The Financial Plan
Why is it important?

The financial plan, part of writing a business plan, puts together all of your quotes and financial information that you will have gathered in setting up or operating your business. This information is then combined into a plan to look at how financially viable and profitable your proposed business is. This is a crucial part of the Business Plan, especially for a small business.

The plan can help you in many ways, such as:

• Showing you the Net Profit (perhaps one of the most important of all).
• Highlighting your income - sales and revenue
• Showing all of your costs, such as the cost of goods sold and the operating costs
• It details the Assets and Liabilities of the business and thus its liquidity
• It shows cash-flow – crucial for managing a business. You have to have cash to pay your bills. Especially important in the early stages of a new business.
• Will help you meet all your financial obligations – both short term and long term.

In short, it gives a complete financial picture of your business. Please note that the finance plan should support your business plan, not replace it. Your finance plan should not take control of, or substitute your business plan.

The financial plan is, however, a very powerful planning tool. It will answer a number of questions, such as:

• Are there going to be any cash requirements for the following year, and can these be covered?
• Can the business meet its debt obligations of the next 1-3 years?
• Will the business be profitable in any given year?
• Will the business meet it financial objectives for the year? Is it likely to earn what you were hoping for? Is the business as it stands viable?
• For those businesses looking for financing, will the investor find your business an attractive proposition?
• Helps a business budget, which gives you an idea of where you are going. It is vital that you monitor how much you are actually spending and how much you budgeted for. Look at why there is a difference so that you can either reduce your expenditure or look at changing your financial forecast.

Go to the top of the Financial Plan page, or return to the main Financial Plan page, or return to Writing a Business Plan