What is the Financial Plan – and how to do it Step by Step? [Example]
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What is the Financial Plan
You have clients and bills every month, and you manage to make sales, even increase them, but what happens if an unforeseen event arises and billing worsens? This can happen to any business, entrepreneur, or company; having financial planning can make a difference to solve it.
Discover the financial plan, how to do it step by step, and why it is essential for your business.
A financial plan is simple; it is a complete picture of current finances, financial goals, and any strategy designed to achieve the objectives set in a company. Good financial planning should include details about cash flow, savings, debt, investments, insurance, and every other element of the economic life of a business.
This document collects all the information on each of the action plans corresponding to the different areas of the company. It is the best tool to analyze a business project’s economic and financial viability from different time perspectives in the small, medium, and long term.
Many companies confuse its usefulness, believing that it is only helpful in the early stages. Still, the reality is that it is very effective in improving the results of a business at any stage:
- In the creation of the start-up of the project.
- And in growth to provide the necessary resources.
- In maturity to consolidate and maintain that growth.
- On the decline for recovery.
Knowing the necessary value information makes it possible to make business decisions appropriately. In addition, having a solid economic plan is essential for businesses that want to get a bank loan or receive investors.
This tool helps you answer questions like: “How much money do I need?”, “How can I get financing?” or “What are the costs?”. A financial and economic plan will mark the path to success.
How to Make a Financial Plan?
A financial and economic viability plan is one of the most significant sections that any company must develop thanks to a detailed document with all the necessary data to know if a company is profitable or when it will start to generate profits.
It is a complicated process, you may not have time, or you do not know much about bonds; you may even have a financial department in your business, but you have not yet decided to do it, but the advantages of using this tool are numerous. These are some of the main ones:
- It will help you have better financial control of your business.
- You will reduce uncertainty and stress regarding your finances or cost structures.
- You will be able to make decisions based on accurate data.
- It will allow you to boost the efficiency of your business thanks to knowing your most profitable characteristics.
- You will be able to design a short, medium, and long-term financial action plan to achieve your goals.
However, to start developing it, it is necessary to know where the company is and where it wants to go, setting clear objectives and goals. An internal analysis is the first step toward success.
Methodologies and Steps
Firstly. discover how to make an economic plan for a company step by step. With the correct methodology, you can carry it out quickly.
Analyze the Current Reality of your Business.
The first step is to know the current economic situation of your company, when it is, and what direction it wants to take. This is essential to define the profits expected to be obtained in the future, being necessary to establish the financial ratios, including leverage, liquidity, and profitability.
The initial Investment Plan.
Moreover, in this step, the necessary investments must be specified to be able to start up the company. From computer applications, machinery, office supplies, and employees. And also even payment to suppliers in a given period, depending on the business activity.
Determine the necessary funds in the company to develop the activity, either through loans or through the capital, that is, with the business partners’ investments. These sources can be both self-financing and external financing.
In this step, you must indicate the direct financing of the company, that is, the own resources and the long-term external resources, to finance the elements of current assets.
Making the balance document is essential to know the business’s financial status at a given time, thus learning the company’s value, how much it owes, and how much it has. It reflects the assets, liabilities, and obligations of the business.
Profit and loss account.
This step is essential; it is necessary to forecast the required results, such as the volume of sales and income and the costs required to offer your services or products.
However, the cash budget determines the amount available in cash; the cash flow is one of the main actions to be carried out to know the company’s visibility. This will allow you to forecast sales and their cost.
Therefore, the cash forecast is the monthly summary of the payments and collections that the company must make in a given period. And also, this allows knowing the liquidity situation of the business and if it is necessary to request external financing.
Example of Financial-Economic Plan
The steps and methodologies mentioned above allow you to make your financial and economic plan. Still, suppose you need to have a clearer idea of the concept and visualize accurate data. In that case, you can see the following Example of a financial and economic plan and adapt it to your business’s wants.
Remember that, regardless of the stage in which your project is, it is essential to know the company’s profitability. This will allow you to solve problems with accurate data, request external investment, or achieve the objectives.