Financial plan

The financial plan is about the financing environment in which a business operates and whether it continues its business economically. It predicts how much revenue is needed to operate the business profitable and ensure financial stability.

The financial plan is usually part of the business plan, but it can also be prepared independently. Its content and elaboration depends on the size of the company, the purpose for which the company prepares the plan, and for whom the document is compiled. 

The financial plan is not only an Excel spreadsheet, the statements also include textual explanations. This is true even if the design is intended for internal use. The textual explanations reveal how the plan was prepared: what data we calculated from and why we used these data. Thanks to the textual explanation, it is easier to check whether our thinking and calculations are correct or not.

However, we need a financial plan not only for the normal operation of the business: startups and companies with a longer operating history also prepare a financial plan. For example, a financial plan may be needed when borrowing, when looking for investors, when there is a change in ownership, or when planning a new product or service. It is also useful to prepare a financial plan even in a happy situation, if the company's turnover suddenly increases.

The first step in financial planning is to gather all the data: all possible costs, other expenses and all revenue must be taken into account. For each item, you need to see exactly when the particular expense will arise and when it will have to be paid. 

It is very important to realistically judge what revenue the business can expect and what costs will be incurred in order to achieve this. How much money will be needed?  Should I take out a loan? If it is necessary to take out a loan, in what schedule will it have to be repaid? What investments are needed to start or run a business? In order to determine this, we also need to prepare an investment plan. 

The financial plan necessarily includes a cash-flow plan. The cash-flow plan shows how much money the business has at a given moment. The cash flow plan / liquidity plan also includes how much money the company can spend within a given period so that it does not endanger safe operation. 

The balance sheet prepared for the duration of the plan and the profit and loss account are part of the financial plan. The balance sheet shows how much assets the company has from which financing sources at a given time. And the profit and loss account tells you to what extent the business is profitable or unprofitable.

A good financial plan clearly shows when the invested capital will pay off, when the business will become profitable and financially stable. 

The financial plan is also suitable for checking our ideas. If there is a significant discrepancy between the actual processes and the financial plan, you must be able to explain the reason for the discrepancy. If this succeeds, we will be able to effectively intervene in the processes. This way we will be able to use our strengths and eliminate our weaknesses.