Amelia Grant

Financial planning is a thing that can help you define short- and long-term financial goals as well as build a business plan to achieve them. The plan will reveal what the business should prepare for.

It’s essential to build a financial plan after you’ve determined the goals and the way you’ll do business. Business plan includes everything that the company needs to achieve its goals:

- All types of activities

- Resources

- Equipment and materials

- Time frame

Business financial planning is not the same as accounting. The company doesn’t analyze what has already been spent but makes a forecast for the coming months: establishing the income and expenses. This forecast acts as an early warning system, showing you where to cut costs, determine your financial needs, and determine the optimal timing.

The plan visualizes the areas where resources need to be increased. This could be marketing, expansion, or product development.

Who needs financial planning?

Anyone who doesn't want to burn out needs to plan their finances. The financial plan allows you to track the success of the business and quickly fix problems if they arise. As a rule, companies that are engaged in financial planners increase revenues faster than those whose planning process is ineffective. 

Will the business be successful without financial planning?

When you find yourself in the city for the first time and you need to get from point A to point B, you don't go at random but use the map. The same applies to business. Without financial planning, business decisions become riskier and companies can miss opportunities or make mistakes.

How to create a financial plan?

1. Make or revise your business plan

Financial planning should start with your company's strategic plan. You need to answer the following questions:

Should we expand?

Do you need more equipment?

Do I need to hire more employees?

Are there any other new resources needed?

How will this plan affect cash flow?

Do you need funding? If so, how much?

Then calculate your financials for the next 12 months, including spending on large projects.

2. Develop financial projections

Make monthly financial projections. To do this, you need to record the expected revenue based on the sales forecasts and the expected labor costs, consumables, and overhead costs.

Companies with limited cash flow can make weekly forecasts. Based on this, you can calculate the costs for the projects from the previous step. It is useful to include various scenarios in these projections - the most likely, the optimistic, and the pessimistic. It is important to assess the consequences of each of them.

3. Take care of funding

Use financial projections to determine needs. If necessary, contact your financial partners (investors/banks) in advance to discuss possible financing options.

4. Develop a contingency plan

What will you do in the event of a sudden deterioration in your financial situation? It is important to have money for a rainy day. This can be facilitated by the contribution or the presence of an additional source of credit.

5. Monitor the results

Compare the actual financial results with the forecast figures each month to immediately notice and analyze significant deviations. They may require strategy adjustments to get the business back on track to meet its revenue and profit goals.

The easiest financial planning option is to create a table in Excel and fill it out yourself month after month. There are services that help to draw up a financial plan: this option will be easier.

How to make it easier to build a financial plan?

There are many variables that affect a company's financial results, and each of them is difficult to predict. It is especially difficult to predict consumer behavior - how well customers will respond to a company's products and prices. Changes in cost factors can also cause significant discrepancies. But there are some tips to help make your financial planning easier.

For example, let's say you want to open a pizzeria.

1. Answer the question: what audience will you work for? Here you can follow the 5W method and answer the questions: what do you sell, who buys it, why, when, and where do customers find a way to solve their problem.

- WHAT? Pizza, coffee, soda, donuts

- WHO? Families with children, teenagers

- WHY? Want to spend time and have a snack

- WHEN? At lunchtime and weekends

- WHERE ARE LOOKING FOR? In social networks, they are looking for an institution near home and work

2. Make an action plan: what do you need to open a pizzeria?

Analyze the market, find premises, obtain permits, find suppliers of quality ingredients, purchase equipment, hire employees, create a menu, organize cash registers, and launch advertising. Next, we determine the resources we need to achieve our goals - this will form the basis of financial planning.

3. Think over what steps will allow you to increase profits and quickly reach the break-even point

For a pizzeria, it is important to think about the quality of customer service, the maximum number of guests who are ready to return to you again and again, and increasing the average check.

All of the above is important to summarize in order to understand: what is needed for the functioning of a business.