A financial plan is an overall plan of the financial situation of a business over a certain period of time, usually a year. A financial plan includes a business’s financial goals, financial projections, and financial strategies. Let’s learn more about corporate financial planning through the information below.

Why do businesses need to build a financial plan?

Financial planning is an important tool for businesses to orient and control their business activities. Here are some specific benefits of financial planning:

• Helps businesses ensure solvency: Financial planning helps businesses forecast future cash flows, thereby creating an effective cash flow management plan, ensuring the ability to pay debts and expenses.
• Helps businesses enhance competitiveness: Future financial planning helps businesses determine the resources needed to achieve business goals. From there, businesses can invest in those resources to enhance competitiveness.
• Helps businesses minimize risks: Financial planning helps businesses predict financial risks that may occur in the future. From there, businesses can develop risk response plans and minimize the impact of risks on business operations.
• Helps businesses mobilize capital effectively: Financial planning helps businesses determine future capital needs. From there, businesses can build an effective capital mobilization plan, ensuring capital for business activities.
• Helps businesses improve operational efficiency: Financial planning helps businesses determine the financial goals and targets that need to be achieved. From there, businesses can adjust their business operations to achieve those goals and targets.

The basis for forming a long-term financial plan

Long-term financial planning includes the business’s financial goals, financial forecasts, and financial strategies. The basis for forming a long-term financial plan for a business includes:

• Business goals and strategies: Business goals and strategies are the basis for determining the financial goals of the business. Financial goals need to be built in accordance with the business goals and strategies of the enterprise.
• Current financial situation: The current financial situation of the business is the basis for determining the resources and capabilities of the business. Businesses need to analyze the current financial situation to identify the business’s strengths, weaknesses, financial opportunities and challenges.
• Socio-economic situation: Socio-economic situation is a factor that affects the business activities of an enterprise. Businesses need to analyze the socio-economic situation to forecast trends and fluctuations that may occur in the future.

7 steps to build a financial plan for business

To build solid business finances, you need to take the following 7 steps:

Step 1: Determine financial goals

Financial goals are specific targets that a business wants to achieve within a certain period of time. Financial goals can be related to revenue, profit, profitability ratio, debt ratio, equity, etc. You need to define clear, feasible and measurable financial goals, to be able to monitor and evaluate results.

Step 2: Make a financial plan

A financial plan is a road map for a business to achieve its financial goals. The financial plan includes sections such as operating budget, investment budget, financing budget, cash flow forecast, financial statement forecast, etc. You need to make a detailed financial plan, reasonable and flexible, to be able to adjust according to reality.

Step 3: Implement a financial plan

Implementing a financial plan is the implementation of activities related to income, expenses, investments, borrowing and profit distribution of the business. You need to carry out financial planning seriously, disciplined and responsibly, to ensure efficiency and transparency.

Step 4: Control your financial plan

Financial plan control is the monitoring and comparison of actual results with the expected results of the financial plan. You need to control your financial plan regularly, promptly and objectively, to detect and handle errors and risks.

Step 5: Evaluate your financial plan

Financial plan evaluation is the synthesis and analysis of data on a business’s financial performance. You need to evaluate the financial plan comprehensively, deeply and objectively, to recognize the successes and failures of the business.

Step 6: Improve your financial plan

Improving financial planning is the proposal and implementation of measures to improve the financial efficiency of a business. You need to improve your financial plan creatively, flexibly and continuously, to meet market needs and changes.

Step 7: Protect your financial plan

Protecting financial plans is ensuring the safety and sustainability of corporate finances. You need to protect your financial plan carefully, proactively and strategically, to prevent and minimize risks and financial crises.

Principles of building a financial plan

To build an effective financial plan, businesses need to adhere to the following principles:

• Feasibility: The financial plan needs to be feasible and suitable for the actual situation of the business. Businesses need to consider factors such as business size, business lines, current financial situation, and socio-economic factors when developing a financial plan.
• Specific: Financial plans need to be specific, clear, and measurable. Financial goals need to be clearly defined, specific, time-bound and feasible.
• Flexibility: Financial plans need to be flexible and can be adjusted to suit the actual situation. Businesses need to regularly monitor and evaluate financial plans to promptly adjust plans accordingly.
• Calculation: Financial plans need to be calculated accurately, based on actual information and data. Businesses need to use appropriate financial calculation tools and methods to ensure the accuracy of financial plans.
• Appropriate: The financial plan needs to be consistent with the business goals and strategies of the business. Financial goals need to be built in accordance with the business goals and strategies of the enterprise.

See more: Which startup costs you need to prepare

Financial plan step-by-step for startups

If you are planning a startup, you will need a financial plan to forecast the costs, revenue and profits of the project. A financial plan is an important tool to convince investors, partners and customers of your startup’s potential. Below is a sample startup financial plan, including the steps and components needed to complete it.

Step 1: Overview of the startup

In this section, you will introduce your startup, including:

• Name, logo and slogan of the startup
• Field of operation and target market
• Mission, vision and core values of the startup
• Startup’s business model and way of making money
• Competitive and unique advantages of startups compared to competitors
• The founding team and main personnel of the startup

Step 2: Analyze the market

In this section, you will analyze your startup’s target market, including:

• Market size, trends and potential
• Customer segmentation and their purchasing behavior
• Factors affecting customer needs and satisfaction
• Barriers and opportunities to enter the market
• Competitors and their SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis

Step 3: Financial forecast

In this section, you will forecast the startup’s financial figures over a certain period of time (usually 3-5 years), including:

• Revenue forecast: based on assumptions about number of customers, selling price, conversion rate and growth
• Cost forecast: based on assumptions about production costs, advertising, human resources, office costs and other costs
• Profit forecast: calculate gross profit, net profit and profit margin
• Cash flow forecast: calculate cash flow from business, investment and financial activities
• Balance forecast: calculate assets, liabilities and equity

Step 4: Assess risks and assumptions

In this section, you will evaluate the risks and assumptions related to your startup’s financial plan, including:

• External risks: such as market fluctuations, laws, technology, competition and crises
• Internal risks: such as lack of resources, skills, experience and commitment
• Key assumptions: such as growth rate, selling price, costs and conversion rate
• Different scenarios: such as basic, optimistic and pessimistic scenarios
• Preventive and response measures: such as reducing costs, increasing revenue, changing strategies and seeking support

Step 5: Conclusion and recommendations

In this section, you will draw conclusions and recommendations about your startup’s financial plan, including:

• Summarize the strengths and weaknesses of the financial plan
• Evaluate the feasibility and reliability of the financial plan
• Propose necessary actions to implement financial plans
• Call to action from stakeholders, such as investors, partners and customers.

Financial planning is an important tool to help businesses achieve business goals and sustainable development. Businesses need to build and implement financial plans effectively to improve competitiveness and reduce risks.