How to Write a Small Business Financial Plan

Stairs leading up to a dollar sign. Represents creating a financial plan to achieve profitability.

Noah Parsons

3 min. read

Updated January 3, 2024

Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully put your budget and forecasts together. Here is everything you need to include in your financial plan along with optional performance metrics, specifics for funding, and free templates.

  • Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

  • Financial ratios and metrics

With all of your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios. While these metrics are entirely optional to include in your plan, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

  • Financial plan templates and tools

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

financial plan business meaning

Sales forecast template

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

Download Template

financial plan business meaning

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Content Author: Noah Parsons

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

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Financial Planning

Financial planning definition.

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

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

The financial planning process includes multiple tasks, including:

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

Generally, the financial partner role includes three areas:

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

What Is Financial Planning?

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

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

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

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

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

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

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

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

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

Budgeting, planning, modeling, and forecasting

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

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

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

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

financial plan business meaning

Decision support and reporting

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

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

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

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

financial plan business meaning

Special projects

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

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

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

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

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

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

What is Corporate Financial Planning and Analysis?

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

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

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

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

What is the Financial Planning Process?

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

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

Forecast revenue

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

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

financial plan business meaning

Budget expenses

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

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

Project cash flow

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

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

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

Project income

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

Compile assets and liabilities

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

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

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

Conduct breakeven analysis

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

Put the plan to work

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

Compare statements over time

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

Pitch with past plans

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

Use financial planning software

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

financial plan business meaning

What Should Financial Planning Include?

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

Profit and loss statement

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

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

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

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

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

The P&L statement should also include operating income:

  • Gross Margin – Operating Expenses = Operating Income

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

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

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

financial plan business meaning

Cash flow statement

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

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

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

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

Balance sheet

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

A balance sheet should include:

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

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

  • Assets = Liabilities + Equity

Sales forecast

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

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

Personnel plan

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

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

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

Business ratios and break-even analysis

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

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

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

What are the Steps in Financial Planning?

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

Review your strategic plan

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

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

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

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

Develop financial projections

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

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

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

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

Arrange financing, plan for growth and contingencies

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

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

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

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

Consult and use tools

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

Why is Financial Planning Important?

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

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

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

Credibility

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

Balancing the balance sheet

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

Long-term visibility

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

Strategic marketing

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

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

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

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

Measuring profit and loss

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

financial plan business meaning

What are Financial Planning Benefits?

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

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

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

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

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

Business alignment

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

Agility, collaborative and actionable budgeting

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

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

Identify spend reductions

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

Mitigated risks

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

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

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

Crisis management

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

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

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

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

Be opportunistic around fundraising

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

Roadmap for growth

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

Transparency

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

Does Planful Help With Financial Planning?

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

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

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

Planful can help your business:

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

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

Get Started with Planful

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Financial Planning: A Step-by-Step Guide

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What is a financial plan?

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

financial plan business meaning

Get a custom financial plan and unlimited access to a Certified Financial Planner™

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*6-month commitment to be set up for success.

What is financial planning?

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

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

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

Zoe Financial

via Zoe Financial

9 steps in financial planning

1. set financial goals.

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

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

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

Financial Goals: Where to Begin

How to Set Financial Goals

2. Track your money

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

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

Video preview image

Budgeting 101: How to Budget Money

Free Budget Planner Worksheet

3. Budget for emergencies

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

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

How to Build Credit

Emergency Fund: What It Is and Why It Matters

Emergency Fund Calculator

4. Tackle high-interest debt

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

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

Pay Off Debt: Tools and Tips

How to Pay Off Debt Fast: 7 Tips

5. Plan for retirement

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

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

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

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

IRA Contribution Limits Explained

6. Optimize your finances with tax planning

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

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

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

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

Federal Brackets and Income Tax Rates

20 Popular Tax Deductions and Tax Credits

7. Invest to build your future goals

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

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

How To Invest in Stocks

Saving for Education: 529 Plan Rules and Contribution Limits

8. Grow your financial well-being

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

Increasing contributions to your retirement accounts.

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

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

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

What Is Life Insurance and How Does It Work?

9. Estate planning: Protect your financial well-being

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

Estate Planning Checklist

Estate Tax Planning: How Does Your Strategy Look?

financial plan business meaning

Types of financial planning help

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

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

Complete financial plan and investment advice

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

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

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

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

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

Portfolio management only

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

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

Why is financial planning important?

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

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

On a similar note...

Find a financial advisor

View NerdWallet's picks for the best financial advisors.

financial plan business meaning

What is financial planning in business?

Table of Contents

What is financial planning?

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

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

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

  • The difference between a personal and business financial plan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A balance sheet should list your:

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

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

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

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

Income statements typically include:

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

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

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

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

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

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

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

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

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

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6 Elements of a Successful Financial Plan for a Small Business

Table of contents.

financial plan business meaning

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

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

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

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

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

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

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

The 6 components of a successful financial plan for business

1. sales forecasting.

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

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

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

2. Expense outlay

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

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

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

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

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

3. Statement of financial position (assets and liabilities)

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

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

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

4. Cash flow projection

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

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

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

5. Break-even analysis

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

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

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

6. Operations plan

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

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

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

Tips on writing a business financial plan

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

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

Review the previous year’s plan.

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

Collaborate with other departments.

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

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

Use available resources.

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

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

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

Business financial plan templates

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

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

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

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

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

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Financial plan, what is a financial plan.

A business’ financial plan is the part of your business plan that details how your company will achieve its financial goals. It includes information on your company’s projected income, expenses, and cash flow in the form of a 5-Year Income Statement, Balance Sheet and Cash Flow Statement. The plan should also detail how much funding your company needs and the key uses of these funds.

The financial plan is an important part of the business plan, as it provides a framework for making financial decisions. It can be used to track progress and make adjustments as needed.

Why Your Financial Plan is Important

The financial section of your business plan details the financial implications of running your company. It is important for the following two reasons:

Making Informed Decisions

A financial plan provides a framework for making decisions about how to use your money. It can help you determine whether or not you can afford to make a major purchase, such as a new piece of equipment.

It can also help you decide how much money to reinvest in your business, and how much to save for paying taxes.

A financial plan is like a roadmap for your business. It can help you track your progress and make adjustments as needed. The plan can also help you identify potential problems before they arise.

For example, if your sales are below your projections, you may need to adjust your budget accordingly.

Your financial plan helps you understand how much outside funding is required, when your levels of cash might fall low, and what sales and other goals you need to hit to become financially viable.

Securing Funding

This section of your plan is absolutely critical if you are trying to secure funding. Your financial plan should include information on your revenue, expenses, and cash flow.

This information will help potential investors or lenders understand your business’s financial situation and decide whether or not to provide funding.

Include a detailed description of how you plan to use the funds you are requesting. For example, what are the key uses of the funds (e.g., purchasing equipment, paying staff, etc.) and what are the future timings of these financial outlays.

The financial information in your business plan should be realistic and accurate. Do not overstate your projected revenues or underestimate your expenses. This can lead to problems down the road.

Potential investors and lenders will be very interested in your future projections since it indicates whether you will be able to repay your loans and/or provide a nice return on investment (ROI) upon exit.

Financial Plan Template: 4 Components to Include in Your Financial Plan

The financial section of a business plan should have the following four sub-sections:

Revenue Model

Here you will detail how your company generates revenues. Oftentimes this is very straightforward, for instance, if you sell products. Other times, your answer might be more complex, such as if you’re selling subscriptions (particularly at different price/service levels) or if you are selling multiple products and services.

Financial Overview & Highlights

In developing your financial plan, you need to create full financial forecasts including the following financial statements.

5-Year Income Statement / Profit and Loss Statement

An income statement, also known as a profit and loss statement (P&L), shows how much revenue your business has generated over a specific period of time, and how much of that revenue has turned into profits. The statement includes your company’s revenues and expenses for a given time period, such as a month, quarter, or year. It can also show your company’s net income, which is the amount of money your company has made after all expenses have been paid.

5-Year Balance Sheet

A balance sheet shows a company’s financial position at a specific point in time. The balance sheet lists a company’s assets (what it owns), its liabilities (what it owes), and its equity (the difference between its assets and its liabilities).

The balance sheet is important because it shows a company’s financial health at a specific point in time. A strong balance sheet indicates that a company has the resources it needs to grow and expand. A weak balance sheet, on the other hand, may indicate that a company is struggling to pay its bills and may be at risk of bankruptcy.

5-Year Cash Flow Statement

A cash flow statement shows how much cash a company has on hand, as well as how much cash it is generating (or losing) over a specific period of time. The statement includes both operating and non-operating activities, such as revenue from sales, expenses, investing activities, and financing activities.

While your full financial projections will go in your Appendix, highlights of your financial projections will go in the Financial Plan section.

These highlights include your Total Revenue, Direct Expenses, Gross Profit, Other Expenses, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and Net Income projections. Also include key assumptions used in creating these future projections such as revenue and cost growth rates.

Funding Requirements/Use of Funds

In this section, you will detail how much outside funding you require, if any, and the core uses of these funds.

For example, detail how much of the funding you need for:

  • Product Development
  • Product Manufacturing
  • Rent or Office/Building Build-Out

Exit Strategy

If you are seeking equity capital, you need to explain your “exit strategy” here or how investors will “cash out” from their investment.

To add credibility to your exit strategy, conduct market research. Specifically, find other companies in your market who have exited in the past few years. Mention how they exited and the amounts of the exit (e.g., XYZ Corp. bought ABC Corp. for $Y).  

Business Plan Financial Plan FAQs

What is a financial plan template.

A financial plan template is a pre-formatted spreadsheet that you can use to create your own financial plan. The financial plan template includes formulas that will automatically calculate your revenue, expenses, and cash flow projections.

How Can I Download a Financial Plan Template?

Download Growthink’s Ultimate Business Plan Template which includes a complete financial plan template and more to help you write a solid business plan in hours.

How Do You Make Realistic Assumptions in Your Business Plan?

When forecasting your company’s future, you need to make realistic assumptions. Conduct market research and speak with industry experts to get a better idea of the key trends affecting your business and realistic growth rates.

You should also use historical data to help inform your projections. For example, if you are launching a new product, use past sales data to estimate how many units you might sell in Year 1, Year 2, etc.

Learn more about how to make the appropriate financial assumptions for your business plan.

How Do You Make the Proper Financial Projections for Your Business Plan?

Your business plan’s financial projections should be based on your business model and your market research. The goal is to make as realistic and achievable projections as possible.

To create a good financial projection, you need to understand your revenue model and your target market. Once you have this information, you can develop assumptions around revenue growth, cost of goods sold, margins, expenses, and other key metrics.

Once you have your assumptions set, you can plug them into a financial model to generate your projections.

Learn more about how to make the proper financial projections for your business plan.

What Financials Should Be Included in a Business Plan?

There are a few key financials that should be included in a traditional business plan format. These include the Income Statement, Balance Sheet, and Cash Flow Statement.

Income Statements, also called Profit and Loss Statements, will show your company’s expected income and expense projections over a specific period of time (usually 1 year, 3 years, or 5 years). Balance Sheets will show your company’s assets, liabilities, and equity at a specific point in time. Cash Flow Statements will show how much cash your company has generated and used over a specific period of time.

Growthink's Ultimate Business Plan Template includes a complete financial plan template to easily create these financial statements and more so you can write a great business plan in hours.

BUSINESS PLAN TEMPLATE OUTLINE

  • Business Plan Template Home
  • 1. Executive Summary
  • 2. Company Overview
  • 3. Industry Analysis
  • 4. Customer Analysis
  • 5. Competitive Analysis
  • 6. Marketing Plan
  • 7. Operations Plan
  • 8. Management Team
  • 9. Financial Plan
  • 10. Appendix
  • Business Plan Summary

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  • Creating a Small Business Financial Plan

financial plan business meaning

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 02, 2023

Are You Retirement Ready?

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.

Funding Sources for Small Businesses

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.

Preparing Key Financial Statements for Small Businesses

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.

Strategies for Reducing Costs and Optimizing Expenses in a Small Business

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.

Techniques for Predicting Future Sales in a Small Business

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.

Creating a Small Business Financial Plan

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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  • Financial Planning

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

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

Browse more Topics under Financial Management

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

Objectives of Financial Planning

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

Financial Planning

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Process of Financial Planning

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

Importance of Financial Planning

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

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

Solved Question for You

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

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

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

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Financial planning often involves looking for funding to help take your business performance to the next level. Here are some strategies to explore.

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Financial planning is an iterative, ongoing process that helps your business reach its long-term goals. Financial planning strategies assess your business’s current financial position and allow you to adapt to market changes, forecast business growth, and achieve higher returns.

A typical financial strategy combines two key elements to help you reach your short- and long-term financial benchmarks. These elements are debt and investments. As you think about your financial strategy for the next year and beyond, here’s how to evaluate these options for fueling growth.

Start with goal-setting

Before you can determine whether to take on debt or pitch to investors, you must know the result toward which you are working. Set a SMART goal — one that’s Specific, Measurable, Achievable, Relevant, and Time-Bound — that you can break down into smaller financial targets.

For instance, most business owners aim to increase profit. However, there are more manageable goals that you can set along the way to earning more profit, such as:

  • Increase revenue.
  • Streamline operating expenses.
  • Improve customer retention.
  • Optimize pricing.

Set numerical targets and deadlines for these smaller benchmarks to get a clear picture of the resources and financial strategy that will help you make progress toward your larger objective.

[Read more: CO— Roadmap for Rebuilding: Planning Your Financial Future ]

How to use debt as a financial strategy

Loans are the most common form of debt that a company can use in its financial planning strategy. Loans from financial institutions, credit card companies, or even friends and family can be a good way to get the cash you need for short-term investments.

As a financial planning strategy, the appeal of using debt is that it’s relatively flexible. “Banks offer a range of different business loan products, including term loans, business lines of credit, equipment financing and commercial real estate loans, among other options,” wrote NerdWallet . “Unless you opt for a product that has a specific use case, like a business auto loan, for example, you can generally use a bank loan in a variety of ways to grow and expand your business.”

However, loans have strict eligibility requirements and can be slow to fund, involving a lot of paperwork and a strong credit score. New businesses may struggle to use debt in their financial planning strategy.

Loans are the most common form of debt that a company can use in its financial planning strategy.

How to use equity or investments in financial planning

Issuing equity (stock) is another way to fund your financial plan. Startups in particular can sell shares of ownership to investors to raise capital for growth, expansion, or acquisitions. This allows you to avoid taking on debt and can bring on partners with mentorship and advice to offer.

“With equity financing, there is no loan to repay. The business doesn’t have to make a monthly loan payment which can be particularly important if the business doesn’t initially generate a profit. This in turn, gives you the freedom to channel more money into your growing business,” wrote The Hartford .

The downside of equity financing is that you will need to share a part of your profit with your equity partners. Equity is best suited for financial strategies that require significant capital quickly.

[Read more: 4 Financial Forecasting Models for Small Businesses ]

Final tips for financial planning

Debt and equity are the key ways to ensure you have the cash flow to reach your financial goals, but there are other elements to consider in your strategy. Make sure you plan a safety net for unforeseen risks; build an emergency fund and get insurance to protect your business. In addition, review your financial results quarterly and annually to ensure your projections are realistic.

“As you look over your annual income reports, you can gain insight into the activities that led to improved revenue and double down on them to raise profits as part of your financial plan,” wrote FundKite , a business funding platform.

Revisit your financial plan frequently to make sure the funding options you explore are still serving your business goals. There are plenty of alternative funding sources — such as grants and crowdfunding — that can help you reach short-term benchmarks along the way.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here .

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  • Small Business

Financial Operating Plan (FOP): What it is, How it Works, Example

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

financial plan business meaning

What Is a Financial Operating Plan (FOP)?

A financial operating plan (FOP) is a financial plan outlining the revenues and expenses over a period of time. A financial operating plan uses past performances, incomes, and expenses to forecast what to expect in the following years. It then incorporates past and recent trends into the planning so as to most accurately forecast what is to come. It will define goals for areas such as budgeting, sales, and payroll as well as create a cash flow projection.

Key Takeaways

  • A financial operating plan (FOP) outlines a firm's financial situation for the current and future periods.
  • Using past data, the FOP projects future operating income and expenses in order to understand a firm's growth or areas of weakness.
  • More extensive than an annual budget or financial statement, the FOP helps a company's insiders and potential investors understand its current and future financial situation.

Understanding Financial Operating Plans

Similar to a business plan for a new company, a financial operating plan helps managers and key investors understand how the company will operate and grow in the future. It helps keep the company on track and identify areas that need attention.

A good financial operating plan will need to be amended and updated due to any extraordinary events relating to finances, as well as to see if it is still relevant to the current situation. If prepared and amended accordingly, an FOP can be a useful tool in creating and managing the budget, improving control of management operations, and ultimately creating profitability.

How a Financial Operating Plan is Used

A financial operating plan can, in many ways, be far more extensive than a budget. The structure of the plan can be shaped by the objectives of an organization or individual, how their assets may be applied, and ways to adapt to achieve desired outcomes.

Structuring a financial operating plan typically requires input from across all divisions of an organization in order to create a complete framework of the costs and available revenue sources. The intentions and plans of each division must also be accounted for, as they may affect the availability of overall capital for the projected period being planned for.

While a financial operating plan can layout an organization’s internal expectations, external influences can affect the trajectory and follow-through of that plan. Changes in the market, fluctuating needs of customers, and other factors can require a financial operating plan to be restructured in response. In order to adapt to such change, an organization may need to adapt its financial operating plan by taking an assessment of new external factors rather than past trends.

For example, a retailer might use such a plan not only to increase revenue and profits, but to allow for expansion of the operation. Through a financial operating plan, the company can assess its potential liquidity and capital that would be available to support the development of additional locations, the hiring of more staff, as well as ancillary services needed to support the expansion. The plan would also account for maintaining the ongoing business while accommodating for expansion. Planned changes in the business, such as the projected costs of research and development of new products, may also be accounted for in the plan.

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  • Financial Planning

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What is Financial Planning?

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

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

Definition and Meaning

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

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

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

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

Financial Planning in Financial Management

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

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

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

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

The Objectives of Financial Planning are Enumerated as Follows - 

To Ensure Availability of Funds Whenever Required:  

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

To Check if the Firm Raises the Resources Unnecessarily:

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

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

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

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

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

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

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

Features of Financial Planning is Enumerated as below - 

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

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

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

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

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

Conclusion:

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

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FAQs on Financial Planning

1. What is meant by financial planning?

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

2. What are the two objectives of financial planning?

The two objectives of financial planning are:

To ensure availability of funds whenever required

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

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

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

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

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

5. Why is Financial Planning useful?

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

6. Who is a Financial Planner?

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

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

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

8. Enumerate Principles on Financial Planning.

The Principles are –

Think long-term with goals and investing.

Spend less than you earn.

Maintain liquidity (emergency savings).

Minimize the use of debt.

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Meaning of financial plan in English

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  • If you need a basic financial plan , many advisers will charge by the hour .
  • We have created a financial plan that provides the chance of the greatest financial success for the Olympic movement in the United States .
  • A new financial plan for the bridge is required before the federal government will release its share of funding .
  • Those facing active duty need to create a financial plan , let their families know what to expect , and take advantage of the assistance programs each military branch offers .
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  • anti-commercial
  • contestable
  • contract in/out
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  • contractual
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  • initial public offering
  • lock something in
  • time-and-motion study
  • trade secret
  • uberization
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Key Takeaways

  • Get clarity on your financial goals by mapping out potential scenarios
  • Formalize your financial plan and check in on it several times per year
  • Be sure you are maximizing tax-deferred and tax-free savings

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I'm a HENRY financial planner who makes $125,000. Here's how I manage my money — and the mistakes I see others making.

  • Georgia Lord, a HENRY and financial planner, earns a salary of $125,000 but doesn't feel wealthy.
  • Lord's financial goals include early retirement, travel, a wedding, and a larger NYC apartment.
  • She warns HENRYs against investing without knowledge and recommends financial planning for everyone.

Insider Today

This as-told-to essay is based on a conversation with Georgia Lord, a 27-year-old certified financial planner and HENRY in New York City. It has been edited for length and clarity.

I studied finance and started my career in Brisbane, Australia.

When I was 22, I moved to New York to join Morningstar in the credit ratings division. I pivoted to financial planning for a Canadian Fintech called Wealthsimple a year later.

I discovered that I love financial planning and working one-on-one with clients. Last year, I got my certified financial planning license .

I now make a comfortable living, but I consider myself a HENRY and have a way to go before I hit my goals.

I make 6 figures but don't feel wealthy

I earn a base salary of $125,000 and manage to live in New York City by being frugal. I love a bargain or a sale. I save for certain things I want, and I'm good at it because it's my job. I'd feel like a hypocrite if I didn't do what I told others to do.

I save on my Broadway tickets by entering into the lottery. I splurge on some things — I spend around $600 monthly on dining out. I also travel a lot, so I automate a certain amount of money every month for travel.

I lived with roommates for four years, and I've lived with my boyfriend for the last year. We split the rent more favorably to me since he makes quite a lot more, so I contribute $1,500 per month. That's also been helpful for managing my finances.

I have a few financial goals

One of my financial goals is to save up for the professional designations available in my field since they can be expensive.

I want to retire early , and I want to keep prioritizing saving for travel and visiting my home in Australia, which is not cheap.

I'm also saving for a wedding and improving cash flow to move into a larger apartment.

To reach my savings goals, I automate at least 20% of my paycheck every two weeks and deposit it in a high-yield savings account . I use Wealthfront but also like Ally, CapitalOne360, and Betterment. I preach that to all of my clients who are HENRYs : Automate your savings for big goals.

There's not a number in mind that I'm looking to reach to feel rich, but I will feel successful if I can achieve my goals without sacrificing my lifestyle in the process. Being in a great financial position today and in the future is what I consider rich.

I see HENRYs making one big mistake

Because the market did well in 2023 , I've noticed HENRYs (both in my personal life and those I see as clients) wanting to throw money into it without thinking about how they will fund other goals, like a down payment for a house.

Not only is it harder to access funds once they're invested, but there can also be financial benefits to other strategies. For example, some stock market returns might've been 3% last year, but some high-yield savings accounts have a return of 4.5%.

I still invest in the market, but I do so strategically. I have a 401(k) , Roth IRA , Traditional IRA , brokerage account with Betterment, and a brokerage account in Australia. I mostly invest in ETFs — I'm not a stock picker and love the diversity that ETFs provide.

It can be difficult to figure out how to divide your money and where to put it, so I recommend HENRYs work with a financial planner . We're not just for the rich — I've worked with clients in many different financial situations, and all can benefit.

Even if you're not ready for a financial planner, take the time to think through what your goals are and what you want to spend your money on. That's just as important as putting $100 into the stock market every week.

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Watch: A financial planner reveals an important money lesson young people can learn from the rich

financial plan business meaning

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