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7 powerful tips for designing your best financial plan

By Adam Greene CPA

Image courtesy of Jurgen Appelo at Flickr.com

It’s impossible to think in all the possible activities for the best management of money, but this is definitely one you should consider for driving any company in the proper direction. A financial plan is important because more than just defining the economic situation of any business, it is actually a vital document for investors to choose where to invest or not. Financial statements show what the owner plans to do in the future with his/her business. Once the company is operating, financial statements become an important opportunity to define and compare actual results of operating the business according to the starting plan. They become a way of keeping the owner’s responsibility and reminding the commitments to banks and investors. It is critical for every enterprise. Investors evaluate to deliver or not a contribution in your project, depending on what they see in such document, because it’s a reflection of who’s the owner and how skilled he/she is to manage the financial resources of the company.

So, how to make the best financial planning? Here are some tips. 1 . Answer this questions first:  Is this business viable? (Be sincere.) How much funding will be required and when will be

necessary? What kind of financing is required? Who will provide the funding? Then, you can start tracing your plan on a four-basis structure (this Financial Plan Template could be useful to start):

Cash BudgetThis is obtained by combining: the sales forecasting, the staffing plan, the general and administrative budget, the cost of sales, the financial budget, the capital budget and the development budget. Income StatementIt displays the financial results of the operation of your business during a specific period of time. Cash Flow StatementThis document records the specific transactions that affects the available amount of cash, and demonstrates how and when you can use the cash during a specific period.

Cash BudgetThis is obtained by combining: the sales forecasting, the staffing plan, the general and administrative budget, the cost of sales, the financial budget, the capital budget and the development budget. Income StatementIt displays the financial results of the operation of your business during a specific period of time. Cash Flow StatementThis document records the specific transactions that affects the available amount of cash, and demonstrates how and when you can use the cash during a specific period.

Balance sheetIt represents the financial condition of the company at a definite time, and identifies how much your business owns and owes. Hiring a financial-planning specialized CPA, for example, like Adam Greene, is highly recommended here.

2. Set your goalsFinancial planning it’s about goals and ideas. Don’t be cheap when building your ambitions: How would you like to see the company in the short, medium and long term? What you don’t want? If you don’t know it, it will be impossible to make a plan. Get the what, and you will get the how. 3. Understand the businessYou can’t make plans if you don’t understand the logics of your business. Become an expert in everything you need to know about your industry. Even if it’s a very technical sector, you better learn the basics. It’s common sense. Then you will be able to compare and understand the information you get when planning.

4. Organize your financial recordsIn order to develop a financial plan, it’s very important to put in order all your bills, tax returns, bank statements, information about insurance policies, contracts, receipts, investment plans or mortgages (among others.) Keep all this in your files, because ordered documentation will give you an overview of the actual state of your economy.  5. Simulate long-term cash flow statementsUsing cash to make the balance numbers fit is dangerous: it doesn’t detect the kind of inconsistencies you need to be aware in the financial model. Many entrepreneurs believe it is not necessary to create a box with a cash movements scope corresponding to the duration of the project. That's true if you have modeled everything correctly in (a) the accounts of profit and loss and (b) the balance sheet. But it is common that the first modeling project has several inconsistencies, so it is highly recommended to estimate the three financial statements (income statements, balance-sheet, cash flows) and try to square them. The probability of not having homogeneously treated an element of the plan (sometimes a significant one you would not see in other conditions) in the income statement and balance sheet is reduced in this way greatly.

6. Make a rough estimate of income To get the big picture of it, keep in mind the possible increase or decrease in your income. Always calculate the short, medium and long term. At this point it is also important to work with different scenarios (when planning, remember that if anything could change in practice, it probably will). Define an optimistic scenario (it’s always necessary), a realistic and a third one, in which you adjust your expectations. 7. Set your own deadlines, due dates and a time for meeting your goalsIt sounds obvious, but if you don’t do it, everything you will do is planning. If you don’t put things in motion, nobody is going to do it for you!