Big Brother winner Scott Timlin, 36, also known as Scotty T, are among seven TV personalities alleged to have been paid to promote the scheme to their combined 4.5 million Instagram followers.

The others charged by the Financial Conduct Authority (FCA) include former Love Islanders Rebecca Gormley, 26, Jamie Clayton, 32, and Eva Zapico, 25 and TOWIE member Yazmin Oukhellou, 30.

The UK's financial watchdog brought the charges in a crackdown on "finfluencers" who use their online platforms to offer advice and information on various financial topics.

It alleges that between 19 May 2018 and 13 April 2021 Emmanuel Nwanze, 30, and Holly Thompson, 33, used an Instagram account to provide advice on buying and selling investments known as contracts for difference (CFDs) when they were not authorised to do so.

The watchdog said CFDs were high-risk investments used to bet on the price of an asset, in this case the price of foreign currencies.

It previously warned that 80% of customers lost money when investing in CDFs.

Mr Nwanze has been charged with running the scheme. He faces one count of breaching the general prohibition of the Financial Services and Markets Act 2000, and one count of unauthorised communications of financial promotions.

Ms Thompson, Mr Chris, Mr Clayton, Ms Goodger, Ms Gormley, Ms Oukhellou, Mr Timlin and Ms Zapico each face one count of unauthorised communications of financial promotions.

All nine will appear at Westminster Magistrates Court on 13 June.

The FCA asked anyone who believed they had sustained a loss due to the scheme to contact its consumer contact centre.

A hotel part-owned by Gary Neville and other ex-Manchester United legends has been named one of the best places to work in hospitality. 

Each year, The Caterer releases its top 30 best places for employees in the sector, with the top six featuring some familiar names.

The list is compiled via anonymous employee survey - with no input from managers or owners. 

Hotel Football, the only hotel with a rooftop five-a-side pitch, was among the top six venues selected by employees across the UK. 

The hotel's benefits package was particularly well-praised by those who work there - given that it "prioritises the financial wellbeing of employees during the cost of living challenge".

Management at the hotel, which is situated next to Manchester United's Old Trafford stadium, was also praised for enhanced maternity, paternity, parental and adoption leave policies and a strong belief in diversity and inclusion. 

The other five to make up the top six are The Biltmore in Mayfair, Cycas Hospitality (which has 18 locations across the UK), Dalata (which boasts some 1,000 employees), Gleneagles Hotel in Edinburgh and Nobu Hotel in Shoreditch, London. 

The energy price cap is set to fall by about 7% in July, a leading thinktank has said. 

Cornwall Insights said: "For a typical dual fuel household, we predict the July price cap to be £1,574 per annum" - a drop from £1,690.

Looking further ahead, it forecasted the cap to rise again slightly in October, before falling again in January next year. 

Reacting to the news, Uswitch said the predicted drop was "clearly good news". 

"The future still remains uncertain, and with the price cap changing every three months – currently expected to rise in October before falling slightly in January –  it's crucial not to be complacent," Richard Neudegg, director of regulation, said. 

However, "a predicted 7% drop in energy prices in July is clearly good news, with the price cap looking likely to hit its lowest level in over two years", he said. 

He also urged  households who want to lock in rates for price certainty to run a comparison to see what energy tariffs are available to them.

"There are many 12-month fixed tariffs available at rates cheaper than the current price cap, and even some that are 2% below these new predicted July rates," he said. 

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Federal Budget 2024: Winners and Losers

Treasurer Jim Chalmers has handed down the government's third budget, with a $300 power bill boon for every Australian household, but the purse strings kept tight on other measures.

There's pressure to provide cost of living relief on the one hand and pressure not to further fuel inflation on the other.

Have a look at this cheat sheet of what's new in this year's budget — and what's in it for you.

Winner: Aged care

Another half a billion dollars will be spent next financial year to release 24,100 more home care packages.

$610 million will be given to the states to assist long stay older patients to be discharged from hospital sooner. Those initiatives will be developed by states and territories.

Another $190 million will be provided on top of that to extend and redesign the Transition Care Programme to provide short-term care of up to 12 weeks for older people after a hospital stay.

These measures were agreed by National Cabinet in December last year. 

The Health Services Union said however its workers were "bitterly disappointed" at delays to historic pay rises, with the second half of those pay rises not due to begin until 2026.

No change: Child care

Reforms targeting the payment and accuracy of the Child Care Subsidy program, which became a reality in the last federal budget, will return savings of $410.7m over four years.

The government will reinvest $30 million of those savings over two years to provide funding towards a wage increase for the early childhood education and care sector.

A number of other measures to crack down on fraud and non-compliance were also listed in the budget, such as $84.2 million over four years to increase audits of providers in the sector and manage the collection of child care gap fees in the family day care and in home care sectors.

But funding for the sector remains largely unchanged overall.

Winner: Defence

The federal government will spend an extra $5.7 billion on defence over the next four years, and a projected $50.3 billion more in the decade to come as it continues reshaping Australia's armed forces.

The government predicts it will spend a total $330 billion on defence in the next decade, growing Australia's navy, preparing the army for shoreline warfare, enhancing long-range strike capabilities and strengthening the nation's northern bases.

Winner: Electricity bills

Every Australian household will get a tidy $300 rebate on their power bills, and eligible small businesses will receive a $325 rebate — a partial extension of bill relief agreed in negotiations with states and territories last year.

From July, all households will have a $300 credit automatically applied to their electricity bills. $75 dollars will be credited per quarter. 

Around 1 million businesses will receive a $325 deduction off their bills over next financial year, in quarterly instalments.

Treasury estimates this will directly reduce headline inflation by around half a percentage point next financial year, and argues increased spending from the cash injection will not contribute to broader inflationary pressures.

The government says it amounts to a 17 per cent reduction on the average power bill.

The measure is one of the key cost-of-living relief items being spruiked by government in this budget.

Loser: Sheep farmers

The government made a pre-election promise to stop the live export of sheep from Australia.

It's used the federal budget to set the date for the legislated ban, setting aside $107 million to help the industry end the trade by May 1, 2028.

It's a win for animal welfare groups that have lobbied for the ban, but farmers have broadly opposed the policy and say it is a legitimate industry that should be allowed to continue. 

Winner: Green manufacturing 

Critical minerals and products essential to transitioning to net-zero emissions have received a big funding boost in this budget.

Production tax incentives will be made available for critical minerals and for hydrogen from 2027, once the government has designed the scheme.

The incentive will be worth $2 for every kilogram of hyrdogen produced, and critical minerals will be valued at 10 per cent of relevant processing and refining costs, at an estimated cost of about $14 billion to the budget for both over the medium term.

$1.4 billion will also be provided over the next decade to support manufacturing of clean energy technologies, mostly to develop solar manufacturing capabilities.

And half a billion dollars will be given to Geoscience Australia to map Australia and identify potential new critical mineral sites.

The programs are part of the government's Future Made in Australia agenda, which will be guided by a new framework to identify priority industries for funding.

The framework, to be established in law under the Future Made in Australia Act, will guide future private sector investments and direct money towards projects that either make a significant contribution towards reaching net-zero emissions, or that help to shore up Australia against supply chain disruptions.

Winner: Gun safety campaigners

A national firearms register will be established, more than three decades since the Port Arthur massacre when it was first proposed.

The register will provide law enforcement with near-real time information on firearms and their owners, and link that information with other relevant police and government information.

Establishing the register will cost $161.3 million over four years.

Winner: Rental assistance

The maximum rate of money paid through the Commonwealth Rent Assistance payment will be increased by 10 per cent from September this year, which will benefit about 1 million recipients already receiving the maximum rate.

The current maximum payment for a single person receiving rent assistance is $188.20 a fortnight, and $125.47 for a single person in a share house.

That means the payment would increase by about $19 a fortnight for a single person before accounting for indexation.

It will cost the government an additional $1.9 billion over five years and half a billion annually after that.

Winner: Housing

The federal government will direct $1 billion of its National Housing Infrastructure Facility towards crisis and transitional accommodation for women and children fleeing domestic violence and for youth.

The funding helps local government to build social housing and supporting infrastructure that otherwise may not go ahead.

Another $1 billion will also be given to states and territories to pay for roads, sewers, energy and water connections for new homes.

The government has also doubled the funding it provides for homelessness services through its five-year agreement with the states and territories — though the Greens claim that money is being taken from social housing funding under the agreement.

They also claim the $1 billion extra for crisis housing is the same money the government already promised in September last year in order to win support for its Housing Australia Future Fund.

Winner: Healthcare

The federal government says it is investing $8.5 billion in new money into health this budget.

The government will fund an additional 29 urgent care clinics, adding to the 58 already opened, which offer walk-in care seven days a week completely covered by Medicare.

The facilities are designed to help people receive aid for simple ailments, including many that would otherwise have required them to go to an emergency department.

But the Australian Medical Association says there is little new in this year's budget for health, counting it as a missed opportunity.

The AMA also did not get its requested tax on sugary drinks, which it says would have raised billions oif dollars and acted as a preventative health measure.

For the second year in a row, the government has also increased the Medicare levy low-income thresholds for singles, families, seniors and pensioners to account for inflation.

The threshold has been increased up to $26,000 for individuals while the family threshold has been increased to $43,846. For single seniors and pensioners, the threshold has been increased to $41,089 while the family threshold will increase to $57,198.

The family income thresholds will now increase by $4,027 for each dependent child, up from $3,760

Loser: Would-be migrants

The government will set the cap for next financial year's permanent migration program at 185,000 places, with 132,200 of those places being allocated to skill stream, limiting more permanent places to people who fit Australia's longer-term skills needs.

Net overseas migration is forecast to halve to 260,000 in 2024-2025.

And the number of places for international students is being capped, the details to be determined in negotiations with universities.

A $25 ballot for working and holiday visas will also be introduced for people coming from China, Vietnam and India from next financial year.

That ballot will help to cut down processing times for visa applications and help to manage demand.

Separately a new program will be established for 3,000 Indian graduates and early-career professonals to be able to live and work in Australia for up to two years. Indian nationals seeking to apply will pay $25 to enter a ballot, and then pay $365 for the visa if they are successful.

Loser: International students

The number of places for international students will now be capped, under legislation due to be introduced by the federal government.

The education minister will be able to require education providers to limit the maximum number of new international student enrolments each year.

If universities want to enrol international students above that limit, they will be required to build new purpose-built student accommodation to benefit both international and domestic students.

The details of the student cap will be determined through consultation with the sector.

Winner: Medication

The cost of PBS-listed medications will be frozen for everyone with a Medicare card for one year, one of the key cost of living measures committed by the government this budget.

For concession card holders and pensioners, prices will be frozen for five years.

It means the price will remain at $31.60, or $7.70 per medicine for concession card holders and pensioners.

It's set to come at a $310m cost over the five years, with an additional $166.4m cost in 2028-29.

Loser: Mental health

Australians experiencing mental health distress will soon be able to get access to support free of charge and without a referral, with the establishment of a national digital service.

The government will inject $588.5 million over the next eight years for the digital service, which it says will be designed so people can get the support they need before their health needs escalate to requiring higher-intensity services such as a mental health treatment plan, acute in-patient service or crisis line.

Free mental health support will also be delivered through a network of 61 Medicare mental health centres, which will have access to psychiatrists, psychologists and GPs on call, building on the government's already established Head to Health network.

But the ABC is marking mental health as a loser, because these supports are being announced nearly a year and a half on from the government halving how many psychology sessions receive a rebate from 20 to 10 in a year.

Independent senator David Pocock said these measures were a poor answer, and "hardly at the scale needed to confront the crisis we're in".

"While welcome, this won't put a dent in waiting lists or reduce pressure on hospitals who are seeing more mental health emergencies coming through their doors," he said.

The Australian Medical Association said it was also concerning that general practice's role in mental health was being "undermined" by the removal of specific Medicare items for the review of a mental health care plan.

A scathing Australian Association of Psychologists said the government needed to "grow a heart and start taking mental health seriously", suggesting realistic Medicare rebates would have been a better use of the money.

The government will also provide $71.7 million over four years to primary health networks to bring on mental health nurses and other allied health supports to provide free care and coordination in between GP and specialist appointments.

Winner: Family violence supports

The federal government will spend close to $1 billion to make the Leaving Violence Program permanent. The scheme offers people leaving abusive relationships up to $5,000 in financial support as well as referring them to social services and safety planning.

The $925.2 million will fully fund the scheme for the next five years. The scheme began as a pilot program in 2021 under the former government and has been accessed more than 45,000 times since it began.

Winner: Teaching, nursing and social work students

Students undertaking practical placement for teaching, nursing, midwifery and social work courses will now be paid $319.50 a week for placement, solving a huge affordability gap for students required to do placement as part of their study but unable to work their regular jobs during that time.

The Commonwealth Prac Payment will be means-tested and in addition to any other income support students are already receiving.

It will benefit about 68,000 higher education students and more than 5,000 VET students from July next year.

Students Against Placement Poverty has criticised the measure as insufficient, saying the commitment amounts to about $8 an hour for a full work week, and many students will miss out because it's means-tested.

Winner: Treasury

It's not much of a surprise, but the federal government has again posted an expected surplus for 2023-24 on the back of its surplus in last year's budget, which was the first in over a decade.

Treasury has forecast a surplus of $9.3 billion for this financial year, meaning the government will receive more money than it will spend.

But the following three financial years will be deeper in the red than earlier forecasts suggested — a downgrade the government blames on unavoidable spending to continue programs that were due to expire.

The government says however there has been a cumulative $200 billion improvement in the six years to 2026-27 compared to forecasts made before Labor came to government.

Much of that is thanks to improved commodity prices and an increased tax take driven by inflation and better-than-expected employment rates.

Winner: Taxpayers

From July 1 every taxpayer will receive a tax cut following changes announced by the federal government earlier this year.

It means workers in every tax bracket will pay less income tax.

You can use our calculator to find out exactly how big the tax cut will be for you .

The stage 3 tax cuts were already legislated to take effect in July, but the government broke an election promise not to amend them in order to rebalance the cuts to more greatly benefit lower-income workers.

In short, the Albanese government's reforms mean anyone earning less than $146,000 taxable income will receive a bigger cut than previously legislated, while anyone earning over that will receive a smaller cut.

The reforms reduce the 19 per cent tax rate to 16 per cent, reduce the 32.5 per cent tax rate to 30 per cent, raise the threshold at which the 37 per cent tax rate applies from $120,000 to $135,000 and raise the threshold at which the highest rate of 45 per cent applies from $180,000 to $190,000.

Loser: High-income earners

The ABC is marking high-income earners as a budget loser, even though they are due to receive income tax cuts from July, because those people are strictly worse off compared to last budget.

Because of the federal government's changes to the already legislated stage three tax cuts, people earning a taxable income of more than $146,000 will receive a smaller cut than previously set out in the budget.

The highest income earners will pay $4,529 less income tax from July — but those people were previously expecting to pay $9,075 less from that date.

Overall it is a reduction in forecast benefit to those taxpayers when compared to the last federal budget.

Loser: NDIS top-ups

The automatic top-up of NDIS plans when a participant uses all their funds will be ended as part of a broader move to rein in the rapid growth in expense of the National Disability Insurance Scheme.

The NDIS is listed as the second-fastest-growing budget pressure, after national debt.

The government already laid out the need to get growth under control in last year's budget to ensure the NDIS remained viable.

The government expects to moderate growth in NDIS participant payments by $14.4 billion over the coming four years, once its reforms are passed by parliament.

A key element of this will be ending automatic top-ups of people's plans when they use all their funds — as the government attempts to curb what it calls "intra-plan inflation".

Millions more will also be invested in detecting fraud among providers.

Treasury forecasts expect NDIS Commonwealth-funded participant payment growth to average 9.2 per cent year on year compared to 10.1 per cent predicted at the Mid-Year Economic and Financial Outlook in December.  

Expect the government to quickly point out the NDIS remains demand-driven and the budget papers also included a further $468.7 million to support people with a disability through the establishment of an Evidence Advisory Committee, making it easier for people with disability to navigate services, reforms to pricing arrangements and a crackdown on fraud. 

It's part of a deal struck with the states to reduce annual growth to 8 per cent, with the states agreeing to jointly fund some supports outside the NDIS.

Winner: Last-minute travellers

Australian passports may already be some of the most expensive in the world but a new fee will give travellers access to fast-tracked applications from July 1.

People willing to fork out an extra $100 to skip the queue will get access to a five-business-day turnaround of their documents.

The government anticipates the added fees will rake in $27.4 million over five years.

Loser: Public service contractors

The federal government will save $1 billion by reducing spending on external labour, including consultants and contractors, as the government continues to cut back on the use of consultants and contractors within the public service.

Winner: Parental leave takers

Superannuation will now be paid on top of Commonwealth-funded paid parental leave from July next year.

It will cost the government $1.1 billion over four years, plus $623.1 million each year ongoing, in order to implement the scheme.

Superannuation has been raised as a key issue contributing to pay inequity between men and women, who typically access more parental leave, with the loss of the super payments during that time contributing to smaller savings on average at retirement.

It builds on the government's plan to increase the amount of paid leave new parents can take under the Commonwealth scheme to 26 weeks by mid-2026.

Winner: Student debts

People with HELP debts, VET student loans and Australian Apprenticeship Support Loans and other student loans will have their debts reduced as the federal government changes how the loans accrue interest.

Pending a legislative change that must be passed through parliament, student debts will grow each year at the rate of either the consumer price index or the wage price index — whichever is lower.

This change will also be backdated to June last year, meaning loans for that year will grow at the lower wage index rate of 3.2 per cent instead of the 7.1 per cent inflation rate they were measured at.

Debt repayments won't change, but it means for someone with a $25,000 debt it will be $1,120 smaller than without the change.

There was also no change to when debt accrues, meaning student debts will continue to grow each year before people's fortnightly loan repayments are actually applied.

The measure will cost the federal government about $3 billion in foregone revenue.

Winner: Social services

Around 4,700 single JobSeekers who are unable to work more than 14 hours a week will have their payment raised to the higher payment rate, currently available to single recipients with children and those aged 55 and over who have been on the payment for nine months or more.

It means they will receive an additional $54.90 per fortnight from September, according to the government.

The government will also continue to freeze the deeming rates for another year. If the government had lifted the deeming rates, it would have meant 876,000 income support recipients, more than half of whom are on the aged pension, likely would have seen a fall in welfare payments. 

And around 31,000 carers will be given greater flexibility to undertake work, study or volunteer from March next year, with existing weekly limits on participation hours shifted to be counted over four-week periods instead.

Another $1.8 billion over three years has also been committed to frontline staff at Services Australia, to help manage claims and clear backlogs.

Winner: Social media safety

The government will trial an age verification scheme for children online, which will test options to restrict children from being able to access pornography or other inappropriate content online.

Overseas attempts have found it difficult to implement an effective age assurance program, while some sceptics have raised concerns of adult sites holding people's personal data becoming a target for hackers.

But the government will push ahead with a "pilot" program as part of its broader response to recent prominent incidents of gendered violence.

$6.5 million will be committed to trialling the age verification scheme. 

Winner: People with endometriosis

Longer specialist consultations for women with endometriosis and other complex gynaecological conditions like chronic pelvic pain and polycystic ovary syndrome (PCOS) will now be covered under Medicare from July next year.

Two new rebates will be added to the Medicare Benefits Schedule enabling extended consultation times and increased rebates for specialist care.

The $49.1 million investment is expected to provide about 430,000 more services to women across the country.

Including this new funding, the federal government has committed a total $107 million in endometriosis support for women since being elected, including establishing endometriosis and pelvic pain clinics across the country and funding for research and awareness. 

Winner: Renewables

$3.2 billion will be spent over the next decade under the government's flagship Future Made in Australia initiative to accelerate investment in renewable hydrogen and solar and battery supply chains.

About half of that will be paid through a new innovation fund to support the commercialisation and rollout of new renewable technologies, including green metals, low-carbon liquid fuels and battery manufacturing.

On top of that, $8 billion will be invested over the next decade to support renewable hydrogen production, including a Hydrogen Production Tax incentive, which will provide a $2 incentive per kilogram of renewable hydrogen produced from 2027, at a cost of $6.7 billion over the medium term.

Another roughly $100 million will be spent over the next four years to speed up approval processes for renewable projects, which have been taking as long as three years to be approved under federal environment laws.

And, recognising the cost blowouts of Snowy Hydro Limited, the corporation will receive another $7.1 billion over four years to continue construction of Snowy 2.0, much of which will be provided as a loan. 

Winner: Sport

The government will spend just under a quarter of a billion dollars to upgrade the Australian Institute of Sport, based in Canberra, ahead of the 2032 Brisbane Olympics.

The funding will go towards a new high-performance training and testing centre, a multi-sport indoor dome and accommodation.

Queensland had sought for the Australian Institute of Sport to be relocated to Brisbane for the Olympics, but that was rejected. 

The 2027 men's Rugby World Cup and 2029 women's Rugby World Cup will also have taxation for their events exempted. It will mean income derived from the events and any interest, dividends or royalties will not be taxed.

Winner: Tradies

A tax break that makes it easier for tradies to claw back the price of a brand-new ute has been extended for another year.

The popular instant asset write-off scheme allows small businesses with an annual turnover below $10m to claim a tax deduction on new equipment (such as a new ute, an oven, or a coffee machine) up to the value of $20,000.

It was extended in last year's budget for the current financial year, but the legislation has stalled in parliament amid calls to increase the threshold to $30,000.

However, the Council of Small Business Australia has been urging the government to increase the threshold to $150,000.

The federal government will also commit another $90 million to cover the education costs of 20,000 more people seeking to study programs related to housing and construction.

Payments up to $10,000 over the course of a person's study will also be on offer for people willing to learn clean energy skills under the revamped 'New Energy Apprentice Payment'.

Winner: Ukraine

The government will provide an additional $100 million in assistance to Ukraine, including $50 million for "short-range air defence systems".

$30 million will go towards aerial drone systems and $15 million towards equipment such as combat helmets, inflatable boats, boots, fire masks and generators.

It tips to the total support to Ukraine since Russia's invasion over the $1 billion mark.

Loser: Universities

The ABC is marking universities as a loser because, while this budget sets out a likely future windfall for the tertiary sector, the concrete measures for universities for now are largely impositions.

University groups have already expressed concern at the government's plan to cap international student places, with institutions required to provide purpose-built student accommodation if they want to take students above those caps.

The budget has also laid out requirements for universities to direct 40 per cent of their Student Services and Amenities Fee, paid annually by students, towards student-led organisations from next year.

The Student Services and Amenities Fee for full-time students is currently set at a maximum of $351 for this year, with no minimum requirement for how much is paid to student-led groups.

However, pending final consultations, more funding is expected to come down the line for the sector from 2026.

The government has set a goal for 80 per cent of working-aged people to attain a degree by 2050, and in order to do that would have to boost the number of people from disadvantaged groups going to university.

That would require an effective doubling of university places by 2050, and the government has promised an overhaul of funding to achieve that, including a new demand-driven funding arrangement and needs-based funding to support disadvantaged students to complete their degrees.

But none of that will be settled until the government strikes a deal with the tertiary sector.

Winner: Women

The largest measure most closely targeted to supporting women was already announced by the federal government ahead of the budget.

That's an almost $1 billion commitment to make a $5,000 payment for women fleeing violent relationships permanent in the budget, a scheme first trialled by the Morrison government.

Another $1 billion will be put towards crisis and transitional accommodation for women and children fleeing domestic violence.

Superannuation will also be paid on Commonwealth-funded paid parental leave from July next year, a measure that will help to close the gap in men's and women's savings at retirement.

That will cost another $1.1 billion over four years, and $623.1 million each year after.

• Illustration: Emma Machan

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