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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

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

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

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

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

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

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

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

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

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

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

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

The following are the key components of an accurate revenue projection report:

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

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

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

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

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

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

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

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

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

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

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

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

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• Creating a Small Business Financial Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

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Table of contents, financial plan overview.

A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.

For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ensure sustainable growth.

The strength of a financial plan lies in its ability to offer a clear roadmap for businesses.

Especially for small businesses that may not have a vast reserve of resources, prioritizing financial goals and understanding where every dollar goes can be the difference between growth and stagnation.

It lends clarity, ensures informed decision-making, and sets the stage for profitability and success.

Understanding the Basics of Financial Planning for Small Businesses

Role of financial planning in business success.

Financial planning is the backbone of any successful business endeavor. It serves as a compass, guiding businesses toward profitability, stability, and growth.

With proper financial planning, businesses can anticipate potential cash shortfalls, make informed investment decisions, and ensure they have the capital needed to seize new opportunities.

For small businesses, in particular, tight financial planning can mean the difference between thriving and shuttering. Given the limited resources, it's vital to maximize every dollar and anticipate financial challenges.

Through diligent planning, small businesses can position themselves competitively, adapt to market changes, and drive consistent growth.

Core Components of a Financial Plan for Small Businesses

Every financial plan comprises several core components that, together, provide a holistic view of a business's financial health and direction. These include setting clear objectives, estimating costs , preparing financial statements , and considering sources of financing.

Each component plays a pivotal role in ensuring a thorough and actionable financial strategy .

For small businesses, these components often need a more granular approach. Given the scale of operations, even minor financial missteps can have significant repercussions.

As such, it's essential to tailor each component, ensuring they address specific challenges and opportunities that small businesses face, from initial startup costs to revenue forecasting and budgetary constraints.

Setting Clear Small Business Financial Objectives

Identifying business's short-term and long-term financial goals.

Every business venture starts with a vision. Translating this vision into actionable financial goals is the essence of effective planning.

Short-term goals could range from securing initial funding and achieving a set monthly revenue to covering startup costs. These targets, usually spanning a year or less, set the immediate direction for the business.

On the other hand, long-term financial goals delve into the broader horizon. They might encompass aspirations like expanding to new locations, diversifying product lines, or achieving a specific market share within a decade.

By segmenting goals into short-term and long-term, businesses can craft a step-by-step strategy, making the larger vision more attainable and manageable.

Understanding the Difference Between Profitability and Cash Flow

Profitability and cash flow, while closely linked, are distinct concepts in the financial realm. Profitability pertains to the ability of a business to generate a surplus after deducting all expenses.

It's a metric of success and indicates the viability of a business model . Simply put, it answers whether a business is making more than it spends.

In contrast, cash flow represents the inflow and outflow of cash within a business. A company might be profitable on paper yet struggle with cash flow if, for instance, clients delay payments or unexpected expenses arise.

For small businesses, maintaining positive cash flow is paramount. It ensures that they can cover operational costs, pay employees, and reinvest in growth, even if they're awaiting payments or navigating financial hiccups.

Estimating Small Business Startup Costs (for New Businesses)

Fixed vs variable costs.

When embarking on a new business venture, understanding costs is paramount. Fixed costs remain consistent regardless of production levels. They include expenses like rent, salaries, and insurance . These are predictable outlays that don't fluctuate with business performance.

Variable costs , conversely, change in direct proportion to production or business activity. Think of costs associated with materials for manufacturing or commission for sales .

For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.

One-Time Expenditures vs Ongoing Expenses

Startups often grapple with numerous upfront costs. From purchasing equipment and setting up a workspace to initial marketing campaigns, these one-time expenditures lay the foundation for business operations.

They differ from ongoing expenses like utility bills, raw materials, or employee wages that recur monthly or annually.

For a small business owner, distinguishing between these costs is critical. One-time expenditures often demand a larger chunk of initial capital, while ongoing expenses shape the monthly and annual budget.

By categorizing them separately, businesses can strategize funding needs more effectively, ensuring they're equipped to meet both immediate and recurrent financial obligations.

Funding Sources for Small Businesses

Personal savings.

This is often the most straightforward way to fund a startup. Entrepreneurs tap into their personal savings accounts to jumpstart their business.

While this method has the benefit of not incurring debt or diluting company ownership, it intertwines the individual's personal financial security with the business's fate.

The entrepreneur must be prepared for potential losses, and there's the evident psychological strain of putting one's hard-earned money on the line.

Loans can be sourced from various institutions, from traditional banks to credit unions . They offer a substantial sum of money that can be paid back over time, usually with interest .

The main advantage of taking a loan is that the entrepreneur retains full ownership and control of the business.

However, there's the obligation of monthly repayments, which can strain a business's cash flow, especially in its early days. Additionally, securing a loan often requires collateral and a sound credit history.

Investors, including angel investors and venture capitalists , offer capital in exchange for equity or a stake in the company.

Angel investors are typically high-net-worth individuals who provide funding in the initial stages, while venture capitalists come in when there's proven business potential, often injecting larger sums. The advantage is substantial funding without the immediate pressure of repayments.

However, in exchange for their investment, they often seek a say in business decisions, which might mean compromising on some aspects of the original business vision.

Grants are essentially 'free money' often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors.

The primary advantage of grants is that they don't need to be repaid, nor do they dilute company ownership. However, they can be highly competitive and might come with stipulations on how the funds should be used.

Moreover, the application process can be lengthy and requires showcasing the business's potential or alignment with the specific goals or missions of the granting institution.

Preparing Key Financial Statements for Small Businesses

Income statement (profit & loss).

An Income Statement , often termed as the Profit & Loss statement , showcases a business's financial performance over a specific time frame. It details revenues , expenses, and ultimately, profits or losses.

By analyzing this statement, business owners can pinpoint revenue drivers, identify exorbitant costs, and understand the net result of their operations.

For small businesses, this document is instrumental in making informed decisions. For instance, if a certain product line is consistently unprofitable, it might be prudent to discontinue it. Conversely, if another segment is thriving, it might warrant further investment.

The Income Statement, thus, serves as a financial mirror, reflecting the outcomes of business strategies and decisions.

Balance Sheet

The Balance Sheet offers a snapshot of a company's assets , liabilities , and equity at a specific point in time.

Assets include everything the business owns, from physical items like equipment to intangible assets like patents .

Liabilities, on the other hand, encompass what the company owes, be it bank loans or unpaid bills.

Equity represents the owner's stake in the business, calculated as assets minus liabilities.

This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise.

In contrast, mounting liabilities or dwindling assets could be red flags, signaling the need for intervention and strategy recalibration.

Cash Flow Statement

While the Income Statement reveals profitability, the Cash Flow Statement tracks the actual movement of money.

It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.

For small businesses, maintaining positive cash flow is often more vital than showcasing profitability.

After all, a business might be profitable on paper yet struggle if clients delay payments or unforeseen expenses emerge.

By regularly reviewing the Cash Flow Statement, small business owners can anticipate cash crunches and strategize accordingly, ensuring seamless operations irrespective of revenue cycles.

Small Business Budgeting and Expense Management

Importance of budgeting for a small business.

Budgeting is the financial blueprint for any business, detailing anticipated revenues and expenses for a forthcoming period. It's a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges.

For small businesses, a meticulous budget is often the linchpin of stability, ensuring they operate within their means and avoid financial pitfalls.

Having a well-defined budget also fosters discipline. It curtails frivolous spending, emphasizes cost-efficiency, and sets clear financial boundaries.

For small businesses, where every dollar counts, a stringent budget is the gateway to financial prudence, ensuring that funds are utilized judiciously, fostering growth, and minimizing wastage.

Strategies for Reducing Costs and Optimizing Expenses

Bulk purchasing.

When businesses buy supplies in large quantities, they often benefit from discounts due to economies of scale . This can significantly reduce per-unit costs.

However, while bulk purchasing leads to immediate savings, businesses must ensure they have adequate storage and that the products won't expire or become obsolete before they're used.

Renegotiating Vendor Contracts

Regularly reviewing and renegotiating contracts with suppliers or service providers can lead to better terms and lower costs. This might involve exploring volume discounts, longer payment terms, or even bartering services.

Building strong relationships with vendors often paves the way for such negotiations.

Adopting Energy-Saving Measures

Simple changes, like switching to LED lighting or investing in energy-efficient appliances, can lead to long-term savings in utility bills. Moreover, energy conservation not only reduces costs but also minimizes the environmental footprint, which can enhance the business's reputation.

Embracing Technology

Modern software and technology can streamline business processes. Automation tools can handle repetitive tasks, reducing labor costs.

Meanwhile, data analytics tools can provide insights into customer preferences and behavior, ensuring that marketing budgets are used effectively and target the right audience.

Streamlining Operations

Regularly reviewing and refining business processes can eliminate redundancies and improve efficiency. This might mean merging roles, cutting down on unnecessary meetings, or simplifying supply chains. A leaner operation often translates to reduced expenses.

Outsourcing Non-core Tasks

Instead of maintaining an in-house team for every function, businesses can outsource tasks that aren't central to their operations.

For instance, functions like accounting , IT support, or digital marketing can be outsourced to specialized agencies, often leading to cost savings and access to expert skills.

Cultivating a Culture of Frugality

Encouraging employees to adopt a cost-conscious mindset can lead to collective savings. This can be fostered through incentives, regular training, or even simple practices like recycling and reusing office supplies.

When everyone in the organization is attuned to the importance of cost savings, the cumulative effect can be substantial.

Forecasting Small Business Revenue and Cash Flow

Techniques for predicting future sales in a small business, past sales data analysis.

Historical sales data is a foundational element in any forecasting effort. By reviewing previous sales figures, businesses can identify patterns, understand seasonal fluctuations, and recognize the effects of past initiatives.

This information offers a baseline upon which to build future projections, accounting for known recurring variables in the business cycle .

Market Research

Understanding the larger market dynamics is crucial for accurate forecasting. This involves tracking industry trends, monitoring shifts in consumer behavior, and being aware of potential market disruptions.

For instance, a sudden technological advancement can change consumer preferences or regulatory changes might impact an industry.

Local Trend Analysis

For small businesses, localized insights can be especially impactful. Observing local competitors, understanding regional consumer preferences, or noting shifts in the local economy can offer precise data points.

These granular details, when integrated into a larger forecasting model, can enhance prediction accuracy.

Customer Feedback

Direct feedback from customers is an invaluable source of insights. Surveys, focus groups, or even informal chats can reveal customer sentiments, preferences, and potential future purchasing behavior.

For instance, if a majority of loyal customers express interest in a new product or service, it can be indicative of future sales potential.

Moving Averages

This technique involves analyzing a series of data points (like monthly sales) by creating averages from different subsets of the full data set.

For yearly forecasting, a 12-month moving average can be used to smooth out short-term fluctuations and highlight longer-term trends or cycles.

Regression Analysis

Regression analysis is a statistical tool used to identify relationships between variables. In sales forecasting, it can help understand how different factors (like marketing spend, seasonal variations, or competitor actions) relate to sales figures.

Once these relationships are understood, businesses can predict future sales based on planned actions or expected external events.

Understanding the Cash Cycle of Business

The cash cycle encompasses the time it takes for a business to convert resource investments, often in the form of inventory, back into cash.

This involves the processes of purchasing inventory, selling it, and subsequently collecting payment. A shorter cycle implies quicker cash turnarounds, which are vital for liquidity.

For small businesses, a firm grasp of the cash cycle can aid in managing cash flow more effectively.

By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking.

Ultimately, understanding and optimizing the cash cycle ensures that a business remains liquid and agile.

Preparing for Seasonality and Unexpected Changes

Seasonality affects many businesses, from the ice cream vendor witnessing summer surges to the retailer bracing for holiday shopping frenzies.

By analyzing historical data and market trends, businesses can prepare for these cyclical shifts, ensuring they stock up, staff appropriately, and market effectively.

Small businesses, often operating on tighter margins , need to be especially vigilant. Beyond seasonality, they must also brace for unexpected changes – a local construction project obstructing store access, a sudden competitor emergence, or unforeseen regulatory changes.

Building a financial buffer, diversifying product or service lines, and maintaining flexible operational strategies can equip small businesses to weather these unforeseen challenges with resilience.

Securing Small Business Financing and Capital

Role of debt and equity financing.

When businesses seek external funding, they often grapple with the debt vs. equity conundrum. Debt financing involves borrowing money, typically via loans. While it doesn't dilute ownership, it necessitates regular interest payments, potentially impacting cash flow.

Equity financing, on the other hand, entails selling a stake in the business to investors. It might not demand regular repayments, but it dilutes ownership and might influence business decisions.

Small businesses must weigh these options carefully. While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch.

Equity financing, although relinquishing some control, might bring aboard strategic partners, offering expertise and networks in addition to funds.

The optimal choice hinges on the business's financial health, growth aspirations, and the founder's comfort with sharing control.

Choosing Between Different Types of Loans

A staple in the lending arena, term loans offer businesses a fixed amount of capital that is paid back over a specified period with interest. They're often used for significant one-time expenses, such as purchasing machinery, real estate , or even business expansion.

With predictable monthly payments, businesses can plan their budgets accordingly. However, they might require collateral and a robust credit history for approval.

Lines of Credit

Unlike term loans that provide funds in a lump sum, a line of credit grants businesses access to a pool of funds up to a certain limit.

Businesses can draw from this line as needed, only paying interest on the amount they use. This makes it a versatile tool, especially for managing cash flow fluctuations or unexpected expenses. It serves as a financial safety net, ready for use whenever required.

As the name suggests, microloans are smaller loans designed to cater to businesses that might not need substantial amounts of capital. They're particularly beneficial for startups, businesses with limited credit histories, or those in need of a quick, small financial boost.

Since they are of a smaller denomination, the approval process might be more lenient than traditional loans.

Peer-To-Peer Lending

A contemporary twist to the traditional lending model, peer-to-peer (P2P) platforms connect borrowers directly with individual lenders or investor groups.

This direct model often translates to quicker approvals and competitive interest rates as the overheads of traditional banking structures are removed. With technology at its core, P2P lending can offer a more user-friendly, streamlined process.

However, creditworthiness still plays a pivotal role in determining interest rates and loan amounts.

Crowdfunding and Alternative Financing Options

In an increasingly digital age, crowdfunding platforms like Kickstarter or Indiegogo have emerged as viable financing avenues.

These platforms enable businesses to raise small amounts from a large number of people, often in exchange for product discounts, early access, or other perks. This not only secures funds but also validates the business idea and fosters a community of supporters.

Other alternatives include invoice financing, where businesses get an advance on pending invoices, or merchant cash advances tailored for businesses with significant credit card sales.

Each financing mode offers unique advantages and constraints. Small businesses must meticulously evaluate their financial landscape, growth trajectories, and risk appetite to harness the most suitable option.

Small Business Tax Planning and Management

Basic tax obligations for small businesses.

Navigating the maze of taxation can be daunting, especially for small businesses. Yet, understanding and fulfilling tax obligations is crucial.

Depending on the business structure—whether sole proprietorship , partnership , LLC , or corporation—different tax rules apply. For instance, while corporations are taxed on their earnings, sole proprietors report business income and expenses on their personal tax returns.

In addition to income taxes, small businesses may also be responsible for employment taxes if they have employees. This covers Social Security , Medicare , federal unemployment, and sometimes state-specific taxes.

There might also be sales taxes, property taxes, or special state-specific levies to consider.

Consistently maintaining accurate financial records, being aware of filing deadlines, and setting aside funds for tax obligations are essential practices to avoid penalties and ensure compliance.

Advantages of Tax Planning and Potential Deductions

Tax planning is the strategic approach to minimizing tax liability through the best use of available allowances, deductions, exclusions, and breaks.

For small businesses, effective tax planning can lead to significant savings.

This might involve strategies like deferring income to a later tax year, choosing the optimal time to purchase equipment, or taking advantage of specific credits available to businesses in certain sectors or regions.

Several potential deductions can reduce taxable income for small businesses. These include expenses like rent, utilities, business travel, employee wages, and even certain meals.

By keeping abreast of tax law changes and actively seeking out eligible deductions, small businesses can optimize their financial landscape, ensuring they're not paying more in taxes than necessary.

Importance of Hiring a Tax Professional or Accountant

While it's feasible for small business owners to manage their taxes, the intricate nuances of tax laws make it beneficial to consult professionals.

An experienced accountant or tax consultant can not only ensure compliance but can proactively recommend strategies to reduce tax liability.

They can guide businesses on issues like whether to classify someone as an employee or a contractor, how to structure the business for optimal taxation, or when to make certain capital investments.

Beyond just annual tax filing, these professionals offer year-round counsel, helping businesses maintain clean financial records, stay updated on tax law changes, and plan for future financial moves.

The investment in professional advice often pays dividends , saving businesses from costly mistakes, penalties, or missed financial opportunities.

Regularly Reviewing and Adjusting the Small Business Financial Plan

Setting checkpoints and milestones.

Like any strategic blueprint, a financial plan isn't static. It serves as a guiding framework but should be flexible enough to adapt to evolving business realities.

Setting regular checkpoints— quarterly , half-yearly, or annually—can help businesses assess whether they're on track to meet their financial objectives.

Milestones, such as reaching a specific sales target, launching a new product, or expanding into a new market, offer tangible markers of progress. Celebrating these victories can bolster morale, while any shortfalls can serve as lessons, prompting strategy tweaks. F

or small businesses, where agility is an asset, regularly revisiting the financial plan ensures that the business remains aligned with its overarching financial goals while being responsive to the dynamic marketplace.

Using Financial Ratios to Monitor Business Health

Financial ratios offer a distilled snapshot of a business's health. Ratios like the current ratio ( current assets divided by current liabilities ) can shed light on liquidity, indicating whether a business can meet short-term obligations.

The debt-to-equity ratio , contrasting borrowed funds with owner's equity, offers insights into the business's leverage and potential financial risk.

Profit margin , depicting profitability relative to sales, can highlight operational efficiency. By consistently monitoring these and other pertinent ratios, small businesses can glean actionable insights, understanding their financial strengths and areas needing attention.

In a realm where early intervention can stave off major financial setbacks, these ratios serve as vital diagnostic tools, guiding informed decision-making.

Pivoting Strategies Based on Financial Performance

In the ever-evolving world of business, flexibility is paramount. If financial reviews indicate that certain strategies aren't yielding anticipated results, it might be time to pivot.

This could involve tweaking product offerings, revising pricing strategies, targeting a different customer segment, or even overhauling the business model.

For small businesses, the ability to pivot can be a lifeline. It allows them to respond swiftly to market changes, customer feedback, or internal challenges.

A robust financial plan, while offering direction, should also be pliable, accommodating shifts in strategy based on real-world performance. After all, in the business arena, adaptability often spells the difference between stagnation and growth.

Bottom Line

Financial foresight is integral for the stability and growth of small businesses. Effective revenue and cash flow forecasting, anchored by historical sales data and enhanced by market research, local trends, and customer feedback, ensures businesses are prepared for future demands.

With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.

As businesses contemplate external financing, the decision between debt and equity and the myriad of loan types, should be made judiciously, keeping in mind the business's health, growth aspirations, and risk appetite.

Furthermore, diligent tax planning, with professional guidance, can lead to significant financial benefits. Regular reviews using financial ratios allow businesses to gauge their performance, adapt strategies, and pivot when necessary.

Ultimately, the agility to adapt, guided by a well-structured financial plan, is pivotal for businesses to thrive in a dynamic marketplace.

Creating a Small Business Financial Plan FAQs

What is the importance of a financial plan for small businesses.

A financial plan offers a structured roadmap, guiding businesses in making informed decisions, ensuring growth, and navigating financial challenges.

How do forecasting revenue and understanding cash cycles aid in financial planning?

Forecasting provides insights into expected income, aiding in budget allocation, while understanding cash cycles ensures effective liquidity management.

What are the core components of a financial plan for small businesses?

Core components include setting objectives, estimating startup costs, preparing financial statements, budgeting, forecasting, securing financing, and tax management.

Why is tax planning vital for small businesses?

Tax planning ensures compliance, optimizes tax liabilities through available deductions, and helps businesses save money and avoid penalties.

How often should a small business review its financial plan?

Regular reviews, ideally quarterly or half-yearly, ensure alignment with business goals and allow for strategy adjustments based on real-world performance.

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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4 Steps to Creating a Financial Plan for Your Small Business

When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan that sets forth a business’s short- and long-term financial goals and how it intends to reach them. Used by company decision-makers and potential partners, investors and lenders, alike, a financial plan typically includes the company’s sales forecast, cash flow projection, expected expenses, key financial metrics and more. Here is what small businesses should understand to create a comprehensive financial plan of their own.

What Is a Financial Plan?

A financial plan is a document that businesses use to detail and manage their finances, ensure efficient allocation of resources and inform a plethora of decisions — everything from setting prices, to expanding the business, to optimizing operations, to name just a few. The financial plan provides a clear understanding of the company’s current financial standing; outlines its strategies, goals and projections; makes clear whether an idea is sustainable and worthy of investment; and monitors the business’s financial health as it grows and matures. Financial plans can be adjusted over time as forecasts become replaced with real-world results and market forces change.

A financial plan is an integral part of an overall business plan, ensuring financial objectives align with overall business goals. It typically contains a description of the business, financial statements, personnel plan, risk analysis and relevant key performance indicators (KPIs) and ratios. By providing a comprehensive view of the company’s finances and future goals, financial plans also assist in attracting investors and other sources of funding.

Key Takeaways

• A financial plan details a business’s current standing and helps business leaders make informed decisions about future endeavors and strategies.
• A financial plan includes three major financial statements: the income statement, balance sheet and cash flow statement.
• A financial plan answers essential questions and helps track progress toward goals.
• Financial management software gives decision-makers the tools they need to make strategic decisions.

Why Is a Financial Plan Important to Your Small Business?

A financial plan can provide small businesses with greater confidence in their short- and long-term endeavors by helping them determine ways to best allocate and invest their resources. The process of creating the plan forces businesses to think through how different decisions could impact revenue and which occasions call for dipping into reserve funds. It’s also a helpful tool for monitoring performance, managing cash flow and tracking financial metrics.

Simply put, a financial plan shows where the business stands; over time, its analysis will reveal whether its investments were worthwhile and worth repeating. In addition, when a business is courting potential partners, investors and lenders, the financial plan spotlights the business’s commitment to spending wisely and meeting its financial obligations.

Benefits of a Financial Plan

A financial plan is only as effective as the data foundation it’s built on and the business’s flexibility to revisit it amid changing market forces and demand shifts. Done correctly, a financial plan helps small businesses stay on track so they can reach their short-term and long-term goals. Among the benefits that effective financial planning delivers:

• A clear view of goals and objectives: As with any type of business plan, it’s imperative that everyone in a company is on the same financial page. With clear responsibilities and expected results mapped out, every team member from the top down sees what needs to be done, when to do it and why.
• More accurate budgets and projections: A comprehensive financial plan leads to realistic budgets that allocate resources appropriately and plan for future revenue and expenses. Financial projections also help small businesses lay out steps to maintain business continuity during periods of cash flow volatility or market uncertainty.
• External funding opportunities: With a detailed financial plan in hand, potential partners, lenders and investors can see exactly where their money will go and how it will be used. The inclusion of stellar financial records, including past and current liabilities, can also assure external funding sources that they will be repaid.
• Performance monitoring and course correction: Small businesses can continue to benefit from their financial plans long after the plan has been created. By continuously monitoring results and comparing them with initial projections, businesses have the opportunity to adjust their plans as needed.

Components of a Small Business Financial Plan

A sound financial plan is instrumental to the success and stability of a small business. Whether the business is starting from scratch or modifying its plan, the best financial plans include the following elements:

Income statement: The income statement reports the business’s net profit or loss over a specific period of time, such a month, quarter or year. Also known as a profit-and-loss statement (P&L) or pro forma income statement, the income statement includes the following elements:

• Cost of goods sold (COGS): The direct costs involved in producing goods or services.
• Operating expenses: Rent, utilities and other costs involved in running the business.
• Revenue streams: Usually in the form of sales and subscription services, among other sources.
• Total net profit or loss: Derived from the total amount of sales less expenses and taxes.

Balance sheet: The balance sheet reports the business’s current financial standing, focusing on what it owns, what it owes and shareholder equity:

• Assets: Available cash, goods and other owned resources.
• Liabilities: Amounts owed to suppliers, personnel, landlords, creditors, etc.

Shareholder equity: Measures the company’s net worth, calculated with this formula:

Shareholder Equity = Assets – Liability

The balance sheet lists assets, liabilities and equity in chart format, with assets in the left column and liabilities and equity on the right. When complete — and as the name implies —the two sides should balance out to zero, as shown on the sample balance sheet below. The balance sheet is used with other financial statements to calculate business financial ratios (discussed soon).

Balance Sheet

Cash flow projection: Cash flow projection is a part of the cash flow statement , which is perhaps one of the most critical aspects of a financial plan. After all, businesses run on cash. The cash flow statement documents how much cash came in and went out of the business during a specific time period. This reveals its liquidity, meaning how much cash it has on hand. The cash flow projection should display how much cash a business currently has, where it’s going, where future cash will come from and a schedule for each activity.

Personnel plan: A business needs the right people to meet its goals and maintain a healthy cash flow. A personnel plan looks at existing positions, helps determine when it’s time to bring on more team members and determines whether new hires should be full-time, part-time or work on a contractual basis. It also examines compensation levels, including benefits, and forecasts those costs against potential business growth to gauge whether the potential benefits of new hires justify the expense.

Business ratios: In addition to a big-picture view of the business, decision-makers will need to drill down to specific aspects of the business to understand how individual areas are performing. Business ratios , such as net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets, help evaluate the business’s financial health. Data used to calculate these ratios come from the P&L statement, balance sheet and cash flow statement. Business ratios contextualize financial data — for example, net profit margin shows the profitability of a company’s operations in relation to its revenue. They are often used to help request funding from a bank or investor, as well.

Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.

Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.

Income projections: Businesses can use their sales forecasts to estimate how much money they are on track to make in a given period, usually a year. This income projection is calculated by subtracting anticipated expenses from revenue. In some cases, the income projection is rolled into the P&L statement.

Assets and liabilities: Assets and liabilities appear on the business’s balance sheet. Assets are what a company owns and are typically divided into current and long-term assets. Current assets can be converted into cash within a year and include stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use, such as furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are also classified as current and long-term. Current liabilities are due to be paid within a year and include accrued payroll, taxes payable and short-term loans. Long-term liabilities include shareholder loans or bank debt that mature more than a year later.

Break-even analysis: The break-even point is how much a business must sell to exactly cover all of its fixed and variable expenses, including COGS, salaries and rent. When revenue exceeds expenses, the business makes a profit. The break-even point is used to guide sales revenue and volume goals; determination requires first calculating contribution margin , which is the amount of sales revenue a company has, less its variable costs, to put toward paying its fixed costs. Businesses can use break-even analyses to better evaluate their expenses and calculate how much to mark up its goods and services to be able to turn a profit.

Four Steps to Create a Financial Plan for Your Small Business

Financial plans require deliberate planning and careful implementation. The following four steps can help small businesses get started and ensure their plans can help them achieve their goals.

Create a strategic plan

Before looking at any numbers, a strategic plan focuses on what the company wants to accomplish and what it needs to achieve its goals. Will it need to buy more equipment or hire additional staff? How will its goals affect cash flow? What other resources are needed to meet its goals? A strategic financial plan answers these questions and determines how the plan will impact the company’s finances. Creating a list of existing  expenses  and assets is also helpful and will inform the remaining financial planning steps.

Create financial projections

Financial projections should be based on  anticipated expenses and sales forecasts . These projections look at the business’s goals and estimate the costs needed to reach them in the face of a variety of potential scenarios, such as best-case, worst-case and most likely to happen. Accountants may be brought in to review the plan with stakeholders and suggest how to explain the plan to external audiences, such as investors and lenders.

Plan for contingencies

Financial plans should use data from the cash flow statement and balance sheet to inform worst-case scenario plans, such as when incoming cash dries up or the business takes an unexpected turn. Some common contingencies include keeping cash reserves or a substantial line of credit for quick access to funds during slow periods. Another option is to produce a plan to sell off assets to help break even.

Monitor and compare goals

Actual results in the cash flow statement, income projections and relevant business ratios should be analyzed throughout the year to see how closely real-life results adhered to projections. Regular check-ins also help businesses spot potential problems before they can get worse and inform course corrections.

Three Questions Your Financial Plan Should Answer

A small business financial plan should be tailored to the needs and expectations of its intended audience, whether it is potential investors, lenders, partners or internal stakeholders. Once the plan is created, all parties should, at minimum, understand:

How will the business make money?

What does the business need to achieve its goals?

What is the business’s  operating budget ?

Financial plans that don’t answer these questions will need more work. Otherwise, a business risks starting a new venture without a clear path forward, and decision-makers will lack the necessary insights that a detailed financial plan would have provided.

Improve Your Financial Planning With Financial Management Software

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NetSuite’s cloud-based financial management platform simplifies the labor-intensive process through automation. NetSuite Planning and Budgeting automatically consolidates real-time data for analysis, reporting and forecasting, thereby improving efficiency. With intuitive dashboards and sophisticated forecasting tools, businesses can create accurate financial plans, track progress and modify strategies in order to achieve and maintain long-term success. The solution also allows for scenario planning and workforce planning, plus prebuilt data synchronization with NetSuite ERP means the entire business is working with the same up-to-date information.

Whether a business is first getting started, looking to expand, trying to secure outside funding or monitoring its growth, it will need to create a financial plan. This plan lays out the business’s short- and long-term objectives, details its current and projected finances, specifies how it will invest its resources and helps track its progress. Not only does a financial plan guide the business along its way, but it is typically required by outside sources of funding that don’t invest or lend their money to just any company. Creating a financial plan may take some time, but successful small businesses know it is well worth the effort.

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Small Business Financial Plan FAQs

How do I write a small business financial plan?

Writing a small business financial plan is a four-step process. It begins with creating a strategic plan, which covers the company’s goals and what it needs to achieve them. The next step is to create financial projections, which are dependent on anticipating sales and expenses. Step three plans for contingencies: For example, what if the business were to lose a significant client? Finally, the business must monitor its goals, comparing actual results to projections and adjusting as needed.

What is the best financial statement for a small business?

The income statement, also known as the profit and loss (P&L) statement, is often considered the most important financial statement for small businesses, as it summarizes profits and losses and the business’s bottom line over a specific financial period. For financial plans, the cash flow statement and the balance sheet are also critical financial statements.

How often should businesses update their financial plans?

Financial plans can be updated whenever a business deems appropriate. Many businesses create three- and five-year plans and adjust them annually. If a market experiences a large shift, such as a spike in demand or an economic downturn, a financial plan may need to be updated to reflect the new market.

What are some common mistakes to avoid when creating a small business financial plan?

Some common mistakes to avoid when creating a small business financial plan include underestimating expenses, overestimating revenue, failing to plan for contingencies and adhering to plans too strictly when circumstances change. Plans should be regularly updated to reflect real-world results and current market trends.

How do I account for uncertainty and potential risks in my small business financial plan?

Small businesses can plan for uncertainty by maintaining cash reserves and opening lines of credit to cover periods of lower income or high expenses. Plans and projections should also take into account a variety of potential scenarios, from best case to worst case.

What is a typical business financial plan?

A typical business financial plan is a document that details a business’s goals, strategies and projections over a specific period of time. It is used as a roadmap for the organization’s financial activities and provides a framework for decision-making, resource allocation and performance evaluation.

What are the seven components of a financial plan?

Financial plans can vary to suit the business’s needs, but seven components to include are the income statement, operating income, net income, cash flow statement, balance sheet, financial projections and business ratios. Various financial key performance indicators and a break-even analysis are typically included as well.

What is an example of a financial plan?

A financial plan serves as a snapshot of the business’s current standing and how it plans to grow. For example, a restaurant looking to secure approval for a loan will be asked to provide a financial plan. This plan will include an executive summary of the business, a description and history of the company, market research into customer base and competition, sales and marketing strategies, key performance indicators and organizational structure. It will also include elements focusing on the future, such as financial projections, potential risks and funding requirements and strategies.

Financial Management

Small Business Financial Management: Tips, Importance and Challenges

It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.

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Business Financial Plan Example: Strategies and Best Practices

Any successful endeavor begins with a robust plan – and running a prosperous business is no exception. Careful strategic planning acts as the bedrock on which companies build their future. One of the most critical aspects of this strategic planning is the creation of a detailed business financial plan. This plan serves as a guide, helping businesses navigate their way through the complex world of finance, including revenue projection, cost estimation, and capital expenditure, to name just a few elements. However, understanding what a business financial plan entails and how to implement it effectively can often be challenging. With multiple components to consider and various economic factors at play, the financial planning process may appear daunting to both new and established business owners.

This is where we come in. In this comprehensive article, we delve into the specifics of a business financial plan. We discuss its importance, the essential elements that make it up, and the steps to craft one successfully. Furthermore, we provide a practical example of a business financial plan in action, drawing upon real-world-like scenarios and strategies. By presenting the best practices and demonstrating how to employ them, we aim to equip business owners and entrepreneurs with the tools they need to create a robust, realistic, and efficient business financial plan. This in-depth guide will help you understand not only how to plan your business finances but also how to use this plan as a roadmap, leading your business towards growth, profitability, and overall financial success. Whether you're a seasoned business owner aiming to refine your financial strategies or an aspiring entrepreneur at the beginning of your journey, this article is designed to guide you through the intricacies of business financial planning and shed light on the strategies that can help your business thrive.

Understanding a Business Financial Plan

At its core, a business financial plan is a strategic blueprint that sets forth how a company will manage and navigate its financial operations, guiding the organization towards its defined fiscal objectives. It encompasses several critical aspects of a business's financial management, such as revenue projection, cost estimation, capital expenditure, cash flow management, and investment strategies.

Revenue projection is an estimate of the revenue a business expects to generate within a specific period. It's often based on market research, historical data, and educated assumptions about future market trends. Cost estimation, on the other hand, involves outlining the expenses a business anticipates incurring in its operations. Together, revenue projection and cost estimation can give a clear picture of a company's expected profitability. Capital expenditure refers to the funds a company allocates towards the purchase or maintenance of long-term assets like machinery, buildings, and equipment. Understanding capital expenditure is vital as it can significantly impact a business's operational capacity and future profitability. The cash flow management aspect of a business financial plan involves monitoring, analyzing, and optimizing the company's cash inflows and outflows. A healthy cash flow ensures that a business can meet its short-term obligations, invest in its growth, and provide a buffer for future uncertainties. Lastly, a company's investment strategies are crucial for its growth and sustainability. They might include strategies for raising capital, such as issuing shares or securing loans, or strategies for investing surplus cash, like purchasing assets or investing in market securities.

A well-developed business financial plan, therefore, doesn't just portray the company's current financial status; it also serves as a roadmap for the business's fiscal operations, enabling it to navigate towards its financial goals. The plan acts as a guide, providing insights that help business owners make informed decisions, whether they're about day-to-day operations or long-term strategic choices. In a nutshell, a business financial plan is a key tool in managing a company's financial resources effectively and strategically. It allows businesses to plan for growth, prepare for uncertainties, and strive for financial sustainability and success.

Essential Elements of a Business Financial Plan

A comprehensive financial plan contains several crucial elements, including:

• Sales Forecast : The sales forecast represents the business's projected sales revenues. It is often broken down into segments such as products, services, or regions.
• Expenses Budget : This portion of the plan outlines the anticipated costs of running the business. It includes fixed costs (rent, salaries) and variable costs (marketing, production).
• Cash Flow Statement : This statement records the cash that comes in and goes out of a business, effectively portraying its liquidity.
• Income Statements : Also known as profit and loss statements, income statements provide an overview of the business's profitability over a given period.
• Balance Sheet : This snapshot of a company's financial health shows its assets, liabilities, and equity.

Crafting a Business Financial Plan: The Steps

Developing a business financial plan requires careful analysis and planning. Here are the steps involved:

Step 1: Set Clear Financial Goals

The initial stage in crafting a robust business financial plan involves the establishment of clear, measurable financial goals. These objectives serve as your business's financial targets and compass, guiding your company's financial strategy. These goals can be short-term, such as improving quarterly sales or reducing monthly overhead costs, or they can be long-term, such as expanding the business to a new location within five years or doubling the annual revenue within three years. The goals might include specific targets such as increasing revenue by a particular percentage, reducing costs by a specific amount, or achieving a certain profit margin. Setting clear goals provides a target to aim for and allows you to measure your progress over time.

Step 2: Create a Sales Forecast

The cornerstone of any business financial plan is a robust sales forecast. This element of the plan involves predicting the sales your business will make over a given period. This estimate should be based on comprehensive market research, historical sales data, an understanding of industry trends, and the impact of any marketing or promotional activities. Consider the business's growth rate, the overall market size, and seasonal fluctuations in demand. Remember, your sales forecast directly influences the rest of your financial plan, particularly your budgets for expenses and cash flow, so it's critical to make it as accurate and realistic as possible.

Step 3: Prepare an Expense Budget

The next step involves preparing a comprehensive expense budget that covers all the costs your business is likely to incur. This includes fixed costs, such as rent or mortgage payments, salaries, insurance, and other overheads that remain relatively constant regardless of your business's level of output. It also includes variable costs, such as raw materials, inventory, marketing and advertising expenses, and other costs that fluctuate in direct proportion to the level of goods or services you produce. By understanding your expense budget, you can determine how much revenue your business needs to generate to cover costs and become profitable.

Step 4: Develop a Cash Flow Statement

One of the most crucial elements of your financial plan is the cash flow statement. This document records all the cash that enters and leaves your business, presenting a clear picture of your company's liquidity. Regularly updating your cash flow statement allows you to monitor the cash in hand and foresee any potential shortfalls. It helps you understand when cash comes into your business from sales and when cash goes out of your business due to expenses, giving you insights into your financial peaks and troughs and enabling you to manage your cash resources more effectively.

Step 5: Prepare Income Statements and Balance Sheets

Another vital part of your business financial plan includes the preparation of income statements and balance sheets. An income statement, also known as a Profit & Loss (P&L) statement, provides an overview of your business's profitability over a certain period. It subtracts the total expenses from total revenue to calculate net income, providing valuable insights into the profitability of your operations.

On the other hand, the balance sheet provides a snapshot of your company's financial health at a specific point in time. It lists your company's assets (what the company owns), liabilities (what the company owes), and equity (the owner's or shareholders' investment in the business). These documents help you understand where your business stands financially, whether it's making a profit, and how your assets, liabilities, and equity balance out.

Step 6: Revise Your Plan Regularly

It's important to remember that a financial plan is not a static document, but rather a living, evolving roadmap that should adapt to your business's changing circumstances and market conditions. As such, regular reviews and updates are crucial. By continually revisiting and revising your plan, you can ensure it remains accurate, relevant, and effective. You can adjust your forecasts as needed, respond to changes in the business environment, and stay on track towards achieving your financial goals. By doing so, you're not only keeping your business financially healthy but also setting the stage for sustained growth and success.

Business Financial Plan Example: Joe’s Coffee Shop

Now, let's look at a practical example of a financial plan for a hypothetical business, Joe’s Coffee Shop.

Sales Forecast

When constructing his sales forecast, Joe takes into account several significant factors. He reviews his historical sales data, identifies and understands current market trends, and evaluates the impact of any upcoming promotional events. With his coffee shop located in a bustling area, Joe expects to sell approximately 200 cups of coffee daily. Each cup is priced at $5, which gives him a daily sales prediction of $1000. Multiplying this figure by 365 (days in a year), his forecast for Year 1 is an annual revenue of $365,000. This projection provides Joe with a financial target to aim for and serves as a foundation for his further financial planning. It is worth noting that Joe's sales forecast may need adjustments throughout the year based on actual performance and changes in the market or business environment.

Expenses Budget

To run his coffee shop smoothly, Joe has identified several fixed and variable costs he'll need to budget for. His fixed costs, which are costs that will not change regardless of his coffee shop's sales volume, include rent, which is $2000 per month, salaries for his employees, which total $8000 per month, and utilities like electricity and water, which add up to about $500 per month.

In addition to these fixed costs, Joe also has variable costs to consider. These are costs that fluctuate depending on his sales volume and include the price of coffee beans, milk, sugar, and pastries, which he sells alongside his coffee. After a careful review of all these expenses, Joe estimates that his total annual expenses will be around $145,000. This comprehensive expense budget provides a clearer picture of how much Joe needs to earn in sales to cover his costs and achieve profitability.

Cash Flow Statement

With a clear understanding of his expected sales revenue and expenses, Joe can now proceed to develop a cash flow statement. This statement provides a comprehensive overview of all the cash inflows and outflows within his business. When Joe opened his coffee shop, he invested an initial capital of $50,000. He expects that the monthly cash inflows from sales will be about $30,417 (which is his annual revenue of $365,000 divided by 12), and his monthly cash outflows for expenses will amount to approximately $12,083 (his total annual expenses of $145,000 divided by 12). The cash flow statement gives Joe insights into his business's liquidity. It helps him track when and where his cash is coming from and where it is going. This understanding can assist him in managing his cash resources effectively and ensure he has sufficient cash to meet his business's operational needs and financial obligations.

Income Statement and Balance Sheet

With the figures from his sales forecast, expense budget, and cash flow statement, Joe can prepare his income statement and balance sheet. The income statement, or Profit & Loss (P&L) statement, reveals the profitability of Joe's coffee shop. It calculates the net profit by subtracting the total expenses from total sales revenue. In Joe's case, this means his net profit for Year 1 is expected to be $220,000 ($365,000 in revenue minus $145,000 in expenses).

The balance sheet, on the other hand, provides a snapshot of the coffee shop's financial position at a specific point in time. It includes Joe's initial capital investment of $50,000, his assets like coffee machines, furniture, and inventory, and his liabilities, which might include any loans he took to start the business and accounts payable.

The income statement and balance sheet not only reflect the financial health of Joe's coffee shop but also serve as essential tools for making informed business decisions and strategies. By continually monitoring and updating these statements, Joe can keep his finger on the pulse of his business's financial performance and make necessary adjustments to ensure sustained profitability and growth.

Best Practices in Business Financial Planning

While crafting a business financial plan, consider the following best practices:

• Realistic Projections : Ensure your forecasts are realistic, based on solid data and reasonable assumptions.
• Scenario Planning : Plan for best-case, worst-case, and most likely scenarios. This will help you prepare for different eventualities.
• Regular Reviews : Regularly review and update your plan to reflect changes in business conditions.
• Seek Professional Help : If you are unfamiliar with financial planning, consider seeking assistance from a financial consultant.

The importance of a meticulously prepared business financial plan cannot be overstated. It forms the backbone of any successful business, steering it towards a secure financial future. Creating a solid financial plan requires a blend of careful analysis, precise forecasting, clear and measurable goal setting, prudent budgeting, and efficient cash flow management. The process may seem overwhelming at first, especially for budding entrepreneurs. However, it's crucial to understand that financial planning is not an event, but rather an ongoing process. This process involves constant monitoring, evaluation, and continuous updating of the financial plan as the business grows and market conditions change.

The strategies and best practices outlined in this article offer an invaluable framework for any entrepreneur or business owner embarking on the journey of creating a financial plan. It provides insights into essential elements such as setting clear financial goals, creating a sales forecast, preparing an expense budget, developing a cash flow statement, and preparing income statements and balance sheets. Moreover, the example of Joe and his coffee shop gives a practical, real-world illustration of how these elements come together to form a coherent and effective financial plan. This example demonstrates how a robust financial plan can help manage resources more efficiently, make better-informed decisions, and ultimately lead to financial success.

Remember, every grand journey begins with a single step. In the realm of business, this step is creating a well-crafted, comprehensive, and realistic business financial plan. By following the guidelines and practices suggested in this article, you are laying the foundation for financial stability, profitability, and long-term success for your business. Start your journey today, and let the road to financial success unfold.

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6 Elements of a Successful Financial Plan for a Small Business

Table of Contents

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

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

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

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

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

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

Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.

The 6 components of a successful financial plan for business

1. sales forecasting.

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

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

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

2. Expense outlay

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

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

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

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

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

3. Statement of financial position (assets and liabilities)

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

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

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

4. Cash flow projection

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

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

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

5. Break-even analysis

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

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

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

6. Operations plan

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

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

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

Tips on writing a business financial plan

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

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

Review the previous year’s plan.

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

Collaborate with other departments.

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

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

Use available resources.

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

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

Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .

Business financial plan templates

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

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

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

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

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

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Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

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• Business Financial Planning: How to Create 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.

Steps 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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Table of Contents

Creating a financial plan for a new business: the essential steps

Form a strategy, financial objectives, pricing and sales strategy, starting budget, create realistic projections, income projections, cash flow projections, sales forecast, outline your funding needs , plan for the unexpected, check in with your plan, financial planning for new business success , track your financial plan with a clever app.

When you start a new business, your success depends on how you handle your money. With a clear and realistic financial plan, you can prepare for the long run with strong spending decisions and earning predictions.

Your financial plan helps you develop your business’s money goals and expectations . It’s crucial in making your money work for you. 

But if you’ve never written a financial plan before, you might wonder where to start. We can help with that.   

This guide covers how to create a financial plan for a new business, including:

• Forming a strategy 
• Creating projections 
• Outlining funding needs
• Planning for the unexpected 
• Checking in with your plan

See also : Why you need financial planning in business .

With a well-developed financial plan, you can approach your business with intention. Let’s go over what you should include and how to do so. 

Your financial strategy is the overarching force that drives your plan. It answers key questions about the why and how of your business.

Start your financial strategy by listing the main objectives for your new business finances . You might come up with short, medium, and long term objectives to guide you in the right direction. 

First, ask yourself which general goals you want to focus on, such as becoming profitable. Then, turn this goal into a specific and achievable objective. For example, you might plan to earn X sales in X months to reach profitability . 

As you write the strategy, try coming up with five to ten main objectives that are realistic for your new business. 

Your pricing strategy can impact how many sales you earn for your business. So, how might you price your products to achieve your financial objectives?

For example, you could use a:

• Penetration pricing strategy – offering lower prices than average at the start to draw in customers 
• Competitive pricing strategy – listing your products above, below, or level to average pricing to give them a competitive edge
• Premium pricing strategy – setting your prices higher than normal to suggest value or exclusivity 

On top of this, consider your sales strategy or what methods you’ll use to draw in customers and earn revenue. For example, you might use a reward system to encourage return customers . 

Your starting budget is another essential part of your financial strategy. 

It outlines how much you hope to spend and earn from your business initially . To form a realistic budget, consider your business expenses and how you’ll cover them to remain operational.  

To learn more, check out our article on budgeting for starting a business . 

Projecting the outcomes of your business efforts help you plan more realistically . Plus, they can convince potential investors your business is viable, and you’re worth giving money to. 

As you start your business, you’ll want to know how much you might earn in the first month, quarter, and year . This knowledge lets you predict how much money you could take home at the end of the day. 

To learn more about this, check out our article on how to create a financial forecast for a new business . 

Your cash flow forecast can help you predict the cash entering and exiting your business over a given time . This estimate is essential to determining how you’ll cover regular expenses. 

You might also strategise how to bring in the necessary cash regularly, such as following up on late invoices or promoting cash revenue. 

A sales forecast uses market size and demand to estimate how many customers you could draw in at the start . 

Creating one for your business helps predict profitability, sales trends, and create realistic expectations.  

To learn more, read our article on how to write a sales forecast .

You’ll likely need cash to get your business going. In this section, cover how much you’ll need to start, including startup costs, operational expenses, and a cushion before profit . 

You may try self-funding your business to avoid debts or liabilities . If so, outline a savings or funding plan. For example, you might crowdfund your startup idea. 

If you need external funding, there’s a few routes you can take. You might choose to seek: 

• A business loan – The UK government offers startup loans for businesses. You could also seek a small business loan from a bank like Barclays .
• An investor – If you create a convincing proposal, people may invest in your company in exchange for a piece of the business. 
• Grants – Some government grants are available for startups , which could help you avoid taking on debt.
• Family and friends – You might want to approach people you know well with your business idea as they could invest or offer you a personal loan.

A financial plan for a new business helps you prepare for the future. Still, there are bound to be unpredictable situations. So, in this section, consider potential risks to your finances. 

Preparing for the unexpected will help you avoid irreversible consequences that can harm your business . 

For example, you might want to develop an emergency fund and business continuity plan , so you’re ready to react to potential disruptions.  

Once you complete your financial plan, be sure to monitor its success. This way, you’ll catch yourself if you start to veer off the path. Then, it’ll be easier to correct yourself or create more realistic expectations before it’s too late . 

The plan acts as a guide to your finances, so regularly referring to it and updating it will help you keep your finances in order . 

Writing a financial plan for your new business lets you get on top of your finances early on. As a result, it’ll be far easier to build a profitable business that’s prepared to grow . 

In fact, planning is essential for every part of your operations. So, next, you might want to check out our article on how to write a business plan . 

As you put your financial plan together, you’ll need tools that help you track your progress, like Countingup.

Countingup is the business account and accounting software in one app . It automates time-consuming bookkeeping admin for thousands of self-employed people across the UK. 

Save yourself hours of accounting admin so you can focus on growing your business. 

Start your three-month free trial today. 

Apply now .

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The Ultimate Guide To Business Financial Planning

The Ultimate Guide to Business Financial Planning

Every business wants to accomplish its own set of long and short-term goals. Yes, some goals are more relevant than others, and the hierarchy is unique to the organization. Still, one of the biggest things companies aim for is financial stability for the long term.

Having a comprehensive financial plan is crucial if you want your business to go from where it is now to where you want it to be. Many factors affect a business’s finances, from decisions in management to profits to accounts receivable turnover. As owner or finance leader of the firm, you’d want to make sure that your organization always stays on top of its finances.

This article will discuss the significance of financial planning and how you can create one for your business. 

What is Financial Planning? 

Simply put, financial planning involves a comprehensive evaluation of your company’s current financial health so you can lay out financial objectives and the strategies your company will use to achieve those objectives. You can use these evaluations to create favorable projections that your company can aim for. Typically, a financial plan is a component of your overall business plan, which you tweak over time to align with your current goals. 

In your financial plan, company management and investors can view critical information regarding your company’s growth strategy. It includes essential details such as sales projections, cash flow projections, your expenses budget, and other information that can guide those involved to make informed decisions. As more and more companies embrace digitization, the use of financial management software in budgeting and planning slowly becomes the norm. By pairing it with robust accounts receivable management software, your business increases its efficiency in cash flow management.

Why is Financial Planning Essential For Your Business?

Every business experiences ups and downs as it goes along its journey. With the pandemic still going on, organizations must work harder and innovate to remain standing. A recent survey shows that six in 10 Singapore businesses are barely making ends meet amid the pandemic-induced volatility. When things go downhill, you must find a way to pull through. Your financial plan can come in handy as you navigate the rollercoaster of running a business. It can serve as a road map to your business’s monetary success, nudging you about your short-term and long-term financial objectives from time to time.

A financial plan sets your short and long-term financial goals in a timeline that you can follow. By organizing it into small chunks of steps, you can focus on single actions that accumulate into significant gains.

What Does Your Financial Plan Tell You?

Whether you’re a new business or an established corporation, keeping track of your financial growth and success is vital. Your financial plan reveals two principal details: your current financial data and your expected financial outcome in the future.

Your company’s financial plan lays out the following:

• Where your business is right now in terms of finances and where you want it to be. 
• The strategies you will use to generate your ideal income 
• Your expected profits and future revenue stream
• How your business will keep ahead of the competition
• Your projected business growth on an annual basis
• How your business will make the most out of existing capital and assets
• The current and expected state of your cash flow
• How you will handle common problems such as dormant financial receivables  

How Do Financial Plans Guide Your Company?

All this information is vital for you, your team, and various entities and individuals who can provide value for your company. Complementing your business plan with a comprehensive financial strategy can help justify why your business is good. 

All of the information found on your business’s financial plan allows you to:

• Attract potential investors and funding to your company
• Secure business loans from lenders
• Have benchmark forecasts that you can strive to meet and exceed.
• Better allocate resources and manage liabilities such as debt
• Determine if your business is still viable or not
• Protect your business by planning for the unexpected.

If you’re just starting out on your entrepreneurial journey, your financial plan can inform you whether your business is feasible or if you’re just taking an uncalculated risk. 

How to Create a Solid Business Financial Plan?

Your financial business plan should properly supplement your company’s overall business plan. Just like every other section of your business plan, your financial plan is not set in stone. You can modify it anytime for the right reasons. Remember that while the details written on your financial plan are crucial, at the end of the day, what you do with those details is what counts the most.

Here are the steps you can create or recreate your company’s financial business plan:

1. Conduct Research and Develop a Strategy

Everything starts with doing your homework, especially if you’re a startup since you won’t have any past data to gather information. This process goes hand in hand with the development of your overall plan. Before calculating any information to make predictions on the financial plan, you must put every other integral business component in place. This includes your business’s:

• Operating procedures for activities
• Products or services
• Target audience
• Market research
• Market strategy
• Predefined budget and expenses 

After outlining the core components of your business, you can now develop a plan to carry it towards financial growth using a predefined budget. By laying out what your company wants to achieve, you can determine the most productive steps towards it. You can answer questions such as how you’ll acquire financing, what level of talent you would need to source, and how to improve accounts receivable turnover. 

2. Create Financial Projections

Your business must have something good to look forward to in the future to attract investors. Financial projections show an estimate of your future revenues, expenses, profits, and net worth. It provides three essential points, a forward-looking income statement, a balance sheet, and a cash flow statement.  

• Income Statement

A projection of this financial statement shows your anticipated revenue, expenses, and profit after the end of a specific period. By calculating your expected sales and the cost of those sales, you can reveal if your business can be sustainable.

• Balance Sheet

A balance sheet forecast reveals your anticipated assets, liabilities, and owner’s equity during a particular point in the future. Ultimately, it shows what you expect your business to be worth during that future period.

• Cash Flow Statement

This forecast shows the outlook of cash movement in and out of your business. By projecting a smooth cash flow (more money moving in than coming out), you can impress investors and lenders to stand by your company. 

Cash is what will eventually drive your company forward. At any point in your business’s life, having excellent cash flow gives you more flexibility to do the things that allow you to expand and grow. 

By examining past and present results to forecast growth, you can set realistic goals, formulate sound decisions, and tackle unexpected challenges. When gathering data and organizing your projections, financial forecasting software can help ease the process. 

Here at Peakflo, we have integrated our advanced accounts receivable management software with an intuitive forecasting tool, making it easier for you to anticipate your business’s most valued KPI – liquidity. 

3. Keep Track of Progress

Having a benchmark to aim for allows you to create straight pathways towards the results you want. After expressing your goals in clear and definite numbers, you can now monitor your progress and determine if it’s spinning in the right direction. 

You can always generate financial statements at any time and start comparing past results to your current. Yes, compiling detailed reports on paper can be intimidating, especially if you have to do it on the spot. However, you can simplify the process by utilizing financial management software to generate reports and forecasts quickly.  

4. Plan for the Unexpected

It’s not uncommon to run into uncertainty when running a business. But, now that you have developed your financial game plan and its supplementing forecasts, you can now review every detail to identify vulnerabilities and weak spots. For example, suppose you know that your business will eventually have to deal with b2b accounts receivables. In that case, you can brainstorm ways to maintain cash in the bank early on so that when cash flow takes an unexpected twist, you’ll have enough reserves to keep everything going.

Enhance Financial Planning with Business Financial Planning Software

Conventional tools such as spreadsheets might work if you’re just starting out in getting your finances together. However, as your business grows and expands, so will the demands for more streamlined financial management and team collaboration approaches.

By complementing your financial planning and management with software, you can begin to automate tasks that would otherwise take more time and effort. You’ll also be able to seamlessly retrieve gathered data to create your essential reports and projections.

How Can Peakflo Help?

Integrating cash management and AR platform with your existing financial tool puts you in a better position to maintain your ideal cash flow. With Peakflo, you can increase the efficiency of your AR operation, ultimately allowing you to get paid sooner rather than later. We also offer valuable tools that improve team collaboration and productivity so you can be sure that your finances stay in the right direction.

Connect your accounting software and start automating your accounts receivables with Peakflo today!  

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Financial Plans: Meaning, Purpose, and Key Components

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What Is a Financial Plan?

Understanding a financial plan.

• When to Create It
• How to Create It
• Financial Plan FAQs

The Bottom Line

Liz Manning has researched, written, and edited trading, investing, and personal finance content for years, following her time working in institutional sales, commercial banking, retail investing, hedging strategies, futures, and day trading. 

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

A financial plan is a document that details a person’s current financial circumstances and their short- and long-term monetary goals. It includes strategies to achieve those goals.

A financial plan can help you to establish and plan for fundamental needs, such as managing life's risks (e.g., those involving health or disability), income and spending, and debt reduction.

It can provide financial guidance so that you're prepared to meet your obligations and objectives. It can also help you track your progress throughout the years toward financial well-being.

Financial planning involves a thorough evaluation of one’s money situation (income, spending, debt, and saving) and expectations for the future. It can be created independently or with the help of a certified financial planner .

Key Takeaways

• A financial plan documents an individual’s short- and long-term financial goals and includes a strategy to achieve them.
• The plan should be comprehensive and highly customized.
• It should reflect an individual’s personal and family financial needs, investment risk tolerance, and plan for saving and investing.
• Planning in finance starts with a calculation of one’s current net worth and cash flow.
• A solid financial plan provides guidance over time and serves as a way to track progress toward your goals.

The Fundamentals of Financial Plans

Whether you’re going it alone or with a financial planner, the first step in creating a financial plan is to understand how important it can be to your financial future. It can provide the guidance that assures your financial success.

Start your planning effort by gathering information from your various financial accounts into a document or spreadsheet.

Then make some basic calculations that establish where you stand financially.

You may complete the following steps as an individual or a couple:

Calculate Net Worth

To calculate your current net worth , subtract the total for your liabilities from the total for your assets. Begin by listing and adding up all of the following:

• Your assets : An asset is property of value that you own. Assets may include a home, a car, cash in the bank, money invested in a 401(k) plan , and other investments accounts.
• Your liabilities : A liability is something you owe. Liabilities may include outstanding bills, credit card debt, student debt, a mortgage, and a car loan.

Determine Cash Flow

Cash flow is the money you take in measured against the money you spend. To create a financial plan, you must know your income as well as how and when your money is spent.

Documenting your personal cash flow will help you determine how much you need every month for necessities, how much is available for saving and investing, and where you can cut back on spending.

One way to get this done is to review your checking account and credit card statements. Collectively, they should provide a fairly complete history of your income and spending in a wide range of spending categories.

For example, document how much you’ve paid during the year for housing expenses like rent or mortgage payments, utilities, and credit card interest.

Other categories include food, household (including clothing), transportation, medical insurance, and non-covered medical expenses. Still others can include your spending on miscellaneous entertainment, dining out, and vacation travel.

Once you add up all these numbers for a year and divide by 12, you’ll know what your monthly cash flow has been (and where you can improve it).

When establishing your cash flow history, don’t overlook cash withdrawals that may have been used on sundries, from take-out, to shampoo, to sodas. ATM withdrawals can also highlight where you might cut unnecessary spending.

Establish Your Goals

A major part of a financial plan is a person’s clearly defined goals . These may include funding a college education for the children, buying a larger home, starting a business, retiring on time, or leaving a legacy.

No one can tell you how to prioritize these goals. However, a professional financial planner should be able to help finalize a detailed savings plan and specific investing that can help you reach them one by one.

The main elements of a financial plan include a retirement strategy, a risk management plan, a long-term investment plan, a tax reduction strategy, and an estate plan.

Benefits of a Financial Plan

• A financial plan involves a thorough examination of your income and spending.
• It can improve your understanding of your financial circumstances at all times.
• It establishes important short- and long-term financial goals.
• It clarifies the actions required of you to achieve your various financial goals.
• A financial plan can focus your attention on important immediate steps, such as reducing debt and building your savings for emergencies.
• It enhances the probability that you'll achieve financial milestones and overall financial success (however you define it).
• It can guide your efforts over time and provide a means to monitor your progress.
• It can keep you out of financial trouble and reduce the stress and worry you may have experienced in the past.

Reasons for a Financial Plan

Financial planning is a smart way to keep your financial house in order. It's a money tool for everyone, regardless of age, earnings, net worth, or financial dreams. It offers individuals a way to document their personal goals and corresponding financial goals. It can keep people on track to meet ongoing financial needs and major financial goals.

When to Create a Financial Plan

A financial plan is always an advantage for those who want to make sure that they manage their finances in ways that are best-suited for them. You can create one at any time, whether you've just joined the workforce or have been working for years.

Beyond that, here are some particular instances that call for the creation and use of a financial plan. They can also serve as signals to adjust existing plans.

• A new job that results in added income, new expenses, or new opportunities
• An income change that can affect your ability to pay expenses, pay off debt, or save
• Major life events such as marriage, children, or divorce that can change financial objectives and spending needs
• Health adversities that result in re-directing income and spending away from existing goals
• An income windfall, such as an inheritance or insurance payment, that can affect efforts to reach your financial goals (such as providing more money for investing and debt reduction)

How to Create a Financial Plan

Certain steps are needed to create a financial plan. In addition to calculating your net worth, determining your cash flow, and establishing financial goals, as outlined above, here are additional plan elements/steps to include.

Do It Yourself or Get Professional Help

Decide whether you'll create your financial plan on your own or with the help of a licensed financial planner . While you can certainly build a financial plan, a financial pro can help ensure that your plan covers all the essentials.

Build an Emergency Cash Fund

Based on what your cash flow allows, start setting aside enough money in a liquid account to cover all your expenses for at least 6 months (preferably, for twelve) if you find yourself without income due to unexpected events.

Plan to Reduce Debt and Manage Expenses

If you have debt, the faster and more effectively that you can eliminate it, the better for the growth of your savings, your standard of living, and the achievement of specific financial objectives.

Make it a habit to cut expenses whenever possible so that you can add to your savings. In addition, stay on top of expenses that you know you'll have, such as taxes, so you always meet those obligations on time.

Manage Potential Risks

Your financial well-being can be affected when accidents, health problems, or the death of loved ones strike. Plan to put into place the appropriate insurance coverage that will protect your financial security at such times. This coverage can include home, property , health, auto, disability , personal liability , and life insurance.

Plan to Invest

Take part in a retirement plan at work that automatically deducts contributions from your paycheck. And plan to maximize your tax-advantaged investing with a personal IRA if and when your income allows.

Also, consider how you might allocate any other available income to a taxable investment account that can add to your net worth over time. Your plan for investing should take into account your investment risk tolerance and future income needs.

Include a Tax Strategy

Address the goal of reducing your income taxes with tax deductions, tax credits, tax loss harvesting, and any other opportunities that are legally available to taxpayers.

Consider an Estate Plan

It's important to make arrangements for the benefit and protection of your heirs with an estate plan . The details will depend on your stage in life and whether you're married, have children, or have other legacy goals.

Monitor and Adjust Your Financial Plan

Revisit your plan at least yearly (on your own or with a financial professional) and more often if a change in circumstances affects your financial situation. Keep it working efficiently and effectively by adjusting it as needed.

What Is the Purpose of a Financial Plan?

A financial plan should help you make the best use of your money and achieve long-term financial goals, such as sending your children to college, buying a bigger home, leaving a legacy, or enjoying a comfortable retirement.

How Do I Write a Financial Plan?

You can write a financial plan yourself or enlist the help of a professional financial planner. The first step is to calculate your net worth and identify your spending habits. Once this has been documented, you need to consider longer-term objectives and decide on the ways to achieve them.

What Are the Key Components of a Financial Plan?

Financial plans aren't one-size-fits-all, although the good ones tend to focus on the same things. After calculating your net worth and spending habits, you’ll explore your financial goals and ways to achieve them. Usually, this involves some form of budgeting , saving, and investing each month. To ensure that you live comfortably and financially stress-free for the rest of your life, the areas to focus on include an emergency savings plan, a retirement plan, risk management, a long-term investment strategy, and a tax minimization plan.

A financial plan is an essential planning tool for your financial well-being, now and into the future. It involves setting down the current state of your finances, your various financial goals, and methods that can help you achieve them.

It's never too early or late to create a financial plan. And no matter the amount of money that you have, a financial plan can help you to determine the best way to put it to work so that you can meet your financial needs through all of your life stages.

• Financial Plans: Meaning, Purpose, and Key Components 1 of 14
• How To Conduct a Financial Checkup 2 of 14
• How to Manage Lifestyle Inflation 3 of 14
• Your Annual Financial Planning Checklist 4 of 14
• Financial Planning: Can You Do It Yourself? 5 of 14
• The Importance of Making an Annual Financial Plan 6 of 14
• What Is Retirement Planning? Steps, Stages, and What to Consider 7 of 14
• 10 Steps to Financial Security Before Age 30 8 of 14
• 10 Steps to Retire as a Millionaire 9 of 14
• Why Should I Pay Myself First? 10 of 14
• How Can I Budget for Short-Term Expenses and Long-Term Goals? 11 of 14
• How To Adjust and Renew Your Portfolio 12 of 14
• Financial New Year's Resolutions You Can Keep 13 of 14
• How to Conduct a Financial Intervention 14 of 14

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Financial Advisor Business Plan Template

Written by Dave Lavinsky

Over the past 20+ years, we have helped over 9,000 entrepreneurs create business plans to start and grow their financial advisor and financial planning businesses. On this page, we will first give you some background information with regards to the importance of business planning. We will then go through a financial advisor business plan template step-by-step so you can create your plan today.

Download our Ultimate Financial Advisor Business Plan Template here >

What Is a Business Plan?

A business plan provides a snapshot of your financial advisor business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategy for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan

If you’re looking to start a financial advisor business or grow your existing financial advisor business you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your financial planning business in order to improve your chances of success. Your financial advisor business plan is a living document that should be updated annually as your company grows and changes.

Source of Funding for Financial Planning Businesses

With regards to funding, the main sources of funding for a financial advisor are personal savings, credit cards, bank loans and angel investors. With regards to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to confirm that your financials are reasonable. But they will want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business.

Angel investors are wealthy individuals who will write you a check. They will either take equity in return for their funding, or, like a bank, they will give you a loan.

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Your business plan should include 10 sections as follows:

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of financial advisor business you are operating and the status; for example, are you a startup, do you have a financial advisor business that you would like to grow, or are you operating a chain of financial planning businesses.

Next, provide an overview of each of the subsequent sections of your plan. For example, give a brief overview of the financial advisor business industry. Discuss the type of financial planning business you are operating. Detail your direct competitors. Give an overview of your target customers. Provide a snapshot of your marketing plan. Identify the key members of your team. And offer an overview of your financial plan.

Company Analysis

In your company analysis, you will detail the type of financial advisor business you are operating.

For example, you might operate one of the following types:

• Financial Planning for Consumers : this type of financial advisor provides services such as retirement planning and investment management for individuals.
• Financial Management Consulting : this type of financial advisor business typically serves businesses and governments, providing portfolio management services.

In addition to explaining the type of financial advisor business you operate, the Company Analysis section of your financial planner business plan needs to provide background on the business.

Include answers to question such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include sales goals you’ve reached, new store openings, etc.
• Your legal structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry analysis, you need to provide an overview of the financial advisor business.

While this may seem unnecessary, it serves multiple purposes.

First, researching the financial advisor business industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your strategy particularly if your research identifies market trends. For example, if there was a trend towards cryptocurrency investment, it would be helpful to ensure your plan calls for continuing education in alternative investments.

The third reason for market research is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your financial advisor business plan:

• How big is the financial advisor business (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential market for your financial advisor business. You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your financial planning business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: families, high net worth individuals (HNWIs), baby boomers, businesses, etc.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of financial advisor business you operate. Clearly baby boomers would want different pricing and product options, and would respond to different marketing promotions than high net worth individuals.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, include a discussion of the ages, genders, locations and income levels of the customers you seek to serve. Because most financial advisor businesses primarily serve customers living in their same city or town, such demographic information is easy to find on government websites.

Psychographic profiles explain the wants and needs of your target customers. The more you can understand and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other financial advisor businesses.

Indirect competitors are other options that customers have to purchase from that aren’t direct competitors. This includes independent advisory firms, commercial banks, investment banks, insurance companies, broker-dealers, discount brokerages or self-managing one’s finances and investments. You need to mention such competition to show you understand that not everyone who seeks financial advice engages the services of a financial advisor.

With regards to direct competition, you want to detail the other financial advisor businesses with which you compete. Most likely, your direct competitors will be financial advisor businesses located very close to your location.

For each such competitor, provide an overview of their businesses and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as:

• What types of customers do they serve?
• What products and services do they offer?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you provide superior services?
• Will you provide products/services that your competitors don’t offer?
• Will you make it easier or faster for customers to engage your services?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. Your financial advisor marketing plan should include the following:

Product : in the product section you should reiterate the type of financial advisor business that you documented in your Company Analysis. Then, detail the specific products you will be offering. For example, in addition to financial advice, will you offer trust services or brokering and dealing?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your marketing plan, you are presenting the products and services you offer and their prices.

Place : Place refers to the location of your financial advisor business. Document your location and mention how the location will impact your success.

Promotions : the final part of your financial advisor business marketing plan is the promotions section. Here you will document how you will drive customers to your location(s). The following are some promotional methods you might consider:

• Advertising in local papers and magazines
• Pay per click advertising
• Reaching out to local bloggers and websites
• Social media advertising
• Local radio advertising
• Banner ads at local venues

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your financial advisory such as serving customers, procuring supplies, keeping the office clean, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to serve your 100th customer, or when you hope to reach $X in sales. It could also be when you expect to hire your Xth employee or launch a new location.

Management Team

To demonstrate your financial advisor business’s ability to succeed as a business, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally you and/or your team members have direct experience in the financial advisor business. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act like mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in financial advisor businesses and/or successfully running small businesses.

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet and cash flow statements.

Income Statement : an income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenues and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you serve 50 accounts at a time, or 100? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets : While balance sheets include much information, to simplify them to the key items you need to know about, balance sheets show your assets and liabilities. For instance, if you spend $100,000 on building out your financial advisor business, that will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a bank writes you a check for $100.000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement : Your cash flow statement will help determine how much money you need to start or grow your business, and make sure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit but run out of money and go bankrupt.

In developing your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a financial advisor business:

• Office location build-out including design fees, construction, etc.
• Cost of equipment like computer hardware and software, office equipment, etc.
• Cost of required licenses (e.g., FINRA fees)
• Payroll or salaries paid to staff
• Business insurance
• Taxes and permits
• Legal expenses

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your office design blueprint or location lease, etc.

Additional Financial Advisor Business Plan Tips

When writing a business plan for a financial advisor practice, take great pains to avoid these three mistakes which each give funders reason to set the plan aside or stop returning your calls.

Resting on Your Laurels

Your financial experience that prepares you to be an advisor is certainly important to explain in your business plan, but this isn’t enough. You have to go beyond explaining the experience you bring to the table to explain how you will market and operate a business with that experience serving as a cornerstone. Without a plan for how the business will run, readers cannot truly judge how you expect the business to succeed.

Ignoring Competition

Writing that there is no competition for the customers you want in the location you will operate is a huge mistake in a business plan. There are always competitors, even if the competition is Fortune magazine or the Motley Fool website. At a minimum, clients have the option of finding financial advice in these inexpensive sources rather than working with you. The competitive analysis section of your plan must recognize the challenge you face in proving your practice’s worth beyond these competitors, at the very least.

Not Connecting the Dots

The business plan is a type of logic puzzle. When put together, it connects opportunity to means to methods to results. Think through the logic of whether the means you present (your experience, team, location, etc.) are adequate to take advantage of the opportunity. Consider whether the operations and marketing methods you propose make sense for the means. Look at whether the results you project are reasonable given these methods. If you don’t think through these steps, your readers will find gaps in your logic and turn down funding for your plan, even if each component sounds perfectly fine on its own. The plan must work as a cohesive whole to be fundable.

Financial Advisor Business Plan Summary

Putting together a business plan for your financial advisor business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will really understand the financial advisor business, your competition and your customers. You will have developed a marketing plan and will really understand what it takes to launch and grow a successful financial advisor business.

Download Our Financial Advisor Business Plan PDF

You can download our financial advisor business plan PDF here . This is a business plan template you can use in PDF format.  

Financial Advisor Business Plan FAQs

What is the easiest way to complete my financial advisor business plan.

Growthink's Ultimate Financial Advisor Business Plan Template allows you to quickly and easily complete your Financial Advisor Business Plan.

Where Can I Download a Financial Advisor Business Plan PDF?

You can download our financial advisor business plan PDF template here . This is a business plan template you can use in PDF format.

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What Is a Financial Plan? (2024 Guide)

Holly Humbert is a freelance writer who is passionate about entrepreneurship, women in business and financial literacy. In addition to writing, Holly works in marketing helping clients harness the power of social media for their small businesses.

When she is not writing, she is testing out new recipes, tasting the newest Trader Joe’s finds or binging the latest true crime podcast. She resides in Utah with her husband, two daughters and dog, Max.

David Gregory is a sharp-eyed content editor with more than a decade of experience in the financial services industry. Before that, he worked as a child and family therapist until his love of adventure caused him to quit his job, give away everything he owned and head off to Asia. David spent years working and traveling through numerous countries before returning home with his wife and two kids in tow. His love of reading led him to seek out training at UC San Diego to become an editor, and he has been working as an editor ever since. When he’s not working, he’s either reading a book, riding his bicycle or playing a board game with his kids (and sometimes with his wife).

A financial plan is a comprehensive strategy outlining your current financial situation and actionable steps necessary to achieve short-term and long-term goals.

Key Takeaways

• A financial plan is a strategic roadmap to help you achieve your monetary goals. 
• Key components of a comprehensive financial plan include income streams, budgeting, debt and risk management, allocations, retirement planning and more.
• A well-structured financial plan provides clear insight into your financial life, leading to long-term financial health and stability. 

A financial plan is like a map to achieve your financial goals. It involves a clear understanding of your current financial status, creating financial objectives and implementing steps to achieve those goals.

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Learn more about our methodology and editorial guidelines .

Key Components of a Financial Plan

You can use a financial plan to accomplish a variety of goals — getting out of debt, saving for a house, preparing for retirement, etc. While the specifics will vary on a person-by-person basis, you generally need to include these key components: 

• Current financial standing : Make an honest assessment of your current financial status, including assets (what you own), liabilities (what you owe), income and expenses.
• Budget: Dive deep into your everyday expenses and income, ensuring your spending aligns with your saving objectives and goals. 
• Financial goals : Establish clear objectives to make your personal finance journey targeted and purposeful. Your goals can include funding education, saving for a home, getting out of debt, and much more. 
• Strategies : Adopt tailored strategies to help you achieve them. Financial strategies include tactics for increasing your income, reducing your debt, investing and more. 
• Insurance coverage : Have adequate insurance coverage, including health, disability, life, car and property insurance, to help protect you from unexpected financial losses and stop your financial plan from becoming unraveled. 
• Retirement and estate planning : Include details on how you’re going to achieve your retirement goals and how you want your assets distributed once you die. 

Benefits of Financial Planning

Financial planning brings a host of benefits. It serves as a guide for everyday financial decisions but can also lay the foundation for future security and wealth.

Creating Your Financial Plan

By methodically walking through the steps below, you can lay the groundwork for financial stability and success. 

1. Assess your current financial situation 

This comprehensive overview sets the stage for informed goal formation. Take inventory of your current financial reality, including your income, expenses, assets, debts and any other financial obligations. 

2. Set S.M.A.R.T. financial goals

S.M.A.R.T. stands for specific, measurable, achievable, realistic and time-bound and is a formula for creating achievable goals. Here’s how each aspect can help you set financial goals:

• Specific : Define your goal clearly. This can be easier in the financial realm because you can assign precise dollar amounts to your goals. Specific goals can enhance your motivation and are easier to track.

For example, instead of “I want to save for a house,” make your goal, “I will save $50,000 in 30 months for my down payment.” 

• Measurable : Without a destination, it’s difficult to know how much progress you’re making. You can measure your bigger financial goals with benchmarks to keep you motivated and on track.

For example, instead of “I will save more money,” make your goal, “I will save $50 a week by bringing lunch from home instead of eating out.” 

• Achievable: It’s important to strike a balance between overly ambitious and modest goals. If you have a particularly large goal, create mini-milestones that promote a sense of accomplishment. 

For example, instead of “I will increase my income by $50,000 next year,” make your goal, “I will initiate a side hustle that increases my income by $300 each month within the next two months.”

• Realistic: Your financial goals should be both challenging and attainable — if they’re not, you could end up feeling discouraged and unmotivated. Ensure your financial goals are realistic compared to your circumstances.

For example, instead of “I will become a millionaire in two years,” make your goal, “I will invest 15% of my income to grow my net worth.” 

• Time-bound: Have a specific deadline. This will help keep you accountable as well as help you stay on track and use your resources effectively.

For example, instead of “I will pay off my house,” make your goal, “I will put an extra $200 toward my principal mortgage balance each month to pay off my home in nine years.” 

Consider meeting with a financial planner or advisor who can help walk you through these steps and give insights to help you craft a financial plan. 

3. Calculate your net worth

Your net worth is your assets minus your liabilities. An asset is anything you own that has monetary value, including cash and cash equivalents, real estate, investments and personal property (e.g., cars, collections or jewelry). Liabilities are obligations you owe, including a mortgage, credit card debt and loans (e.g., car, personal or student loans). 

Net worth can be either positive or negative (if your liabilities outweigh your assets). The best way to increase your net worth is by reducing your liabilities while increasing your assets. 

4. Create a budget

Budgeting is a strategy for ensuring each dollar has a specific role. Following a budget can help prevent wasteful spending on unnecessary purchases, 

For those new to budgeting, zero-based budgeting is a great place to start. This method involves creating a detailed list of your income and expenses for the upcoming month. You should direct any extra funds to a category — this can be saving up for a future expense or investing it for your financial future. 

Another budget plan is the 50/30/20 strategy. This plan aims for you to put 50% of your money toward needs (food, housing, etc.), 30% toward wants (entertainment, hobbies, etc.) and 20% toward savings and debt repayment. 

At the end of each month, no matter what budget plan you use, review how the last month went and note any categories where you under- or overspent. Using this information, readjust your projected expenses for the following month. 

5. Reduce high-interest debt

Reducing high-interest debt frees up significant monthly cash and saves you from paying a hefty amount of interest. The debt snowball method is a popular strategy for debt repayment. It involves listing your debts from the smallest principal balance to the largest and then funneling all excess monthly cash flow to the smallest debt (while continuing to make the minimum monthly payment on all your other debts). 

Once you’ve paid off the smallest debt, you’ll roll that payment (both the minimum and any extra) into the next smallest debt. This process continues until you’ve repaid all your debts. 

6. Build an emergency fund

The majority of Americans struggle to cover a $500 emergency. Having a rainy day fund can protect you against having to borrow money or stress about unexpected expenses.

It’s commonly suggested you have three to six months’ worth of expenses saved in a liquid emergency fund, but this will vary based on your personal risk tolerance. You should store this fund away from regular accounts to avoid dipping into it when it’s not a true emergency. Consider putting it into a high-yield savings account where you can earn interest.

It’s also important to consider other types of emergency protection such as long-term disability and life insurance, especially if you have dependents. 

7. Open investment accounts

There are multiple types of investment accounts you can choose from. Some may be specific for retirement, such as a 401(k) or an individual retirement account (IRA), while others, such as a high-yield savings account (HSYA), are everyday accounts.

Investments are part of a long-term plan, taking advantage of compound interest and growth over many years. Working with a financial advisor can help you figure out what investments would be right for your situation and risk tolerance levels. 

The Bottom Line: Financial Planning

Financial planning is a dynamic process that requires regular review and adjustment. A financial plan outlines your current financial status, goals and the steps and strategies necessary to achieve your financial objectives.

Essential components of a financial plan include income, debts, risk, budgeting, investments and retirement and estate planning. Periodically reassessing your plan can help ensure it stays aligned with your current situation and future goals.

FAQ: What Is a Financial Plan?

What are the key elements of a financial plan.

The key elements of a financial plan are assessing your current financial standing, creating S.M.A.R.T. goals, calculating your net worth, creating a budget, reducing high-interest debt, building an emergency fund and opening investment accounts.

How often should I review and update my financial plan?

You should revisit your financial plan at least once per year. If you experience significant life events or financial fluctuations, it may be necessary to adjust your financial plan every few months.

What are some common mistakes to avoid when creating a financial plan?

Common pitfalls include setting goals that are not specific, measurable, achievable, relevant and time-bound. Other common mistakes include underestimating your expenses, particularly those that are less frequent or unexpected, ignoring debt and failing to update your financial plan as your life evolves.

Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.

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How Does Long COVID Affect Your Retirement Planning?

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Planning for retirement is at least partially about building a financial structure that will support you or your loved ones if something happens, including illness or disability.

And the potential for that “something” has risen in recent years: Almost 1 in 5 adults age 50 and over say they’ve had symptoms of long COVID, according to a 2023 survey from AARP. Common effects include fatigue, brain fog, difficulty breathing, anxiety, depression and gastrointestinal issues, and 39% have had symptoms for a year or more.

“So many people got infected with COVID, you have a much bigger number of people who are infected with a significant chronic disease,” says Carolyn McClanahan, a physician-turned-certified financial planner in Jacksonville, Florida.

At the heart of the matter, long COVID isn’t unique in the way it impacts your retirement strategy — but it does reinforce that a successful retirement plan must hold up to unexpected illness. Here are some tactics to make your plan more resilient.

Beef up your emergency fund

At any stage of life, it’s important to have cash on hand in case you need it. “Too many people sock money away in retirement plans where it can be harder to access if you have an issue,” McClanahan says.

Depending on your life circumstances, you may want to have as much as six to 12 months of savings set aside. Your savings can help you make ends meet if you get sick and can’t work, or if you’re waiting for disability benefits to kick in.

“Life happens, emergencies happen,” says Ashton Lawrence, a CFP in Greenville, South Carolina. Instead of having to tap a home equity line of credit or take on debt, he says, you’ll have this cash sitting on the sidelines for emergency situations.

Review your estate plan

A basic estate plan might include a will, advance directive and both medical and financial powers of attorney. This helps ensure that if you’re incapacitated or unable to speak for yourself, your health and your affairs will be handled the way you want them to be.

If you didn’t work with an estate planning attorney to create your plan, have one review your documents to make sure they were executed correctly. Requirements for powers of attorney vary from state to state, says Shari Fleming, an estate planning attorney in Owings Mills, Maryland.

Fleming also encourages her clients to write a letter of intent that puts their wishes down on paper, such as the goals behind their estate plan or how they’d like the end of their life to go. “It’s not a legal document, but it does fill in the blanks,” she says.

Buy great health insurance

Don’t skimp on health coverage — get the best plan you can afford. If you’re under 65 or still covered by an employer plan, make sure you have the money to cover the plan deductible if you need medical care. “If you have long COVID, you’re pretty much going to max out your deductible every year,” McClanahan says.

If you’re eligible for Medicare, McClanahan recommends Original Medicare with a Medigap policy for greatest flexibility. “With Medicare Advantage, you’re basically locked into your insurer’s network, and they’re the ones who get to ration your care,” she says. “If you have traditional Medicare, you don’t have that issue.”

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Hit retirement savings goals early.

“I have clients that maybe aren’t as prepared for retirement as they need to be, and they tell me, ‘I know I’m going to have to work until I’m 67 or 70,'” says Liz Windisch, a CFP in Denver. “What if you get sick? What if your partner or parent or sibling gets sick and you have to care for them and can’t work full time?”

Windisch encourages her clients to get more aggressive with savings goals , and if they can’t save more, to get a roommate or a part-time job to make it happen. “I hope you can work until you’re 67 … but we need to plan as if you might not be able to do that,” she says.

Simplify your money life

Because there’s always the possibility of incapacity as you get older, streamlining your finances makes it easier if someone has to step in to manage things. Consolidate accounts, keep a list of usernames and passwords, and keep a folder with at least one statement from each bill that you pay.

Noah Damsky, a financial adviser in Los Angeles, has a client who was very independent before she started experiencing long COVID symptoms. Since then, her family has had to get more involved in her life. “We’ve got to make sure other family members are playing a more active role in some of the things they didn't [do] before, like making sure some bills get paid, doctors are seen, things like that,” Damsky says.

Check your life and disability coverage

If you have disability insurance through your employer, consider paying for higher coverage, if you can — employer plans for long-term disability usually replace just 60% of your income. Consider, also, a life insurance policy with a disability rider, which is generally less expensive than buying a disability policy independently.

Gregory Corneille, a CFP in Lawrenceville, Georgia, recommends life insurance with critical and chronic illness riders for people who have little or no disability coverage. Critical illness riders cover things like cancer, heart disease and lung disease. Though carriers may not have updated their coverage definitions to include long COVID specifically, long COVID causes some of the issues on the list, Corneille says.

You can also buy a life insurance policy with a long-term care rider, so you can use the death benefit to pay for long-term care costs like a nursing home or a home care worker.

“We’re going to find a lot of people that have a lot more health problems than they used to,” Windisch says. “COVID affects people in ways we haven't even realized yet.”

This article was written with the support of a journalism fellowship from the Gerontological Society of America, the Journalists Network on Generations and the Silver Century Foundation.

On a similar note...

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Help! My marriage has been stalled because I can't afford a home

It is important to approach your goals with a clear financial plan that doesn't compromise your other life goals. you should also look at all aspects, including your financial health, emergency savings and retirement planning, etc..

• Updated Apr 08, 2024, 8:42 AM IST

I'm a 34-year-old millennial working in an MNC. I want to purchase a house, but the prices are too high. How should I plan for it? I am postponing my marriage because I am not able to buy a house. I earn Rs 1 lakh a month. I have no liability at present. 

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• From Renting to Owning: The Financial Benefits of Paying Home Loan EMIs
• Home loan: 5 key factors to consider before buying your first house

While I can bear an EMI of up to Rs 50,000, I don't have enough money to make 20% downpayment. 

I want to buy a house in the NCR region. The reason why I don't want to live on rent is because it is for a short duration and I don't want to shift here and there after marriage. Please guide.

By Raj Khosla Founder and MD MyMoneyMantra.com

It is difficult to purchase a home, especially in a competitive market like the National Capital Region (NCR) in India. You need to plan and apply certain strategies to accomplish your financial goal. looking at the current scenario, you may consider some of the strategies mentioned below to buy your dream home on time.

Property price range: While observing your salary and Equated Monthly Income (EMI) affordability, you must look for flats within the range of Rs 60 lakh. This approach significantly reduces the required down payment and increases your likelihood of loan approval. If the property you finalize falls within 60 lakh then you can get up to 90% of financing options from banks and other financial institutions. 

When you go for a property priced at Rs 60 lakh, the 10% down payment would be Rs 6.0 lakh. This way, you would have to pay a lesser amount, which can be easily attainable than going for a property with a higher price.

Look for loan options: Normally, all banks provide home loan options. You can search online, compare interest rates, and choose the bank that offers the best interest rates. Some might offer higher (Loan to Value) LTV ratios for specific properties and flats. If you have excellent credit profiles, you can get cheaper interest rates. Once you select the bank, you can also negotiate terms and conditions with the bank.

Expand location search: Do not stick to one area, as not all locations are expensive. You must expand your search within the NCR to find more affordable options. The options are huge, you need to identify the areas which often offer better prices and may appreciate in value over time.

Be flexible in choosing property: You must open yourself to different types of properties available in the vicinity. For instance, under-construction projects are cheaper than going for developed projects basically, ready-to-move-in options.

It is important to approach your goals with a clear financial plan that doesn't compromise your other life goals. It is not that you must consider only homeownership, you should also look at all aspects, including your financial health, emergency savings and retirement planning, etc. What you can do more is to consult a financial advisor, take his opinion, and disclose all the information with him; then he can provide you with personalized advice tailored to your specific situation. 

(Views expressed by the investment expert are his/her own. E-mail us your investment queries at [email protected]. We will get your queries answered by our panel of experts.)

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The housing shortage is getting no help from aging baby boomers

• 78% of home-owning baby boomers plan to age in their current homes, a Redfin survey found.
• This is keeping existing homes off the market, exacerbating supply issues.
• Financial incentives are keeping boomers put, with current mortgage rates and home prices too high.

Most home-owning baby boomers will not downsize as they age, with 78% intending to stay put at their current address, Redfin found in a recent survey.

That's not good news for housing supply, which is already dwindling at historic lows. With fewer existing homes on sale, conditions are stacked against younger homebuyers in search of a family-sized property.

For instance, while millennials with kids owned 14% of US homes with three or more bedrooms in 2022, empty-nest boomers made up 28% of this market , Redfin said in a separate report. It's kept prospective buyers locked out, with millennials stuck renting or getting priced out of cities .

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According to baby boomers surveyed in February, financial incentives are what's keeping them in place.

27% of respondents cited mortgage considerations for why they're not selling, as over half of boomers have paid off their loans. For those still on a mortgage, almost all boomers have rates that are significantly lower than today's 6% levels .

Meanwhile, 21% won't move due as home prices have climbed to high. The remaining 51% like their home, and have no reason to move. 

It's a sign of shifting trends, as US homeowners averaged just 6.5 years per home in 2005, Redfin previously found. Now, the median tenure is up to 11.9 years , while 40% boomers have stayed put for at least 20 years.

"In reality, many homeowners and renters will need to move somewhere that better meets their needs as they age, like a senior-living community or a one-story home in an accessible neighborhood," Redfin Chief Economist Daryl Fairweather said in the new report.

But surveyed boomers aren't focused on that just yet. Only 20% of these homeowners plan to move to a 55-and-over community, while 20% would move in with an adult child or into an assisted living facility.

"The government isn't prioritizing building housing for seniors, which is further encouraging older Americans to stay put, exacerbating the inventory shortage. Politicians should focus on expanding housing stock that meets the needs of older Americans, which could help with housing affordability and availability for all," Fairweather added.

Prospective homebuyers could see some inventory relief as mortgage rates continue to gradually fall through this year, bringing back sellers. Already, existing home supply surged 20.8% in February on an annual basis, Zillow reported.

Watch: Millions of homes could flood the US housing market thanks to boomers

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