business planning in finance

How to Write a Financial Plan for a Business Plan

Noah Parsons

4 min. read

Updated July 11, 2024

Creating a financial plan for a business plan is often the most intimidating part for small business owners.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your business plan’s financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan in business plans

A sound financial plan for a business plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, you’ll need to include a few additional pieces of information as part of your business plan’s financial plan example.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your financial plan for a business plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan’s financial plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

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• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

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Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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• What to include for funding

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How To Write A Business Plan (2024 Guide)

Updated: Apr 17, 2024, 11:59am

Table of Contents

Brainstorm an executive summary, create a company description, brainstorm your business goals, describe your services or products, conduct market research, create financial plans, bottom line, frequently asked questions.

Every business starts with a vision, which is distilled and communicated through a business plan. In addition to your high-level hopes and dreams, a strong business plan outlines short-term and long-term goals, budget and whatever else you might need to get started. In this guide, we’ll walk you through how to write a business plan that you can stick to and help guide your operations as you get started.

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Drafting the Summary

An executive summary is an extremely important first step in your business. You have to be able to put the basic facts of your business in an elevator pitch-style sentence to grab investors’ attention and keep their interest. This should communicate your business’s name, what the products or services you’re selling are and what marketplace you’re entering.

Ask for Help

When drafting the executive summary, you should have a few different options. Enlist a few thought partners to review your executive summary possibilities to determine which one is best.

After you have the executive summary in place, you can work on the company description, which contains more specific information. In the description, you’ll need to include your business’s registered name , your business address and any key employees involved in the business. 

The business description should also include the structure of your business, such as sole proprietorship , limited liability company (LLC) , partnership or corporation. This is the time to specify how much of an ownership stake everyone has in the company. Finally, include a section that outlines the history of the company and how it has evolved over time.

Wherever you are on the business journey, you return to your goals and assess where you are in meeting your in-progress targets and setting new goals to work toward.

Numbers-based Goals

Goals can cover a variety of sections of your business. Financial and profit goals are a given for when you’re establishing your business, but there are other goals to take into account as well with regard to brand awareness and growth. For example, you might want to hit a certain number of followers across social channels or raise your engagement rates.

Another goal could be to attract new investors or find grants if you’re a nonprofit business. If you’re looking to grow, you’ll want to set revenue targets to make that happen as well.

Intangible Goals

Goals unrelated to traceable numbers are important as well. These can include seeing your business’s advertisement reach the general public or receiving a terrific client review. These goals are important for the direction you take your business and the direction you want it to go in the future.

The business plan should have a section that explains the services or products that you’re offering. This is the part where you can also describe how they fit in the current market or are providing something necessary or entirely new. If you have any patents or trademarks, this is where you can include those too.

If you have any visual aids, they should be included here as well. This would also be a good place to include pricing strategy and explain your materials.

This is the part of the business plan where you can explain your expertise and different approach in greater depth. Show how what you’re offering is vital to the market and fills an important gap.

You can also situate your business in your industry and compare it to other ones and how you have a competitive advantage in the marketplace.

Other than financial goals, you want to have a budget and set your planned weekly, monthly and annual spending. There are several different costs to consider, such as operational costs.

Business Operations Costs

Rent for your business is the first big cost to factor into your budget. If your business is remote, the cost that replaces rent will be the software that maintains your virtual operations.

Marketing and sales costs should be next on your list. Devoting money to making sure people know about your business is as important as making sure it functions.

Other Costs

Although you can’t anticipate disasters, there are likely to be unanticipated costs that come up at some point in your business’s existence. It’s important to factor these possible costs into your financial plans so you’re not caught totally unaware.

Business plans are important for businesses of all sizes so that you can define where your business is and where you want it to go. Growing your business requires a vision, and giving yourself a roadmap in the form of a business plan will set you up for success.

How do I write a simple business plan?

When you’re working on a business plan, make sure you have as much information as possible so that you can simplify it to the most relevant information. A simple business plan still needs all of the parts included in this article, but you can be very clear and direct.

What are some common mistakes in a business plan?

The most common mistakes in a business plan are common writing issues like grammar errors or misspellings. It’s important to be clear in your sentence structure and proofread your business plan before sending it to any investors or partners.

What basic items should be included in a business plan?

When writing out a business plan, you want to make sure that you cover everything related to your concept for the business,  an analysis of the industry―including potential customers and an overview of the market for your goods or services―how you plan to execute your vision for the business, how you plan to grow the business if it becomes successful and all financial data around the business, including current cash on hand, potential investors and budget plans for the next few years.

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Julia is a writer in New York and started covering tech and business during the pandemic. She also covers books and the publishing industry.

Business Financial Plan Example: Strategies and Best Practices

Any successful endeavor begins with a robust plan – and running a prosperous business is no exception. Careful strategic planning acts as the bedrock on which companies build their future. One of the most critical aspects of this strategic planning is the creation of a detailed business financial plan. This plan serves as a guide, helping businesses navigate their way through the complex world of finance, including revenue projection, cost estimation, and capital expenditure, to name just a few elements. However, understanding what a business financial plan entails and how to implement it effectively can often be challenging. With multiple components to consider and various economic factors at play, the financial planning process may appear daunting to both new and established business owners.

This is where we come in. In this comprehensive article, we delve into the specifics of a business financial plan. We discuss its importance, the essential elements that make it up, and the steps to craft one successfully. Furthermore, we provide a practical example of a business financial plan in action, drawing upon real-world-like scenarios and strategies. By presenting the best practices and demonstrating how to employ them, we aim to equip business owners and entrepreneurs with the tools they need to create a robust, realistic, and efficient business financial plan. This in-depth guide will help you understand not only how to plan your business finances but also how to use this plan as a roadmap, leading your business towards growth, profitability, and overall financial success. Whether you're a seasoned business owner aiming to refine your financial strategies or an aspiring entrepreneur at the beginning of your journey, this article is designed to guide you through the intricacies of business financial planning and shed light on the strategies that can help your business thrive.

Understanding a Business Financial Plan

At its core, a business financial plan is a strategic blueprint that sets forth how a company will manage and navigate its financial operations, guiding the organization towards its defined fiscal objectives. It encompasses several critical aspects of a business's financial management, such as revenue projection, cost estimation, capital expenditure, cash flow management, and investment strategies.

Revenue projection is an estimate of the revenue a business expects to generate within a specific period. It's often based on market research, historical data, and educated assumptions about future market trends. Cost estimation, on the other hand, involves outlining the expenses a business anticipates incurring in its operations. Together, revenue projection and cost estimation can give a clear picture of a company's expected profitability. Capital expenditure refers to the funds a company allocates towards the purchase or maintenance of long-term assets like machinery, buildings, and equipment. Understanding capital expenditure is vital as it can significantly impact a business's operational capacity and future profitability. The cash flow management aspect of a business financial plan involves monitoring, analyzing, and optimizing the company's cash inflows and outflows. A healthy cash flow ensures that a business can meet its short-term obligations, invest in its growth, and provide a buffer for future uncertainties. Lastly, a company's investment strategies are crucial for its growth and sustainability. They might include strategies for raising capital, such as issuing shares or securing loans, or strategies for investing surplus cash, like purchasing assets or investing in market securities.

A well-developed business financial plan, therefore, doesn't just portray the company's current financial status; it also serves as a roadmap for the business's fiscal operations, enabling it to navigate towards its financial goals. The plan acts as a guide, providing insights that help business owners make informed decisions, whether they're about day-to-day operations or long-term strategic choices. In a nutshell, a business financial plan is a key tool in managing a company's financial resources effectively and strategically. It allows businesses to plan for growth, prepare for uncertainties, and strive for financial sustainability and success.

Essential Elements of a Business Financial Plan

A comprehensive financial plan contains several crucial elements, including:

• Sales Forecast : The sales forecast represents the business's projected sales revenues. It is often broken down into segments such as products, services, or regions.
• Expenses Budget : This portion of the plan outlines the anticipated costs of running the business. It includes fixed costs (rent, salaries) and variable costs (marketing, production).
• Cash Flow Statement : This statement records the cash that comes in and goes out of a business, effectively portraying its liquidity.
• Income Statements : Also known as profit and loss statements, income statements provide an overview of the business's profitability over a given period.
• Balance Sheet : This snapshot of a company's financial health shows its assets, liabilities, and equity.

Crafting a Business Financial Plan: The Steps

Developing a business financial plan requires careful analysis and planning. Here are the steps involved:

Step 1: Set Clear Financial Goals

The initial stage in crafting a robust business financial plan involves the establishment of clear, measurable financial goals. These objectives serve as your business's financial targets and compass, guiding your company's financial strategy. These goals can be short-term, such as improving quarterly sales or reducing monthly overhead costs, or they can be long-term, such as expanding the business to a new location within five years or doubling the annual revenue within three years. The goals might include specific targets such as increasing revenue by a particular percentage, reducing costs by a specific amount, or achieving a certain profit margin. Setting clear goals provides a target to aim for and allows you to measure your progress over time.

Step 2: Create a Sales Forecast

The cornerstone of any business financial plan is a robust sales forecast. This element of the plan involves predicting the sales your business will make over a given period. This estimate should be based on comprehensive market research, historical sales data, an understanding of industry trends, and the impact of any marketing or promotional activities. Consider the business's growth rate, the overall market size, and seasonal fluctuations in demand. Remember, your sales forecast directly influences the rest of your financial plan, particularly your budgets for expenses and cash flow, so it's critical to make it as accurate and realistic as possible.

Step 3: Prepare an Expense Budget

The next step involves preparing a comprehensive expense budget that covers all the costs your business is likely to incur. This includes fixed costs, such as rent or mortgage payments, salaries, insurance, and other overheads that remain relatively constant regardless of your business's level of output. It also includes variable costs, such as raw materials, inventory, marketing and advertising expenses, and other costs that fluctuate in direct proportion to the level of goods or services you produce. By understanding your expense budget, you can determine how much revenue your business needs to generate to cover costs and become profitable.

Step 4: Develop a Cash Flow Statement

One of the most crucial elements of your financial plan is the cash flow statement. This document records all the cash that enters and leaves your business, presenting a clear picture of your company's liquidity. Regularly updating your cash flow statement allows you to monitor the cash in hand and foresee any potential shortfalls. It helps you understand when cash comes into your business from sales and when cash goes out of your business due to expenses, giving you insights into your financial peaks and troughs and enabling you to manage your cash resources more effectively.

Step 5: Prepare Income Statements and Balance Sheets

Another vital part of your business financial plan includes the preparation of income statements and balance sheets. An income statement, also known as a Profit & Loss (P&L) statement, provides an overview of your business's profitability over a certain period. It subtracts the total expenses from total revenue to calculate net income, providing valuable insights into the profitability of your operations.

On the other hand, the balance sheet provides a snapshot of your company's financial health at a specific point in time. It lists your company's assets (what the company owns), liabilities (what the company owes), and equity (the owner's or shareholders' investment in the business). These documents help you understand where your business stands financially, whether it's making a profit, and how your assets, liabilities, and equity balance out.

Step 6: Revise Your Plan Regularly

It's important to remember that a financial plan is not a static document, but rather a living, evolving roadmap that should adapt to your business's changing circumstances and market conditions. As such, regular reviews and updates are crucial. By continually revisiting and revising your plan, you can ensure it remains accurate, relevant, and effective. You can adjust your forecasts as needed, respond to changes in the business environment, and stay on track towards achieving your financial goals. By doing so, you're not only keeping your business financially healthy but also setting the stage for sustained growth and success.

Business Financial Plan Example: Joe’s Coffee Shop

Now, let's look at a practical example of a financial plan for a hypothetical business, Joe’s Coffee Shop.

Sales Forecast

When constructing his sales forecast, Joe takes into account several significant factors. He reviews his historical sales data, identifies and understands current market trends, and evaluates the impact of any upcoming promotional events. With his coffee shop located in a bustling area, Joe expects to sell approximately 200 cups of coffee daily. Each cup is priced at $5, which gives him a daily sales prediction of $1000. Multiplying this figure by 365 (days in a year), his forecast for Year 1 is an annual revenue of $365,000. This projection provides Joe with a financial target to aim for and serves as a foundation for his further financial planning. It is worth noting that Joe's sales forecast may need adjustments throughout the year based on actual performance and changes in the market or business environment.

Expenses Budget

To run his coffee shop smoothly, Joe has identified several fixed and variable costs he'll need to budget for. His fixed costs, which are costs that will not change regardless of his coffee shop's sales volume, include rent, which is $2000 per month, salaries for his employees, which total $8000 per month, and utilities like electricity and water, which add up to about $500 per month.

In addition to these fixed costs, Joe also has variable costs to consider. These are costs that fluctuate depending on his sales volume and include the price of coffee beans, milk, sugar, and pastries, which he sells alongside his coffee. After a careful review of all these expenses, Joe estimates that his total annual expenses will be around $145,000. This comprehensive expense budget provides a clearer picture of how much Joe needs to earn in sales to cover his costs and achieve profitability.

Cash Flow Statement

With a clear understanding of his expected sales revenue and expenses, Joe can now proceed to develop a cash flow statement. This statement provides a comprehensive overview of all the cash inflows and outflows within his business. When Joe opened his coffee shop, he invested an initial capital of $50,000. He expects that the monthly cash inflows from sales will be about $30,417 (which is his annual revenue of $365,000 divided by 12), and his monthly cash outflows for expenses will amount to approximately $12,083 (his total annual expenses of $145,000 divided by 12). The cash flow statement gives Joe insights into his business's liquidity. It helps him track when and where his cash is coming from and where it is going. This understanding can assist him in managing his cash resources effectively and ensure he has sufficient cash to meet his business's operational needs and financial obligations.

Income Statement and Balance Sheet

With the figures from his sales forecast, expense budget, and cash flow statement, Joe can prepare his income statement and balance sheet. The income statement, or Profit & Loss (P&L) statement, reveals the profitability of Joe's coffee shop. It calculates the net profit by subtracting the total expenses from total sales revenue. In Joe's case, this means his net profit for Year 1 is expected to be $220,000 ($365,000 in revenue minus $145,000 in expenses).

The balance sheet, on the other hand, provides a snapshot of the coffee shop's financial position at a specific point in time. It includes Joe's initial capital investment of $50,000, his assets like coffee machines, furniture, and inventory, and his liabilities, which might include any loans he took to start the business and accounts payable.

The income statement and balance sheet not only reflect the financial health of Joe's coffee shop but also serve as essential tools for making informed business decisions and strategies. By continually monitoring and updating these statements, Joe can keep his finger on the pulse of his business's financial performance and make necessary adjustments to ensure sustained profitability and growth.

Best Practices in Business Financial Planning

While crafting a business financial plan, consider the following best practices:

• Realistic Projections : Ensure your forecasts are realistic, based on solid data and reasonable assumptions.
• Scenario Planning : Plan for best-case, worst-case, and most likely scenarios. This will help you prepare for different eventualities.
• Regular Reviews : Regularly review and update your plan to reflect changes in business conditions.
• Seek Professional Help : If you are unfamiliar with financial planning, consider seeking assistance from a financial consultant.

The importance of a meticulously prepared business financial plan cannot be overstated. It forms the backbone of any successful business, steering it towards a secure financial future. Creating a solid financial plan requires a blend of careful analysis, precise forecasting, clear and measurable goal setting, prudent budgeting, and efficient cash flow management. The process may seem overwhelming at first, especially for budding entrepreneurs. However, it's crucial to understand that financial planning is not an event, but rather an ongoing process. This process involves constant monitoring, evaluation, and continuous updating of the financial plan as the business grows and market conditions change.

The strategies and best practices outlined in this article offer an invaluable framework for any entrepreneur or business owner embarking on the journey of creating a financial plan. It provides insights into essential elements such as setting clear financial goals, creating a sales forecast, preparing an expense budget, developing a cash flow statement, and preparing income statements and balance sheets. Moreover, the example of Joe and his coffee shop gives a practical, real-world illustration of how these elements come together to form a coherent and effective financial plan. This example demonstrates how a robust financial plan can help manage resources more efficiently, make better-informed decisions, and ultimately lead to financial success.

Remember, every grand journey begins with a single step. In the realm of business, this step is creating a well-crafted, comprehensive, and realistic business financial plan. By following the guidelines and practices suggested in this article, you are laying the foundation for financial stability, profitability, and long-term success for your business. Start your journey today, and let the road to financial success unfold.

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

Editorial Disclosure: Inc. writes about products and services in this and other articles. These articles are editorially independent - that means editors and reporters research and write on these products free of any influence of any marketing or sales departments. In other words, no one is telling our reporters or editors what to write or to include any particular positive or negative information about these products or services in the article. The article's content is entirely at the discretion of the reporter and editor. You will notice, however, that sometimes we include links to these products and services in the articles. When readers click on these links, and buy these products or services, Inc may be compensated. This e-commerce based advertising model - like every other ad on our article pages - has no impact on our editorial coverage. Reporters and editors don't add those links, nor will they manage them. This advertising model, like others you see on Inc, supports the independent journalism you find on this site.

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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6 Elements of a Successful Financial Plan for a Small Business

Improve your chances of growth by covering these bases in your plan.

Table of Contents

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

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Crafting Your Business Plan Financials: A Step-by-Step Guide

This guide is my way of taking you by the hand (figuratively, of course) and walking you through the process of building your business plan financials. Whether you’re scribbling your first ever business plan on a napkin or revisiting an existing one to adapt to the ever-evolving market landscape, this guide is for you.

Key Takeaways

• Building business plan financials involves forecasting the three financial statements : income statement , balance sheet, and cash flow statement.
• Financial projections should be based on market research and industry trends, as well as your unique business model and goals.
• Business plan financials are essential in securing funding, guiding decision-making, setting benchmarks, managing cash flow , and identifying risks and opportunities.

Understanding the Basics of Business Plan Financials

Diving into the world of business plan financials can feel a bit like stepping onto a dance floor for the first time. You know you need to move, but figuring out how to not step on your own feet (or anyone else’s) is the real challenge.

So, let’s break down the dance floor, shall we? Picture your business plan’s financial section as a trio of critical financial statements performing the most pivotal routine of the night, consisting of the Income Statement, the Balance Sheet, and the Cash Flow Statement.

• The Income Statement : Also known as the profit and loss statement , this is your financial performance’s highlight reel over a specific period. It tells you whether your business is hitting the high notes or if it’s time to change the tune. By tracking revenues, costs, and expenses, the Income Statement gives you a clear picture of your net profit or loss. Think of it as your business’s scorecard, showing you if you’re leading the dance or stepping on toes.
• The Balance Sheet : Imagine this as a snapshot capturing a moment in your business’s dance routine. It’s all about balance (hence the name). On one side, you have your assets—everything your business owns. On the other, liabilities and equity—everything your business owes plus the ownership interest. The Balance Sheet tells you exactly where you stand at any given moment, making sure you’re poised and ready for the next move.
• The Cash Flow Statement : If the Income Statement is about the performance and the Balance Sheet is about the pose, then the Cash Flow Statement is all about the movement. It tracks the cash coming in and going out of your business. This statement is your choreography, showing you if you’ve got the liquidity to keep dancing or if you’re about to trip over a lack of cash.

Why Do You Need Business Plan Financials?

Let’s dive into the different uses for those business plan financials, shall we?

Securing Funding : This one’s pretty straightforward. When you’re pitching to investors or applying for a loan, your financials are the proof in the pudding. They show that you’re not just all talk—you’ve got a plan that’s expected to bring in real money.

Guiding Decision-Making : Your financials are a compass in the wild terrain of business decisions. Want to know if you can afford to increase operating expenses, launch a new product, or expand into a new market? Your financials hold the answers.

Setting Benchmarks : Without benchmarks, how do you measure success? Your financials set clear goals for revenue, profit margins, and growth trajectories.

Cash Flow Management : Ah, cash flow projection —the lifeblood of any business. Your financials help you predict when money will be coming in and going out, ensuring you have enough cash on hand to keep the lights on.

Identifying Risks and Opportunities : By analyzing your financials, you can spot potential risks and opportunities before they become glaring issues or missed chances.

Step 1: Laying the Groundwork with Market Research

Understanding your market is akin to understanding the latest viral dance craze. You need to know who’s dancing, why they’re dancing, and what moves are most popular. In business terms, this means getting to grips with who your customers are, what needs or desires they have, and how your product or service fits into that picture. This is where market research comes into play.

How to Gather Data for Market Research:

• Start with Secondary Research : This is like the pre-party research before you hit the dance floor. Look into existing studies, industry reports, and market analysis that give you a bird’s-eye view of your sector. It’s cheaper (often free), quicker, and a great way to start outlining your market landscape. Websites like Statista and Pew Research are a great resource for secondary research.
• Dive into Primary Research : Now, it’s time to mingle at the party yourself. Surveys, interviews, and focus groups with potential customers will give you insights straight from the horse’s mouth. Yes, it’s more time-consuming and can be costlier, but the firsthand data you gather is worth its weight in gold.
• Analyze Your Competitors : Think of this as knowing who else is on the dance floor with you. Understanding their moves can help you find your unique rhythm. Look at their offerings, pricing strategies, and customer feedback. What are they doing well? Where are they stumbling? This insight is invaluable.

My Experience With Market Research

Let me take you back to the early days of my own business venture, when the concept of “market research” was as foreign to me as quantum physics. My team and I were launching a new financial tool designed to simplify budgeting for freelancers—a noble cause, but we were shooting in the dark with our sales forecast .

So, we hit the books (and the streets) for some hardcore market research. We surveyed freelancers about their budgeting woes, dove into forums where they vented their frustrations, and analyzed competitors who were only partially addressing these pain points. What we found was a goldmine of information that not only validated our product idea but also helped us pinpoint exactly how to position our tool in the market.

Armed with this data, we crafted our revenue projections not on wishful thinking but on solid, research-backed insights. And guess what? Our initial sales outperformed our projections by 20%. It was a clear testament to the power of laying the groundwork with thorough market research.

Step 2: Crafting Your Income Statement

Crafting your profit and loss statement is akin to writing the script for the blockbuster movie of your business’s financial performance. It’s where the rubber meets the road of financial statements, blending the drama of revenue streams with the gritty realism of expenses, all leading up to that climactic figure: your net income.

Breaking Down Revenue Streams

Let’s start our financial projections by casting our stars: the revenue streams. Identifying and projecting these is like mapping out the plot points of our story. For my own venture, it was a mix of predictable box office hits (fixed revenue from long-term contracts) and surprise indie darlings (variable sales from new markets).

The key here is diversity; relying on a single revenue stream is like betting your entire budget on a rookie director. Exciting, sure, but risky. By understanding and forecasting different sources of income, you’re setting the stage for a financial narrative that holds up against unexpected twists.

Fixed vs. Variable Expenses: The Supporting Cast

Next up, we have our supporting characters: fixed and variable costs. Fixed expenses are those steadfast sidekicks that stick with you through thick and thin—rent, salaries, and subscriptions.

They’re your base crew, essential but predictable. Variable expenses, on the other hand, are like those special effects in big action sequences—they fluctuate depending on the production’s scale (or, in our case, the business operations). Materials cost, commission fees, and shipping charges can vary, adding dynamism and a bit of unpredictability to our financial plot.

EBITDA, and Why It’s Your Friend

Now, let’s talk about a concept that might sound like the latest tech gadget but is actually one of your best allies: EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Imagine EBITDA as that veteran actor who brings depth and credibility to your movie.

It shows you how well your business is performing without getting bogged down by tax structures, financing decisions, or how much you’ve spent on those fancy ergonomic office chairs.

It is also a critical part of break even analysis. Break even analysis is like the climax of our financial story—it shows the point where your revenue and expenses are equal. It helps you determine how much you need to sell or how to adjust your costs to reach profitability.

Step 3: Building Your Balance Sheet

Think of your balance sheet as the ultimate snapshot of your business’s financial stability at any given moment. It’s like taking a selfie with your assets, liabilities, and equity—everything has to look just right.

Assets, Liabilities, and Equity: What Goes Where?

Imagine your business’s finances as a giant storage unit (stay with me here). On one side, you’ve got your assets—everything you own that has value. This includes cash in the bank, inventory, equipment, and even amounts owed to you by customers (receivables). These are like the treasures you’ve stored away, everything from the antique lamp (cash) to the boxes of unsold novels you swear will be collector’s items one day (inventory).

On the opposite side are your liabilities. Think of these as the IOUs taped to the door by your friends who’ve borrowed your stuff. These could be loans you need to pay back, money you owe to suppliers, or rent for the space your business occupies.

Balancing these two sides is your equity , which is essentially the net worth of your business. If you were to liquidate everything today—sell off all your treasures and pay back your friends—whatever cash you’re left holding is your equity. It’s what you truly “own” outright.

Maintaining a Healthy Balance Sheet Over Time

Here’s where things get personal. In the early days of my venture, our balance sheet was, to put it mildly, a bit of a fixer-upper. Our assets were like mismatched socks—present, but not exactly optimized. Meanwhile, our liabilities were like laundry piles—growing faster than we could manage. The turning point came when we started treating our balance sheet like our business’s health checkup, regularly reviewing and adjusting our financial strategies to ensure everything remained in healthy proportion.

We focused on bolstering our assets, not just by increasing sales but also by managing our receivables more effectively and making smart choices about what equipment to purchase or lease. Simultaneously, we worked on trimming down our liabilities, negotiating better terms with suppliers, and restructuring debt to more manageable levels.

Step 4: Forecasting Cash Flow

Forecasting cash flow—it’s like checking the weather before you head out on a road trip. You wouldn’t want to get caught in a storm without an umbrella, right? Similarly, in the world of finance and accounting, especially for us millennials hustling through our careers, understanding the ins and outs of cash flow is crucial for navigating the unpredictable journey of business operations without getting soaked.

Why Cash Flow is Your Business’s Weather Forecast

Cash flow is essentially the heartbeat of your business’s financial health—tracking the inflow and outflow of money. It’s what keeps the lights on, from paying your awesome team to ensuring the coffee machine (aka the real MVP) is always running. Without a keen eye on cash flow, even the most profitable business can find itself in a pinch when bills come due. It’s about timing, and just like you can’t download more time, you can’t magically create cash when you need it—unless you’ve planned ahead.

Step-by-Step Method for Creating a Cash Flow Forecast

• Start with the Basics : Gather data on all your cash inflows, like sales or accounts receivable , and outflows, including expenses, payroll, and loan payments. Think of it as setting up your playlist before the trip begins.
• Choose Your Time Frame : Decide if you’re mapping out the next month, quarter, or year. This is like deciding whether you’re road-tripping to the next town over or cross-country.
• Use Historical Data : Look back at past months or years to guide your predictions. It’s like knowing there’s always traffic at rush hour and planning your departure time accordingly.
• Factor in Seasonality : Just like packing an extra sweater for a chilly evening, remember that some months may have higher expenses or lower sales. Plan for these fluctuations.
• Keep It Updated : Your cash flow forecast isn’t a set-it-and-forget-it road map. Update it regularly with actual figures to stay on course. This is like checking your GPS for traffic updates in real-time.

My Great Cash Flow Mishap

Early in my career, I experienced what I affectionately call “The Great Cash Flow Mishap.” We were flying high, sales were up, and in my mind, we were invincible. I overlooked the importance of forecasting cash flow because, hey, money was coming in, right? Wrong. Sales being up didn’t mean cash in hand, thanks to generous payment terms we’d extended. When a large expense bill came due, we found ourselves in a financial thunderstorm without an umbrella.

It was a wake-up call. We scrambled, made it through, but learned a valuable lesson in the process: cash flow forecasting isn’t just a nice-to-have; it’s essential. It’s the difference between sailing smoothly and getting caught in a downpour. Since then, I’ve treated cash flow forecasting like my financial weather app, always checking it to ensure we’re prepared for whatever financial weather lies ahead.

Step 5: Bringing It All Together for Financial Analysis

So, you’ve danced through the steps of laying down your financial groundwork, from market research all the way to cash flow forecasting. Now, it’s time for what I like to call the “big reveal” in our financial saga—financial analysis. Think of it as the season finale where all the plotlines converge, and you finally get to see the full picture of your business’s financial health. Exciting, right?

How to Use Your Financials to Calculate Key Ratios

Financial ratios might sound like something out of a high school math class you’d rather forget, but they’re actually pretty cool once you get to know them. They’re like the secret codes that unlock the mysteries of your business’s financial narrative. Here are a few key players:

• Profit Margin : Sales are great, but what’s left after expenses? This ratio tells you exactly that. It’s like checking how much gas is left in the tank after a long trip.
• Current Ratio : This one measures whether you have enough assets to cover your liabilities. Imagine you’re planning a big party (i.e., a major business move). Do you have enough snacks (assets) for all the guests (liabilities)?
• Debt to Equity Ratio : It shows the balance between the money you’ve borrowed and the money you’ve personally invested in your business. Think of it as the ratio between the contributions to the potluck from you and those from your friends.

Innovative Tools and Techniques for Financial Analysis

Gone are the days of poring over spreadsheets until your eyes cross. Today, we have an arsenal of innovative tools at our disposal that make financial analysis not just bearable but actually kind of fun:

• Cloud-Based Accounting Software : These platforms are like having a financial wizard by your side, automating many of the tedious tasks involved in financial analysis.
• Data Visualization Tools : Imagine turning your financial data into a vibrant art gallery. These tools help you visualize trends, patterns, and anomalies in your data, making complex information digestible at a glance.
• AI and Machine Learning : The new kids on the block, these technologies offer predictive insights based on your financial data, helping you make informed decisions about the future.

Step 6: Planning for the Future: Scenarios and Projections

Planning for the future in the fast-paced world of finance and accounting is a bit like trying to pack for a vacation without knowing the destination. Will it be sunny beaches or snowy mountains? In business, just as in travel, the key to being well-prepared lies in anticipating a range of scenarios. This approach doesn’t just cushion you against the unexpected; it equips you to navigate the twists and turns of the market with confidence and agility.

The Importance of Creating Financial Scenarios

Imagine you’re at a crossroads, each path leading to a different outcome for your business. One might lead to rapid growth if a new product takes off, another to steady progress as you expand your customer base, and yet another to a challenging period if the market takes a downturn. Creating financial scenarios is like mapping out each of these paths in advance, complete with signposts (financial indicators) that help you recognize which path you’re on and what you need to do to stay on course—or change direction if necessary.

This practice isn’t about predicting the future with crystal ball accuracy; it’s about being prepared for whatever comes your way. By considering various “what ifs” and planning for them, you transform uncertainty from a source of anxiety into a strategic advantage.

Practical Advice on Long-Term Financial Planning

• Start with a Solid Foundation : Your current financial statements are the launching pad for any long-term planning. Ensure they’re accurate and up-to-date.
• Identify Key Drivers : Understand what factors most significantly impact your business’s financial health—be it sales volume, pricing strategies, or cost controls—and model your scenarios around these drivers.
• Embrace Technology : Leverage financial planning software that allows you to create and compare different scenarios with ease. These tools can provide invaluable insights and save you a heap of time.
• Regular Reviews : The only constant in business is change. Regularly review and adjust your scenarios and projections to reflect new information and market conditions.

How “Planning for the Worst” Saved My Business

There was a time when my business faced what I fondly refer to as “the perfect storm”—a combination of market downturn, rising costs, and a major client backing out last minute. It was every entrepreneur’s nightmare. But here’s the twist: we weathered the storm, not by luck, but by preparation.

During sunnier days, we’d developed a “worst-case scenario” plan . It felt a bit like rehearsing for a play we never wanted to perform, but when the storm hit, that script became our survival guide. We knew exactly which costs to cut, how to streamline operations, and where we could find alternative revenue streams. It wasn’t easy, but that plan gave us the clarity and confidence to make tough decisions quickly.

That experience taught me a valuable lesson: optimism is a fantastic quality, but it’s preparation that truly makes us resilient. Planning for the worst doesn’t mean expecting it to happen; it means ensuring that no matter what comes your way, you’re ready to face it head-on.

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FP&A Leader | Digital Finance Advocate | Small Business Founder

Mike Dion brings a wealth of knowledge in business finance to his writing, drawing on his background as a Senior FP&A Leader. Over more than a decade of finance experience, Mike has added tens of millions of dollars to businesses from the Fortune 100 to startups and from Entertainment to Telecom. Mike received his Bachelor of Science in Finance and a Master of International Business from the University of Florida, laying a solid foundation for his career in finance and accounting. His work, featured in leading finance publications such as Seeking Alpha, serves as a resource for industry professionals seeking to navigate the complexities of corporate finance, small business finance, and finance software with ease.

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Financial Planning for Small Business Owners

Learn the basics of creating a financial plan for small business owners.

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There are many different kinds of small business owners in all stages of their business. Some have just started putting their ideas into action in a startup, while others are in the growth stage or even planning an exit strategy.

No matter which stage your business is in and whether you're a dreamer or more of a pragmatist, there is one thing you can't afford not to do. You need a holistic financial plan that takes into account where your business is now and what the plan is for the future.

For small business owners, establishing a financial plan comes with an added complexity, which is the business. In some ways, the business and personal sides of your financial plan will be mutually exclusive.

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Separate your personal financial goals from your business goals 

Before making any plans, it's critical to understand that you are not your business. Most small business owners have goals for their business, but it's important to also make financial goals for yourself and to keep them separate.

It can be tempting to combine the two, especially for sole proprietors or single-member LLC owners whose business is included on their individual income tax return. However, by not separating your business from your personal financial goals, you could be missing out on some amazing personal achievements.

For example, some personal financial goals might include setting up and contributing to an education fund for your child, boosting your retirement savings, funding and going on a vacation, and buying your first home or downsizing when your children move out of the house.

On the other hand, some financial goals for your business might include increasing sales to a particular amount, finding more customers, or establishing a certain percentage of growth rate.

Consider alternative funding options to diversify your business-related risk 

You may also want to look at other places where you can further separate yourself personally from your business. The easiest place to look is at the many available funding options for your business.

Most small business owners invest in their own businesses using their own money and time, which may be appropriate in certain situations. However, just as you would diversify your investment portfolio, so you may also want to diversify your business-related risks.

Using your own capital, or, in a worst-case scenario, your own credit cards, places you at significant personal financial risk if something happens to the business. In some cases, though, it might make sense to cede some of that risk to another party. After all, today's digital world has brought a wider array of potential funding options that range from venture capital and private equity to crowdfunding, business loans, and even more creative options like a small business incubator or accelerator.

The Small Business Administration is also an excellent resource for business owners, not only for information and guidance but also, in some cases, for low-interest business loans.

Remember to plan for retirement

For small business owners, retirement planning actually sits at the crossroads between personal and business financial planning. It can be tempting to just keep pouring your money back into the business, but that can make it difficult, if not impossible, to save for retirement.

Many small business owners don't save for retirement because they believe they'll be able to sell their business and live off the proceeds of the sale in retirement. However, most overestimate what their business might be worth, especially when looking decades into the future.

Simplified Employee Pension ( SEP ) IRAs and individual 401(k)s both enable small business owners to plan ahead for the days when they finally retire.

Diversify everywhere 

Another important thing small business owners should remember when creating their personal financial plans for themselves and their business is diversification. A small business is a piece of a larger investment portfolio, but many business owners don't recognize this.

Being in business represents a significant risk, even if it seems like you're in a safe industry. As a result, it makes sense for small business owners to target low-risk investments for the rest of their investment portfolio.

Prepare your exit strategies 

Finally, small business owners should prepare their exit strategies — for both their personal legacy and their business. From a personal perspective, business owners can't afford not to have a will and estate plan to ensure the business doesn't fold upon their death. Many also want to leave their business to the next generation, but without a will, ownership succession becomes hazy.

In terms of the business, you should also create a succession plan designating who will take over when you retire or pass. The financial reasons for creating a succession plan are similar to those for creating a will and estate plan, although these plans differ from a practical standpoint. In terms of your personal financial plan, you're designating heirs, while for your business financial plan, you're designating the next CEO or manager. They could be the same person or different people, depending on your situation.

Don't be too busy to plan

These guidelines are only the very basics of what a small business owner needs to consider when creating a financial plan. Some other factors that may play a role in your personal and business financial plans include insurance (property, professional, and otherwise), preparations for growth, planning for disability, and more. No two financial plans are the same, and these other factors may fall under some of the earlier headings.

Unfortunately, many small business owners find themselves tapped out when it comes to financial planning. It takes so much energy and enthusiasm to keep the business going that they sacrifice their personal financial wellbeing. However, your busiest times will be when you need these financial plans the most, and having separate personal and business financial plans will make everything much easier.

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Jacob is the founder and CEO of ValueWalk. What started as a hobby 10 years ago turned into a well-known financial media empire focusing in particular on simplifying the opaque world of the hedge fund world. Before doing ValueWalk full time, Jacob worked as an equity analyst specializing in mid and small-cap stocks. Jacob also worked in business development for hedge funds. He lives with his wife and five children in New Jersey. Full Disclosure: Jacob only invests in broad-based ETFs and mutual funds to avoid any conflict of interest.

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Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

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How to Finance a Business: 4 Options to Consider

• 04 Aug 2020

In entrepreneurship, the old adage “you must spend money to make money” often rings true.

Once you’ve developed an innovative business idea , identified a market need, and created a value proposition , you need to acquire funding to get your company up and running.

The key to financing a business is keeping expenses as low as possible. You also want to ensure invested money is used to gain insight into how to proceed.

In the online course Entrepreneurship Essentials , taught by Harvard Business School Professor William Sahlman, entrepreneurship is described as the process of "spending money to produce information about future possibilities."

For instance, using funds to rent a beautiful office may be tempting, but leveraging it to run tests, conduct market research, or identify more efficient means of production can help you learn about your product, pivot accordingly, and expand your company’s growth potential.

Here’s a guide for assessing startup costs and expenses, along with four business financing options to consider.

Access your free e-book today.

How Difficult Is It to Fund a Startup Business?

Securing adequate funding for your business can be challenging. However, it’s important to remember that starting your own business is a large investment that should be given an appropriate period of time to succeed.

Often, new businesses need to raise funding quickly and efficiently to properly grow and thrive in their given market, but it can be difficult to adhere to various lending requirements without existing financial information. In spite of these challenges, there are various financial resources that can help you get your business off the ground.

Evaluate Startup Costs and Expenses

Before deciding how to finance your business, determine how much money you anticipate needing for startup costs and regular expenses. Whether you run a brick-and-mortar or online business, consider the following when taking stock of expenses:

• Licenses and permits
• Trademarks, copyrights, or patents for your brand and products
• Business insurance
• Legal or accounting assistance
• Rent and utilities (for brick-and-mortar businesses)
• Equipment required for production
• Website platforms
• Marketing materials (both print and digital)
• Shipping supplies
• Subscriptions to content management systems and sales or marketing platforms
• Market research

As your business scales , you may need to expand your expense list to include:

• Employee salaries
• Rent and utilities for office space
• Travel expenses
• Conferences, conventions, and networking events

These lists aren’t exhaustive—every business’s needs are different—but they provide a starting point for you to brainstorm all possible expenses for your startup. When your list is complete, calculate your total estimated startup cost. This number is the amount of funding you’ll need to invest when starting your company.

Before raising capital, it’s also wise to familiarize yourself with how to read and create a balance sheet, income statement, and statement of cash flows. Financial literacy is a critical skill for entrepreneurs , and being aware of these financial statements will ensure you’re taking the necessary steps to become a responsible business owner.

Now, how do you obtain this necessary capital? Here are four sources of funding for your business’s launch.

Related: 6 Questions to Ask Before Starting a Business

How to Finance a Business

1. self-funding.

If your projected expenses add up to a manageable amount, you may be able to fund the business yourself. This can involve taking money from your personal savings account, dipping into your retirement funds, using credit cards and paying back the debt, or asking for donations from friends and family.

Self-funding comes with the risk of long-term debt or losing personal savings and, potentially, money from loved ones. However, it’s a financing option that allows you to retain full ownership over your business, which is often seen as a downside of raising venture capital from investors.

2. Crowdfunding

If you believe your business can garner a fan base, crowdfunding could be a good option. Crowdfunding platforms, such as Kickstarter, Indiegogo, and Patreon enable entrepreneurs to pitch their products and request financial backing.

If people are intrigued and support your product, they can donate to your company in exchange for a free item, discount code, or acknowledgment once your business is up and running. For this reason, crowdfunding is typically a good fit for business-to-consumer startup companies with physical products, although there are exceptions. Each platform has its own terms and conditions, which you should read before selecting one.

Like self-funding, crowdfunding allows you to maintain full ownership of your company, as long as you’re willing to thank your donors with free or discounted products. A few brands that got their start using crowdfunding are Oculus, PopSockets, and Allbirds.

3. Taking Out a Small Business Loan

Applying for a small business loan is another way to secure necessary startup funds. Before applying to banks and credit unions, prepare a business plan, value proposition, expense report, and financial projections for the next five years. Most banks or credit unions will ask to see some combination of these documents when considering your application.

Be sure to weigh the pros and cons of every bank loan offer you receive. Which gives you the lowest interest rate? What are the terms and conditions?

As Sahlman says in Entrepreneurship Essentials , “The terms of financing have a major impact on the success or failure of a venture.”

Related: What Does It Take to Be a Successful Entrepreneur?

4. Raising Venture Capital from Investors

Another avenue for funding your business is raising venture capital from investors.

“Successful companies are always forming hypotheses and testing all aspects of their business,” Sahlman explains in Entrepreneurship Essentials . “Ventures typically need outside investors to run experiments.”

Before reaching out to investors, prepare a business plan, value proposition, financial projections, and a tight, effective pitch deck.

The process of obtaining venture capital has been likened to dating —investors typically want to get to know you and your business before they commit.

One way to start this process is by asking a mutual connection to introduce you to investors. Your contact can serve as a character reference, if needed.

This process can take a while. If you’re looking for quick, easy money to start your business, raising venture capital may not be the right choice. Investors often want to see how you run your company before deciding to invest. Even after they supply funding, they may bide their time to see what you do with the money before investing more.

“Sensible investors stage their commitment to a company—they give enough money to conduct a value-changing test,” Sahlman says. “They preserve the right to abandon the venture by refusing to invest more money. They also design contracts that give them the right to invest more if the test yields encouraging results.”

There’s one factor that sets this option apart: Investors want to own a large, valuable share of your company in return for their investment. This allows them to sell their share in the future, when they predict your company will be worth a lot of money.

In Entrepreneurship Essentials , Sahlman shares Facebook’s journey with various investors and notes that it received $500,000 from angel investor Peter Thiel in its first round of funding in 2004. Just one year later, Facebook received a $12.7 million investment from prominent venture capitalist Jim Breyer.

Resist the urge to go big right away. Perhaps raising venture capital from investors is a second or third step for the funding of your business.

What's the Best Way to Finance Your Business?

Keep in mind that no two businesses are the same—only you know the ins and outs of your company’s needs. By weighing the risks and rewards of each funding option, along with your personal finances, predicted startup costs, and business expenses, you can select the best option for financing your business.

Are you looking to learn more about financing your venture? Explore our four-week online course Entrepreneurship Essentials and our other entrepreneurship and innovation courses to learn to speak the language of the startup world. If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

This post was updated on June 3, 2022. It was originally published on August 4, 2020.

About the Author

Business Planning

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on June 08, 2023

Are You Retirement Ready?

Table of contents, what is business planning.

Business planning is a crucial process that involves creating a roadmap for an organization to achieve its long-term objectives. It is the foundation of every successful business and provides a framework for decision-making, resource allocation, and measuring progress towards goals.

Business planning involves identifying the current state of the organization, determining where it wants to go, and developing a strategy to get there.

It includes analyzing the market, identifying target customers, determining a competitive advantage, setting financial goals, and establishing operational plans.

The business plan serves as a reference point for all stakeholders , including investors, employees, and partners, and helps to ensure that everyone is aligned and working towards the same objectives.

Importance of Business Planning

Business planning plays a critical role in the success of any organization, as it helps to establish a clear direction and purpose for the business. It allows the organization to identify its goals and objectives, develop strategies and tactics to achieve them, and establish a framework of necessary resources and operational procedures to ensure success.

Additionally, a well-crafted business plan can serve as a reference point for decision-making, ensuring that all actions taken by the organization are aligned with its long-term objectives.

It can also facilitate communication and collaboration among team members, ensuring that everyone is working towards a common goal.

Furthermore, a business plan is often required when seeking funding or investment from external sources, as it demonstrates the organization's potential for growth and profitability. Overall, business planning is essential for any organization looking to succeed and thrive in a competitive market.

Business Planning Process

Step 1: defining your business purpose and goals.

Begin by clarifying your business's purpose, mission, and long-term goals. These elements should align with the organization's core values and guide every aspect of the planning process.

Step 2: Conducting Market Research and Analysis

Thorough market research and analysis are crucial to understanding the industry landscape, identifying target customers, and gauging the competition. This information will inform your business strategy and help you find your niche in the market.

Step 3: Creating a Business Model and Strategy

Based on the insights from your market research, develop a business model that outlines how your organization will create, deliver, and capture value. This will inform the overall business strategy, including identifying target markets, value propositions, and competitive advantages.

Step 4: Developing a Marketing Plan

A marketing plan details how your organization will promote its products or services to target customers. This includes defining marketing objectives, tactics, channels, budgets, and performance metrics to measure success.

Step 5: Establishing Operational and Financial Plans

The operational plan outlines the day-to-day activities, resources, and processes required to run your business. The financial plan projects revenue, expenses, and cash flow, providing a basis for assessing the organization's financial health and long-term viability.

Step 6: Reviewing and Revising the Business Plan

Regularly review and update your business plan to ensure it remains relevant and reflects the organization's current situation and goals. This iterative process enables proactive adjustments to strategies and tactics in response to changing market conditions and business realities.

Components of a Business Plan

Executive summary.

The executive summary provides a high-level overview of your business plan, touching on the company's mission, objectives, strategies, and key financial projections.

It is critical to make this section concise and engaging, as it is often the first section that potential investors or partners will read.

Company Description

The company description offers a detailed overview of your organization, including its history, mission, values, and legal structure. It also outlines the company's goals and objectives and explains how the business addresses a market need or problem.

Products or Services

Describe the products or services your company offers, emphasizing their unique features, benefits, and competitive advantages. Detail the development process, lifecycle, and intellectual property rights, if applicable.

Market Analysis

The market analysis section delves into the industry, target market, and competition. It should demonstrate a thorough understanding of market trends, growth potential, customer demographics, and competitive landscape.

Marketing and Sales Strategy

Outline your organization's approach to promoting and selling its products or services. This includes marketing channels, sales tactics, pricing strategies, and customer relationship management .

Management and Organization

This section provides an overview of your company's management team, including their backgrounds, roles, and responsibilities. It also outlines the organizational structure and any advisory or support services employed by the company.

Operational Plan

The operational plan describes the day-to-day operations of your business, including facilities, equipment, technology, and personnel requirements. It also covers supply chain management, production processes, and quality control measures.

Financial Plan

The financial plan is a crucial component of your business plan, providing a comprehensive view of your organization's financial health and projections.

This section should include income statements , balance sheets , cash flow statements , and break-even analysis for at least three to five years. Be sure to provide clear assumptions and justifications for your projections.

Appendices and Supporting Documents

The appendices and supporting documents section contains any additional materials that support or complement the information provided in the main body of the business plan. This may include resumes of key team members, patents , licenses, contracts, or market research data.

Benefits of Business Planning

Helps secure funding and investment.

A well-crafted business plan demonstrates to potential investors and lenders that your organization is well-organized, has a clear vision, and is financially viable. It increases your chances of securing the funding needed for growth and expansion.

Provides a Roadmap for Growth and Success

A business plan serves as a roadmap that guides your organization's growth and development. It helps you set realistic goals, identify opportunities, and anticipate challenges, enabling you to make informed decisions and allocate resources effectively.

Enables Effective Decision-Making

Having a comprehensive business plan enables you and your management team to make well-informed decisions, based on a clear understanding of the organization's goals, strategies, and financial situation.

Facilitates Communication and Collaboration

A business plan serves as a communication tool that fosters collaboration and alignment among team members, ensuring that everyone is working towards the same objectives and understands the organization's strategic direction.

Business planning should not be a one-time activity; instead, it should be an ongoing process that is continually reviewed and updated to reflect changing market conditions, business realities, and organizational goals.

This dynamic approach to planning ensures that your organization remains agile, responsive, and primed for success.

As the business landscape continues to evolve, organizations must embrace new technologies, methodologies, and tools to stay competitive.

The future of business planning will involve leveraging data-driven insights, artificial intelligence, and predictive analytics to create more accurate and adaptive plans that can quickly respond to a rapidly changing environment.

By staying ahead of the curve, businesses can not only survive but thrive in the coming years.

Business Planning FAQs

What is business planning, and why is it important.

Business planning is the process of setting goals, outlining strategies, and creating a roadmap for your company's future. It's important because it helps you identify opportunities and risks, allocate resources effectively, and stay on track to achieve your goals.

What are the key components of a business plan?

A business plan typically includes an executive summary, company description, market analysis, organization and management structure, product or service line, marketing and sales strategies, and financial projections.

How often should I update my business plan?

It is a good idea to review and update your business plan annually, or whenever there's a significant change in your industry or market conditions.

What are the benefits of business planning?

Effective business planning can help you anticipate challenges, identify opportunities for growth, improve decision-making, secure financing, and stay ahead of competitors.

Do I need a business plan if I am not seeking funding?

Yes, even if you're not seeking funding, a business plan can be a valuable tool for setting goals, developing strategies, and keeping your team aligned and focused on achieving your objectives.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

Discover a Better Way to Manage Business Plan Financials and Finance Operations

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The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed. 

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.  Try Smartsheet for free, today.

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Table of Contents

What is a financial plan?

How to make a financial plan in 9 steps, how to get financial planning help, why is financial planning important.

A financial plan is a document that catalogs your current finances, your financial goals and any strategies you've set to achieve those goals. Ongoing financial planning allows you to make the most of your assets and gives you the confidence to weather any bumps along the way.

Key takeaways:

A comprehensive financial plan should include details about cash flow, savings, debt, investments, insurance and other financial life elements.

A financial plan isn’t a static document — it's a tool to track your progress and one you should adjust as your life evolves. It's helpful to reevaluate your financial plan after major life milestones, such as getting married, starting a new job, having a child or losing a loved one.

You can make a financial plan yourself or get help from a financial planning professional. Online services like robo-advisors have also made financial planning assistance more affordable and accessible than ever.

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1. Set financial goals

A good financial plan is guided by your financial goals. If you approach your financial planning from the standpoint of what your money can do for you — whether that's buying a house or helping you retire early — you'll make saving feel more intentional.

Make your financial goals inspirational. Ask yourself: What do I want my life to look like in five years? What about in 10 and 20 years? Do I want to own a car or a house? Do I want to be debt-free? Pay off my student loans? Are kids in the picture? How do I imagine my life in retirement?

Having concrete goals can help you identify and complete the next steps and provide a guiding light as you work to make those aims a reality.

» Need help with this step? Learn more about setting financial goals

2. Track your money

Get a sense of your monthly cash flow — what’s coming in and what’s going out. An accurate picture is key to creating a financial plan and can reveal ways to direct more to savings or debt pay-down. Seeing where your money goes can help you develop immediate, medium-term and long-term plans.

For example, developing a budget is a typical immediate plan. NerdWallet recommends the 50/30/20 budget principles: 50% of your take-home pay goes toward needs (housing, utilities, transportation and other recurring payments), 30% goes toward wants (dining out, clothing, entertainment) and 20% goes toward savings and debt repayment.

Reducing credit card or other high-interest debt is a common medium-term plan, and planning for retirement is a typical long-term plan.

» Need help with this step? A step-by-step guide to budgeting

3. Budget for emergencies

The bedrock of any financial plan is putting cash away for emergency expenses. You can start small — $500 is enough to cover small emergencies and repairs so that an unexpected bill doesn’t run up credit card debt. Your next goal could be $1,000, then one month’s basic living expenses, and so on.

Building credit is another way to shockproof your budget. Good credit gives you options when you need them, like the ability to get a decent rate on a car loan. It can also boost your budget by getting you cheaper rates on insurance and letting you skip utility deposits.

» Need help with this step? Use our emergency fund calculator

4. Tackle high-interest debt

A crucial step in any financial plan: Pay down high-interest debt, such as credit card balances, payday loans, title loans and rent-to-own payments. Interest rates on some of these may be so high that you end up repaying two or three times what you borrowed.

If you’re struggling with revolving debt, a debt consolidation loan or debt management plan may help you wrap several expenses into one monthly bill at a lower interest rate.

» Need help with this step? Learn tools and tips for paying off debt

5. Plan for retirement

If you visit a financial advisor, they will be sure to ask: Do you have an employer-sponsored retirement plan such as a 401(k) , and does your employer match any part of your contribution? True, 401(k) contributions decrease your take-home pay now, but it’s worth it to consider putting in enough to get the full matching amount. That match is free money.

If you have a 401(k), 403(b) or similar plan, financial advisors also generally suggest that you gradually expand your contributions toward the IRS limit: $23,000 in 2024 ($30,500 for those age 50 or older) .

Another savings vehicle for retirement planning is an IRA , or individual retirement arrangement. These tax-advantaged investment accounts can further build retirement savings. The contribution limit is $7,000 in 2024 ($8,000 if age 50 or older) .

» Need help with this step? Use our free retirement calculator

6. Optimize your tax planning

For many of us, taxes take center stage during filing season, but careful tax planning means looking beyond the Form 1040 you submit to the IRS each year.

For example, if you're routinely getting a sizable refund, that may be a sign that you're needlessly living on less throughout the year. Learning how and when to review your W-4 , the form you fill out for your employer, can help you to take control of your future. Adjust your withholdings on your W-4, and you either can keep more of your paycheck, or pay a smaller tax bill.

Getting cozy with the tax law also means looking into tax credits and deductions ahead of time to understand which tax breaks could make a difference when it comes time to file. The government offers many incentives for taxpayers who have children, invest in green home improvements or technologies, or are even pursuing higher education.

» Need help with this step? See tax planning tips for beginners and learn about the federal brackets and income tax rates

7. Invest to build your future goals

Investing might sound like something for rich people or for when you’re established in your career and family life. It’s not. Investing can be as simple as putting money in a 401(k) and as easy as opening a brokerage account (many have no minimum to get started). Financial plans use a variety of tools to invest for retirement, a house or college.

» Need help with this step? Learn how to start investing

8. Grow your financial well-being

With each of these steps, you're protecting yourself from financial setbacks. If you can afford it, decide whether you'd like to do more, such as:

Increasing contributions to your retirement accounts.

Padding your emergency fund until you have three to six months of essential living expenses.

Use insurance to protect your financial stability so a car crash or illness doesn’t derail you. Life insurance protects loved ones who depend on your income. Term life insurance, covering 10-year to 30-year periods, is a good fit for most people’s needs.

» Need help with this step? Understand life insurance and how it works

9. Estate planning: Protect your financial well-being

Financial planning also means looking out for your future needs, as well as mapping things out for your loved ones. Creating a will can help ensure your assets are distributed according to your wishes. Other types of estate-planning documents can also provide your relatives with clarity on how you would like to be cared for, and who should manage your affairs.

» Need help with this step? View our estate planning checklist

If you're not the DIY type or simply want professional help managing some tasks and not others, you don't have to go it alone. Consider what kind of help you need:

I want complete financial planning and investment advice .

I want specialized, face-to-face guidance.

I want help managing my portfolio.

Complete financial plan and investment advice

Online financial planning services offer virtual access to human advisors. A basic service would include automated investment management (like you’d get from a robo-advisor), plus the ability to consult with a team of financial advisors when you have other financial questions.

More comprehensive providers basically mirror the level of service offered by traditional financial planners : You're matched with a dedicated human financial advisor who will manage your investments, create a comprehensive financial plan for you, and do regular check-ins to see if you're on track or need to adjust your financial plan.

» Want to work with a local advisor ? Learn how to find a financial advisor near you

Specialized guidance and/or want to meet with an advisor face-to-face

If you have a complicated financial situation or need a specialist in estate planning, tax planning or insurance, a traditional financial advisor in your area may fit the bill. To avoid conflicts of interest, consider fee-only financial advisors who are fiduciaries (meaning they've signed an oath to act in the client's best interest).

Note that some traditional financial advisors decline clients who don’t have enough to invest; the definition of “enough” varies, but many advisors require $250,000 or more. If you want to know more about how much seeing an advisor will cost, read our guide to financial advisor fees .

» Need some help? Check out our roundup of the best wealth advisors

Portfolio management only

Robo-advisors offer simplified, low-cost online investment management. Computer algorithms build an investment portfolio based on goals you set, and your answers to questions about your risk tolerance. After that, the service monitors and regularly rebalances your investment mix to ensure you stay on track. Because it's all digital, it comes at a much lower cost than hiring a human portfolio manager.

» Need help investing? See our list of the best robo-advisors

Financial planning can help you feel more confident about navigating bumps in the road — like, say, a recession or historic inflation . According to Charles Schwab's 2024 Modern Wealth Survey, Americans who have a written financial plan feel more in control of their finances compared with those without a plan [0] Charles Schwab . Charles Schwab Modern Wealth Survey 2023 . Accessed Jul 12, 2024. View all sources .

Once your basic needs and short-term goals have been addressed, a financial plan can also help you tackle big-picture goals. Thoughtful investing, for example, can help build generational wealth , and careful estate planning can ensure that wealth gets passed down to your loved ones.

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business finance

business finance , the raising and managing of funds by business organizations. Planning, analysis, and control operations are responsibilities of the financial manager, who is usually close to the top of the organizational structure of a firm. In very large firms, major financial decisions are often made by a finance committee. In small firms, the owner-manager usually conducts the financial operations. Much of the day-to-day work of business finance is conducted by lower-level staff; their work includes handling cash receipts and disbursements, borrowing from commercial banks on a regular and continuing basis, and formulating cash budgets.

Financial decisions affect both the profitability and the risk of a firm’s operations. An increase in cash holdings, for instance, reduces risk; but, because cash is not an earning asset, converting other types of assets to cash reduces the firm’s profitability. Similarly, the use of additional debt can raise the profitability of a firm (because it is expanding its business with borrowed money), but more debt means more risk. Striking a balance—between risk and profitability—that will maintain the long-term value of a firm’s securities is the task of finance.

Financial planning and control

Short-term financial operations are closely involved with the financial planning and control activities of a firm. These include financial ratio analysis, profit planning, financial forecasting, and budgeting.

Financial ratio analysis

A firm’s balance sheet contains many items that, taken by themselves, have no clear meaning. Financial ratio analysis is a way of appraising their relative importance. The ratio of current assets to current liabilities, for example, gives the analyst an idea of the extent to which the firm can meet its current obligations. This is known as a liquidity ratio. Financial leverage ratios (such as the debt–asset ratio and debt as a percentage of total capitalization) are used to make judgments about the advantages to be gained from raising funds by the issuance of bonds (debt) rather than stock . Activity ratios, relating to the turnover of such asset categories as inventories , accounts receivable , and fixed assets, show how intensively a firm is employing its assets. A firm’s primary operating objective is to earn a good return on its invested capital, and various profit ratios (profits as a percentage of sales, of assets, or of net worth) show how successfully it is meeting this objective.

Ratio analysis is used to compare a firm’s performance with that of other firms in the same industry or with the performance of industry in general. It is also used to study trends in the firm’s performance over time and thus to anticipate problems before they develop.

Profit planning

Ratio analysis applies to a firm’s current operating posture. But a firm must also plan for future growth. This requires decisions as to the expansion of existing operations and, in manufacturing , to the development of new product lines. A firm must choose between productive processes requiring various degrees of mechanization or automation —that is, various amounts of fixed capital in the form of machinery and equipment. This will increase fixed costs (costs that are relatively constant and do not decrease when the firm is operating at levels below full capacity). The higher the proportion of fixed costs to total costs, the higher must be the level of operation before profits begin, and the more sensitive profits will be to changes in the level of operation.

Financial forecasting

The financial manager must also make overall forecasts of future capital requirements to ensure that funds will be available to finance new investment programs. The first step in making such a forecast is to obtain an estimate of sales during each year of the planning period. This estimate is worked out jointly by the marketing , production, and finance departments: the marketing manager estimates demand; the production manager estimates capacity; and the financial manager estimates availability of funds to finance new accounts receivable, inventories, and fixed assets.

For the predicted level of sales, the financial manager estimates the funds that will be available from the company’s operations and compares this amount with what will be needed to pay for the new fixed assets (machinery, equipment, etc.). If the growth rate exceeds 10 percent a year, asset requirements are likely to exceed internal sources of funds, so plans must be made to finance them by issuing securities. If, on the other hand, growth is slow, more funds will be generated than are required to support the estimated growth in sales. In this case, the financial manager will consider a number of alternatives, including increasing dividends to stockholders, retiring debt, using excess funds to acquire other firms, or, perhaps, increasing expenditures on research and development .

Steps to Starting Your Financial Planning Business

Main Sections In This Post Steps To Starting A Financial Planning Business Points to Consider Knowledge Is Power Featured Video

This post offers a comprehensive guide to launching and operating a financial planning business, with practical examples and valuable resources.

It covers the startup phase and ongoing operations, providing access to current and popular information through the “Knowledge Is Power” section.

Share and bookmark this post for a go-to reference throughout your business journey.

Let’s get started with the steps.

Steps to Starting a Financial Planning Business

Below are the steps to starting a financial planning business.

Each step is linked to a specific section, allowing you to jump to your desired section or scroll to follow the steps in order.

• An Overview of What You’re Getting Into
• Financial Planning Business Overview
• Researching Your Financial Planning Business
• Looking at Financials
• Choosing A Business Location
• Creating Your Mission Statement
• Creating A Unique Selling Proposition (USP)
• Choose a Financial Planning Business Name
• Register Your Company
• Create Your Corporate Identity
• Writing a Business Plan
• Banking Considerations
• Getting the Funds for Your Operation
• Software Setup
• Business Insurance Considerations
• Supplier and Service Provider Considerations
• Physical Setup
• Creating a Website
• Create an External Support Team
• Hiring Employees

1.  An Overview of What You’re Getting Into

Is Starting a Financial Planning Business Right for You?

Success in starting a financial planning business hinges on a crucial factor: your passion. Before diving in, consider your level of enthusiasm for this endeavor. Here’s an overview:

Passion as a Driving Force:

Passion is the driving energy behind your entrepreneurial journey.

It motivates you to seek solutions in the face of challenges. Without passion, setbacks can lead to a desire to quit rather than persevere.

Assess Your Passion:

Take a moment to reflect on your enthusiasm for owning a financial planning business.

Imagine a scenario where you’ve achieved financial abundance, traveled extensively, and realized your dreams, yet you still have substantial wealth. Would you still embark on this business venture?

The Crucial Question:

If your answer is a strong “yes,” it signifies your unwavering commitment to financial planning.

You’re on the right track. However, if your response is “no,” it prompts further exploration: What alternative endeavor would you prefer to pursue?

Passion vs. Profit:

In summary, your passion for the business you intend to launch is paramount. When monetary gain becomes the sole focus, success may remain elusive.

Choose a path that aligns with your deepest interests and aspirations, ensuring that passion propels you forward.

In financial planning, genuine dedication to helping clients achieve their financial goals is a powerful motivator.

Your passion sustains you through the ups and downs of entrepreneurship and sets the stage for a fulfilling and successful journey in the field.

For More, See How Passion Affects Your Business . Also, see, Considerations Before You Start Your Business to identify key points for a new business owner.

2. Gaining an Overview of Owning a Financial Planning Business

Next, let’s spend some time on key issues to give you an overview of what to expect from owning and running your business.

a.) A Quick Overview of Owning a Financial Planning Business

A financial planning business is a professional service that assists individuals, families, and businesses manage their finances, investments, and long-term financial goals.

Financial planners, often certified and experienced professionals, offer expert advice and strategies to help clients achieve financial security, wealth accumulation, retirement planning, and risk management.

Day-to-Day Tasks in Managing a Financial Planning Business:

• Client Consultations: Meeting with clients to understand their financial goals, needs, and risk tolerance.
• Financial Analysis: Conducting in-depth financial assessments, including income, expenses, assets, and liabilities.
• Investment Planning: Developing tailored investment portfolios aligned with clients’ objectives.
• Retirement Planning: Creating retirement strategies, including savings and withdrawal plans.
• Estate Planning: Assisting clients in planning for the distribution of assets after death, including wills and trusts.
• Risk Assessment: Evaluating insurance needs for life, health, disability, and long-term care coverage.
• Tax Planning: Implementing tax-efficient strategies to minimize tax liabilities.
• Portfolio Management: Monitoring and adjusting investment portfolios to align with market conditions and client goals.
• Market Research: Staying updated on financial market trends, economic developments, and investment opportunities.
• Client Education: Educating clients on financial matters, investment options, and potential risks.
• Documentation: Maintaining accurate client records, financial plans, and investment reports.
• Compliance: Ensuring compliance with industry regulations and ethical standards.
• Marketing and Networking: Promoting the business through marketing efforts, networking, and client referrals.
• Technology Management: Utilizing financial planning software and tools for data analysis and client management.
• Continuing Education: Pursuing ongoing professional development and certifications to stay current in the field.
• Client Communication: Providing regular updates to clients on their financial progress and portfolio performance.
• Problem-Solving: Addressing unexpected financial challenges or market fluctuations.
• Time Management: Efficiently balancing client meetings, research, administrative tasks, and business development.
• Team Collaboration: If applicable, managing a team of advisors and support staff.
• Goal Tracking: Regularly reviewing client goals and adjusting financial plans as needed.

Running a financial planning business requires a dynamic blend of financial expertise, client relations, market awareness, and regulatory compliance.

Financial planners must adapt to evolving financial landscapes and tailor their services to meet their diverse clientele’s unique needs and aspirations.

b.) Financial Planning Business Models

Types of Financial Planning Business Setups and Business Models

• Business Model:  Solo financial planner managing all aspects of the business.
• Pros:  Full control, low startup costs.
• Cons:  Limited scalability, workload management.
• Business Model:  Two or more financial planners sharing responsibilities and profits.
• Pros:  Combined expertise, shared workload.
• Cons:  Decision-making complexities, shared profits.
• Business Model:  Registered firm offering comprehensive financial planning and investment advisory services.
• Pros:  Credibility, regulatory compliance.
• Cons:  Stringent regulations, administrative requirements.
• Business Model:  Charging clients fees for advisory services without commissions.
• Pros:  Fiduciary responsibility, transparent compensation.
• Cons:  May require a larger client base for sustainability.
• Business Model:  Earning commissions from selling financial products.
• Pros:  Potential for high earnings, fewer upfront costs.
• Cons:  Conflicts of interest, regulatory scrutiny.
• Business Model:  Combining fee-based and commission-based services.
• Pros:  Diverse revenue streams, catering to different client needs.
• Cons:  Managing potential conflicts of interest.
• Business Model:  Automated financial planning and investment advisory via digital platforms.
• Pros:  Scalability, lower operating costs.
• Cons:  Limited personalization, competition from established firms.
• Business Model:  Focusing on a specific niche, like retirement planning for physicians or estate planning for business owners.
• Pros:  Targeted marketing, expert status.
• Cons:  Smaller client pool, potential market fluctuations.
• Business Model:  Clients pay monthly or annual subscription fees for ongoing financial advice.
• Pros:  Predictable income, client retention.
• Cons:  Initial client acquisition, service scalability.

Choosing the right business model from the beginning is crucial, as switching your model later is more challenging.

Identifying a profitable and high-demand niche for your financial planning business is essential.

Conduct market research, consider your expertise and passion, and assess the needs of your target clients to determine the most suitable setup and business model for your financial planning venture.

c.) Pros and Cons of Owning a Financial Planning Business

Starting a business offers many benefits, but it’s crucial to acknowledge the challenges.

Focusing solely on rewards can lead to unforeseen difficulties.

Understanding potential problems allows for better preparation and minimizes surprises.

For more, see Pros and Cons of Starting a Small Business.

d.) Challenges You Could Face When Starting and Operating a Financial Planning Business

Challenges When Starting a Financial Planning Business:

• Regulatory Compliance: Navigating complex financial regulations and obtaining the necessary licenses can be daunting.
• Client Acquisition: Building a client base from scratch requires effective marketing and networking.
• Competition: Established firms dominate the market, making it challenging for newcomers to stand out.
• Initial Costs: High startup expenses for licenses, technology, and office space can strain finances.
• Credibility: Gaining trust as a new entrant in a sensitive field takes time.
• Revenue Generation: Earning fees or commissions may take time, impacting early cash flow.
• Market Volatility: Economic fluctuations can affect investment portfolios and client confidence.
• Client Education: Some clients may not understand the value of financial planning services.
• Work-Life Balance: Initial demands can lead to long working hours, impacting personal life.
• Networking: Building relationships with other professionals for referrals can be slow.

Challenges in Full Operation:

• Client Retention: Maintaining long-term client relationships and addressing evolving needs.
• Regulatory Changes: Staying compliant with ever-changing financial regulations.
• Market Trends: Adapting strategies to market fluctuations and industry trends.
• Technology: Managing and updating digital tools and platforms for efficiency and security.
• Competition: Continually proving value against both traditional and tech-based competitors.
• Client Demands: Meeting diverse client expectations for services and communication.
• Scaling: Expanding operations while maintaining quality service.
• Risk Management: Handling potential investment losses and mitigating client concerns.
• Team Management: Ensuring staff cohesion and professional development.
• Advisory Fees: Balancing fee structures to remain competitive while sustaining profitability.

Starting and running a financial planning business demands resilience and adaptability.

Challenges shift from initial hurdles like regulatory compliance and client acquisition to ongoing concerns like market dynamics and technological evolution.

Success hinges on continuous learning, strategic planning, and a client-centric approach.

e.) Questions You Need to Consider for Your Financial Planning Business

Questions to Consider for Your Financial Planning Business

Launching a financial planning business requires thoughtful planning and consideration.

By addressing the following questions, you’ll prepare for potential challenges and set a strong foundation for your venture:

• Business Model: What financial planning business model suits your goals? (e.g., fee-based, commission-based, niche-focused)
• Skills: Do you have the necessary skills to manage and operate a financial planning business effectively?
• Solo vs. Team: Will you handle all aspects alone, or do you plan to hire employees or collaborate with partners?
• Management: Will you take an active role in daily management, or are you considering hiring a dedicated manager?
• Customer Acquisition: How will you attract clients to your financial planning services? What’s your client acquisition strategy?
• Client Retention: What measures will you implement to ensure clients remain satisfied and continue seeking your services?
• Partnerships/Investors: Are you open to forming partnerships or seeking investors to support business growth?
• Financing: How do you plan to finance your startup costs? Have you explored funding options and budgeted accordingly?
• Profitability Timeline: Have you estimated how long it will take for your business to become profitable? Do you have a financial safety net for this period?
• Personal Financial Support: Considering potential financial challenges, how will you sustain yourself during the early stages?
• Product and Service Offering: What specific financial products and services will you provide to clients?
• Market Demand: Have you conducted market research to gauge the demand for your offerings? Are there unmet needs in your target market?

Addressing these questions lets you craft a clear business strategy and mitigate potential pitfalls.

It also enables you to align your financial planning business with your skills, goals, and the needs of your prospective clients, setting the stage for a successful venture.

3. Research

Inside information financial planning business research.

Informed Decision-Making for Your Financial Planning Business

Before embarking on your journey to start a financial planning business, thorough research is your compass.

Quality information gives you a clear understanding of what to expect and prepares you for the challenges ahead.

Without it, you risk entering uncharted territory and facing unexpected hurdles.

Experienced financial planning professionals are invaluable sources of knowledge.

They offer insights honed through years of industry experience and can provide trustworthy information you can depend on.

The time spent with them can be priceless, offering a glimpse into the intricate workings of the financial planning field.

Finding the right individuals to connect with is a crucial step in this process.

It goes beyond the scope of this post, but I’ve authored an article that offers guidance on identifying and approaching these industry experts.

This approach should be respectful and non-threatening.

I strongly recommend reading the detailed article “An Inside Look Into the Business You Want To Start.”

It provides comprehensive insights into how to gain access to experienced financial planning professionals and tap into their wealth of knowledge.

By doing so, you’ll be better equipped to make informed decisions and embark on your financial planning business journey with confidence.

See An Inside Look Into the Business You Want To Start for all the details.

Target Audience

Understanding Your Target Audience:

Understanding your target audience brings numerous benefits.

It allows you to tailor your products, services and offers precisely to their needs and preferences.

Rather than offering a broad spectrum, you can focus on delivering what your customers truly desire.

Target Market Ideas:

• Individuals nearing retirement age seeking retirement planning.
• Young professionals looking to start saving and investing.
• Small business owners in need of financial guidance.
• High-net-worth individuals seeking wealth management services.
• Newlyweds planning their financial future together.
• Parents saving for their children’s education.
• Individuals going through major life transitions (divorce, inheritance).
• Employees seeking workplace retirement planning.
• Investors looking for ethical or sustainable investment options.
• Seniors interested in estate planning and wealth preservation.

For more, see How To Understand Your Target Market.

Product & Service Demand

The Importance of Determining Market Demand:

Understanding the demand for your financial planning services is crucial to avoid potential business failure.

Even if your services are high-quality and competitively priced, insufficient demand can lead to early closure and financial challenges.

Strategies to Assess Market Demand:

• Market Research: Analyze local demographics, economic conditions, and competition to identify potential demand gaps.
• Surveys and Questionnaires: Gather feedback from potential clients about their financial planning needs and preferences.
• Competitor Analysis: Study the area’s existing businesses, online presence, and customer reviews.
• Networking and Focus Groups: Engage with the community, organize focus groups, and host informational sessions.
• Online Keyword Research: Use tools like Google Keyword Planner to gauge online search volumes related to financial planning.
• Pilot Testing: Offer limited-time, free financial planning sessions or workshops to assess interest.
• Consult Industry Associations: Seek data and insights from financial planning associations.
• Talk to Local Professionals: Consult with accountants, attorneys, and potential referral sources.
• Use Online Analytics: Monitor website and social media engagement for indicators of interest.

These strategies help you gather valuable insights into market demand, enabling informed decisions for your financial planning business.

For more, see the Demand for Your Products and Services.

4. Looking at Financials:

Startup Costs, Monthly Expenses, Revenues, and Profits for Your Financial Planning Business

When launching a financial planning business, gaining an overview of startup costs, monthly expenses, revenues, and profits is essential for a successful venture.

Startup Costs:

Accurate estimation of startup costs is vital. Underestimating can lead to financial difficulties, while overestimating may deter potential investors. Costs vary based on factors like location, staff, equipment, and rental or leasing options. Create a comprehensive list of needed items, research prices, and include contingencies.

For more detailed information, refer to my article on Estimating Startup Costs.

Sales and Profit:

Sales and profits are contingent on several factors:

• Customer Service: Exceptional service builds client trust and loyalty, leading to repeat business and referrals.
• Product/Service Popularity: Offerings that resonate with clients attract more sales.
• Demand: The market’s need for your services impacts sales potential.
• Effective Marketing: Targeted marketing strategies reach your audience effectively.

Simplifying Profitability:

To assess profitability, consider the following:

• Calculate profit per sale: Determine how much profit you make per transaction.
• Estimate monthly sales: Based on market research and outreach efforts, project your monthly sales volume.
• Analyze overhead: Sum all monthly expenses, including rent, utilities, salaries, and marketing costs.
• Consider revisiting Step 3. Researching Your Financial Planning Business where there is a technique to get inside information will benefit you in this step.

Simple Sample: Financial Lists to Consider As a Starting Point

Note: Focus on the list items more than the numbers. The numbers are samples. Your estimates will differ due to how you set up your business, location, expenses, and revenues.

Sample Estimated Startup Costs for a Financial Planning Business in the USA:

Note: These approximate figures can vary significantly based on location, scale, and business approach.

• Office Space Rental (3-6 months’ rent): $5,000 – $15,000
• Office Furnishings and Equipment: $3,000 – $7,000
• Licensing and Regulatory Fees: $1,000 – $5,000
• Professional Liability Insurance: $1,500 – $3,000
• Marketing and Advertising (initial campaigns): $2,000 – $6,000
• Website Development and Maintenance: $1,500 – $3,000
• Technology and Software (CRM, financial software): $2,000 – $5,000
• Legal and Accounting Fees: $2,500 – $5,000
• Initial Staffing and Training: $5,000 – $10,000
• Miscellaneous (utilities, permits, etc.): $1,000 – $3,000

Total Estimated Startup Costs: $24,000 – $59,000

Sample Estimated Monthly Expenses for a Financial Planning Business in the USA:

Note: These are rough estimates and can vary based on location and business scale.

• Rent/Lease Payment: $1,500 – $4,000
• Employee Salaries (if applicable): $5,000 – $15,000
• Marketing and Advertising: $1,000 – $3,000
• Utilities (electricity, internet, phone): $200 – $600
• Office Supplies: $100 – $300
• Professional Memberships and Licensing: $200 – $500
• Insurance (professional liability, office insurance): $300 – $800
• Software Subscriptions (financial planning tools): $200 – $500
• Loan Payments (if applicable): Variable
• Miscellaneous (travel, client events, etc.): $500 – $1,500

Total Estimated Monthly Expenses (excluding loan payments): $9,800 – $26,200

Sample Profit per Sale Examples:

• Comprehensive Financial Planning Package: $1,500 – $3,000 per client
• Retirement Investment Consultation: $300 – $600 per session
• Wealth Management Services (annual fee): $2,500 – $5,000 per client
• Tax Planning and Preparation: $150 – $300 per return
• Investment Portfolio Review: $250 – $500 per review

These sample profit-per-sale figures can vary based on the scope and complexity of client services.

5. Choosing The Right Business Location

The success or failure of a brick-and-mortar financial planning business catering to locals heavily hinges on its location.

Operating in an area with minimal demand virtually guarantees failure. Conversely, setting up shop in an oversaturated market presents the challenge of carving a niche.

The ideal location strikes a balance between sufficient demand and manageable competition. Affordability is another key consideration.

While a bustling area offers exposure, costs must not eclipse profits.

Conversely, cheaper locations must still attract enough customers to sustain the business.

Online or non-physical business models offer more location flexibility but require careful competition and demand assessment.

A highly competitive market complicates market share acquisition, while no demand renders opening futile.

Some models allow operating from home, suitable for online businesses or minimal customer interaction.

Starting from home can be viable, with room to expand to a commercial location as the business grows.

In conclusion, selecting the right location is pivotal for business success .

Thorough research and analysis of potential locations should inform this critical decision, ensuring your financial planning business thrives in the chosen environment.

For more about business locations, see Choosing The Best Location for Your Business.

6. Create Your Mission Statement

A mission statement serves as a compass, guiding your financial planning business by clarifying its purpose.

It keeps you focused on delivering the primary benefit to your customers and community.

This concise statement encapsulates your core values, goals, and the unique value you offer, helping you remain on track.

Sample Mission Statements for a Financial Planning Business:

• “Empowering individuals and families to achieve financial security through personalized planning and expert guidance.”
• “Providing comprehensive financial solutions that enable our clients to navigate life’s financial challenges with confidence and peace of mind.”
• “Dedicated to building lasting financial legacies, we offer tailored strategies and unwavering support to help clients secure their financial futures.”
• “Our mission is to simplify complex financial matters, delivering clarity, stability, and prosperity to our clients through trusted financial planning.”
• “Guided by integrity and a commitment to excellence, we empower clients to make informed financial decisions, turning their dreams into realities.”

For more, see How To Create a Mission Statement.

7. Creating A Unique Selling Proposition (USP)

A Unique Selling Proposition (USP) is a distinct feature or aspect of your financial planning business that sets you apart from competitors.

It helps identify and create something special, making your business unique in a crowded market.

A well-defined USP clarifies your value proposition to potential clients and positions your business as the go-to choice.

Sample Unique Selling Propositions for a Financial Planning Business:

• Holistic Financial Wellness: “Our integrated approach combines financial planning, investment strategies, and emotional well-being to create holistic financial wellness plans for clients.”
• Tech-Driven Personalization: “Harnessing cutting-edge technology, we offer customized financial solutions tailored to each client’s unique goals and aspirations.”
• Fee Transparency: “We believe in complete fee transparency, offering straightforward pricing structures, ensuring clients always know where their money goes.”
• Local Expertise: “As a community-focused firm, our deep local knowledge enables us to provide insights and strategies aligned with the unique financial landscape of our region.”
• Generational Wealth Planning: “We specialize in generational wealth planning, helping families build a lasting legacy through tailored financial strategies.”

These USPs differentiate your financial planning business, helping clients understand why choosing your services is the right decision.

8. Choose a Business Name

Choosing the right name for your financial planning business is a crucial decision.

Your business name should be catchy, appropriate for your industry, easy to pronounce, and memorable.

Since business names rarely change, it’s important not to rush this process.

Additionally, having a matching domain name for your online presence is essential in today’s digital age. It ensures consistency and makes it easier for clients to find you online.

Before finalizing your business name, checking if it’s already registered by another business to avoid any legal issues is crucial.

Here is a list of 30 ideas for financial planning business names to spark your creativity:

• Financial Horizon Advisors
• Prosperity Planners
• Wise Wealth Strategies
• Future Finance Experts
• Money Matters Consultants
• Strategic Financial Visionaries
• SecurePath Financial
• WealthCrafters
• Golden Years Financial
• Insightful Investments
• Pinnacle Financial Planning
• Financial Freedom Architects
• Legacy Wealth Builders
• Capital Compass Advisors
• Trusty Financial Partners
• Sterling Wealth Management
• ProsperWise Financial
• Bridge to Wealth
• Beacon Financial Solutions
• Fiscal Focus Advisors
• Evergreen Wealth Advisors
• Apex Financial Mastery
• BlueSky Financial Planning
• Harmony Wealth Group
• Virtuoso Finance Advisors
• Paramount Financial Strategies
• Financial Freedom Trailblazers
• ProsperaPlan
• Insight Financial Allies
• Wealth Harmony Planners

This list can inspire you as you brainstorm and choose a name that reflects your business’s mission, values, and uniqueness in the financial planning industry.

For more, see the following articles:

• How To Register a Business Name
• Registering a Domain Name For Your Business

9. Register Your Company

Ensuring the legal compliance of your financial planning business is of paramount importance.

Consulting with a legal professional or business advisor can be instrumental in making informed decisions about your business structure, tax benefits, and liability protection.

Common Types of Registrations for a Financial Planning Business:

• Business Structure Registration: Register your business as a sole proprietorship, partnership, LLC, or corporation, depending on your chosen structure.
• Employer Identification Number (EIN): Obtain an EIN from the IRS, which is required for tax purposes, especially if you plan to hire employees.
• State Business Registration: Register your business with the appropriate state agency to ensure legal recognition.
• Trade Name or “Doing Business As” (DBA) Registration: If you choose a business name different from your legal name, you may need to register it as a DBA.
• Professional Licensing: Check if your state requires financial planners to obtain a professional license or certification.
• Securities Registration: If you plan to offer investment advisory services or manage investment portfolios, you may need to register with the Securities and Exchange Commission (SEC) or your state’s securities regulator.

Permits and Licenses to Consider for a Financial Planning Business:

• Business License: Obtain a general business license, which your city or county may require.
• Professional License: Ensure that you meet the licensing requirements for financial planners or advisors in your state.
• Securities Licenses: If you intend to sell securities or provide investment advice, you may need to obtain appropriate securities licenses, such as Series 7 or 65 licenses.
• State Registration: Register with your state’s securities regulator if required for financial planning activities.
• Insurance License: If you plan to offer insurance products, you may need an insurance license.
• Home Occupation Permit: If you run your business from home, check if you need a home occupation permit from your local government.
• Tax Permits: Depending on your location and business activities, you may need permits related to sales tax, use tax, or employer withholding tax.
• Federal Compliance: Ensure compliance with federal laws and regulations, especially when handling sensitive client information.
• Local Permits: Check for any additional permits required by your city or county, such as signage or health permits, if you meet clients in your office.
• Privacy and Data Protection: Familiarize yourself with data protection laws and regulations to safeguard client information.

Consulting with professionals and conducting thorough research is essential to ensure your financial planning business is legally sound, allowing you to focus on providing excellent services while complying with all applicable laws and regulations.

Registration:

• How to Register Your Business
• How To Register a DBA
• How to Register a Trademark
• How to Get a Business License

Business Structures:

• How to Choose a Business Structure
• Pros & Cons of a Sole Proprietorship
• How To Form an LLC
• How To Register a Business Partnership
• How To Form a Corporation
• How To Choose a Business Registration Service

10. Create Your Corporate Identity

A Corporate Identity (CI) is a visual and design representation of your business.

It’s the face of your brand, conveying its personality and values.

A well-crafted CI sets your business apart and leaves a lasting impression on customers.

Key components of a Corporate Identity include:

• Logo: Your logo is the most recognizable element of your CI. It should be unique, memorable, and reflect your brand’s essence.
• Business Cards  are essential for networking and making a strong first impression. A well-designed business card communicates professionalism.
• Website: In today’s digital age, your website is often the first interaction potential customers have with your business. It should align with your CI and offer a seamless user experience.
• Business Sign: If you have a physical location, an attractive and easily identifiable sign reinforces your brand’s presence.
• Stationery: Consistency matters, even in the age of email. To maintain a professional image, letterheads, envelopes, and other stationery should feature your CI.
• Promotional Items: These can range from pens to T-shirts . Branded promotional items help in marketing and building brand recognition.

You can see our page for an overview of your logo , business cards , website , and business sign , or see A Complete Introduction to Corporate Identity Packages.

11. Writing a Business Plan

The Importance of Market Research:

Market research is a crucial step in starting a financial planning business. It provides valuable insights that inform your business decisions.

Market research helps you understand your potential client’s needs, preferences, and behaviors. This knowledge enables you to tailor your services to meet their specific requirements.

Assessing Market Demand:

You’ll clearly understand your chosen location’s demand for financial planning services. This ensures that there’s a market for your business.

Analyzing Competition:

Market research helps you identify your competitors, their strengths, weaknesses, and market positioning. This information is vital for developing a competitive edge.

Determining Pricing Strategies:

By studying the market, you can establish appropriate pricing strategies that reflect your value proposition and align with the expectations of your target audience.

Refining Your Marketing Plan:

Market research provides insights into effective marketing channels and strategies to reach potential clients. It guides your marketing efforts for maximum impact.

Mitigating Risks:

By understanding market dynamics, you can identify potential risks and challenges. This allows you to develop contingency plans and strategies to navigate uncertainties.

Identifying Growth Opportunities:

Market research reveals growth opportunities within the financial planning industry. It helps you stay agile and adapt to changing market conditions.

Informed Decision-Making:

With data and insights, you can make informed decisions about your business’s direction, services, and overall strategy.

Building Confidence:

Thorough market research instills confidence in your business concept. It provides a solid foundation for your financial planning business, increasing your chances of success.

In summary, market research is not an optional step; it’s a fundamental part of building a successful financial planning business.

It empowers you with the knowledge needed to make informed decisions, effectively meet your clients’ needs, and grow your business.

Business Plan Template for a Financial Planning Business

I. Executive Summary

Business Name: [Your Financial Planning Business Name]

Founder(s): [Your Name(s)]

Date: [Date]

Introduction:

• Briefly introduce your financial planning business.
• Highlight its core mission, vision, and values.
• Summarize your unique selling proposition (USP) that sets your business apart.
• Provide an overview of your industry, target market, and geographical location.

Business Description:

• Describe the nature of your financial planning services.
• Explain how your services address the needs of your target audience.
• Outline the benefits clients will gain from your services.
• Mention your business’s legal structure (e.g., sole proprietorship, LLC).

Market Research:

• Present findings from your market research.
• Describe the demand for financial planning services in your chosen location.
• Analyze your competition and identify your competitive advantage.
• Discuss pricing strategies based on market analysis.

Business Goals and Objectives:

• State your short-term and long-term business goals.
• Set specific, measurable, attainable, relevant, and time-bound (SMART) objectives.
• Include financial targets, such as revenue projections and client acquisition goals.

II. Business Description

Company History:

• Provide a brief history of your financial planning business.
• Highlight key milestones, achievements, and growth.

Legal Structure:

• Detail your business’s legal structure (e.g., sole proprietorship, partnership, corporation).
• Explain the rationale behind choosing this structure.

Ownership and Management:

• List the ownership structure and owners’ names.
• Introduce key members of your management team.
• Include their qualifications and roles within the company.

III. Market Analysis

Target Market:

• Define your ideal client demographics and psychographics.
• Explain why your services are tailored to meet their needs.
• Provide insights into their financial goals and pain points.

Competitive Analysis:

• Identify your main competitors in the financial planning industry.
• Evaluate their strengths and weaknesses.
• Explain how your business will differentiate itself.

Industry Trends:

• Discuss current trends and developments in the financial planning industry.
• Explain how your business will adapt to these trends.

IV. Services and Products

Service Offerings:

• Provide a detailed description of your financial planning services.
• Explain the process and methodology behind your services.
• Highlight any specialized areas or niches you focus on.

Pricing Strategy:

• Outline your pricing structure and payment options.
• Explain how your prices are competitive while reflecting the value you provide.
• Include any discounts or packages you offer.

Product Life Cycle:

• Describe the life cycle of your services/products.
• Discuss plans for product/service enhancements or expansions.

V. Marketing and Sales Strategy

Marketing Plan:

• Present a comprehensive marketing strategy.
• Detail your target marketing channels (online, offline, social media, etc.).
• Explain how you will build brand awareness and attract clients.

Sales Strategy:

• Outline your sales approach.
• Describe your client acquisition and retention strategies.
• Set sales targets and timelines.

VI. Operational Plan

• Describe your physical location (if applicable).
• Explain how it aligns with your target market and business goals.

Business Processes:

• Outline the processes involved in delivering your financial planning services.
• Include details on client onboarding, consultations, and ongoing support.

Technology and Tools:

• List the technology and tools you’ll use for operations.
• Explain how they enhance efficiency and client communication.

VII. Financial Plan

• Break down the initial costs required to start your financial planning business.
• Include expenses for equipment, licensing, marketing, and legal fees.

Income Projections:

• Provide detailed financial projections for the next 3-5 years.
• Include revenue, expenses, and net profit margins.
• Use tables and charts for clarity.

Funding Requirements:

• State whether you require external financing or investment.
• Explain how the funds will be used and the expected ROI for investors.

VIII. Risk Analysis

Risk Assessment:

• Identify potential risks and challenges your business may face.
• Discuss strategies to mitigate and manage these risks.

Contingency Plans:

• Outline contingency plans for addressing unexpected issues.
• Include financial backup plans and crisis management strategies.

IX. Appendices

Appendix A:

• Include any additional documents or information that support your business plan (e.g., resumes, market research data, legal documents).

This comprehensive business plan template provides a structured framework to help you create a detailed and professional document for your Financial Planning Business.

Customize each section with specific details and data relevant to your business goals and objectives.

See How to Write a Business Plan for information on creating your business plan .

12. Banking Considerations

Selecting a local bank with a strong emphasis on small businesses can be a strategic choice for your financial planning business. Here’s why:

Tailored Services:

Local banks often offer services and financial products designed to meet small businesses’ unique needs.

They understand local entrepreneurs’ challenges and opportunities and can provide customized solutions.

Business Account Separation:

Opening a dedicated business account is crucial. It ensures a clear separation between your personal and business finances.

This separation simplifies financial management, making tracking income, expenses, and profits easier. It’s particularly valuable during tax season, as all your business-related transactions are consolidated.

Professional Relationship:

Building a strong relationship with your local banker can be beneficial. They become a valuable resource for financial advice, lending solutions, and assistance with various banking services.

A banker who knows your business well can expedite loan applications and streamline financial processes.

Payment Processing:

Consider setting up a merchant account or utilizing an online payment service to enhance customer convenience and increase sales.

This enables your business to accept credit and debit card payments, making transactions more accessible to customers. It also minimizes reliance on cash, which can improve security and efficiency.

In summary, choosing the right bank for your financial planning business can offer tailored services, facilitate business and personal financial separation, foster a valuable professional relationship, and enable convenient payment processing.

These considerations can contribute to the efficient and successful operation of your business.

For more, see How to Open a Business Bank Account. You may also want to look at What Is a Merchant Account and How to Get One.

13. Getting the Funds for Your Operation

Meeting with a Loan Officer: Considerations

When meeting with a loan officer to secure funding for your financial planning business, keep these considerations in mind:

Know Your Numbers:

Be prepared to discuss your business plan, financial projections, and how the loan will be used.

Credit History:

Understand your credit score and history. A strong credit profile can improve your loan terms.

Research the types of loans available, such as SBA loans, term loans, or lines of credit, and determine which suits your needs.

Amount Needed:

Clearly outline and justify the required funding based on your business plan.

Repayment Plan:

Develop a solid repayment plan demonstrating your ability to repay the loan.

Collateral:

Be aware of the collateral you can offer to secure the loan if required.

Interest Rates: Understand the interest rates associated with the loan, and compare them to find the best terms.

Terms and Conditions:

Review all terms and conditions of the loan carefully to ensure they align with your business goals.

Loan Officer Relationship:

Build a positive relationship with your loan officer; they can provide guidance throughout the process.

Plan for sufficient time to complete the application and approval process.

Sample List of Documents for a NEW Business Loan Application

Here’s a sample list of documents you might need when applying for a new business loan:

Business Plan:

A comprehensive business plan outlining your business goals, market analysis, and financial projections.

Personal Financial Statements:

Your financial statements, including bank statements, tax returns, and credit reports.

Business Financial Statements:

Historical financial statements if your business is operational.

Legal Documents:

Business licenses, permits, contracts, and legal agreements.

Collateral Documents:

Information on assets you can offer as collateral, such as real estate or equipment.

Tax Returns:

Business and personal tax returns for the past few years.

Resumes of key team members, highlighting relevant experience.

Credit References:

Letters of reference or credit references from suppliers, clients, or business partners.

Financial Projections:

Detailed financial projections for your business, including income statements and balance sheets.

Business Bank Statements:

Bank statements from your business accounts.

Use of Funds:

Explain how you intend to use the loan funds.

Personal Identification:

Copies of personal identification, such as driver’s licenses or passports.

Business Credit Report:

If applicable, provide your business’s credit report.

Insurance Documents:

Proof of business insurance coverage.

Collateral Valuation:

If using assets as collateral, include appraisals or valuation reports.

Gathering these documents and considering the key points when meeting with a loan officer will help streamline the loan application process and increase your chances of securing the funding you need to launch your financial planning business.

See Getting a Small Business Loan for more.

14. Software Setup

Types of Software for Financial Planning Business Management

A financial planning business owner may require various types of software for efficient management and operations:

Financial Planning Software:

Specialized financial planning software assists in creating and managing financial plans for clients, including retirement planning, investment analysis, and goal tracking.

Customer Relationship Management (CRM) Software:

CRM tools help manage client relationships, track interactions, and maintain client data, improving client communication and service.

Accounting Software:

Accounting software streamlines financial record-keeping, invoicing, expense tracking, and financial reporting. Popular options include QuickBooks and Xero.

Portfolio Management Software:

Portfolio management tools assist in tracking and managing investment portfolios, making it easier to provide investment advice to clients.

Document Management Software:

Document management systems securely organize and store essential client documents, making retrieval and sharing efficient.

Project Management Software:

Project management tools help plan and manage tasks, projects, and deadlines, ensuring efficient service delivery to clients.

Tax Preparation Software:

Tax preparation software simplifies preparing and filing taxes for your business and clients.

Marketing and Email Software:

Marketing and email automation tools facilitate client communication, lead generation, and marketing campaigns.

Data Security Software:

Data security software ensures the protection of sensitive client information and compliance with data protection regulations.

Financial Reporting Software:

Reporting software enables the generation of detailed financial reports for clients, demonstrating your business’s value.

11. Time Tracking and Billing Software:

Time tracking and billing tools help monitor billable hours, automate invoicing, and manage payments.

Analytics and Reporting Tools:

Analytics software offers insights into business performance , client behavior, and marketing effectiveness.

Compliance and Regulatory Software:

Compliance tools assist in adhering to industry regulations and compliance standards.

14. Office Productivity Software:

Office productivity suites like Microsoft Office or Google Workspace help manage day-to-day administrative tasks.

Cybersecurity Software:

Cybersecurity tools protect your business from online threats, securing sensitive client data.

Choosing the right software for your financial planning business depends on your needs, client base, and operational processes.

Conduct thorough research, consider software reviews, and seek recommendations from industry peers to make informed decisions that align with your business goals.

Check out Google’s latest search results for software packages for a financial planning business.

15. Get The Right Business Insurance

Protecting Your Financial Planning Business with Adequate Insurance

The right insurance coverage is essential for safeguarding your financial planning business from unexpected incidents. Here are key considerations:

1. Comprehensive Coverage:

Explore insurance options that provide comprehensive coverage for various aspects of your business. This should include clients, employees, visitors, property, and potential liability coverage.

2. Professional Liability Insurance:

Professional liability insurance, also known as errors and omissions insurance, is crucial for financial planners. It protects you against claims related to errors, omissions, or professional negligence in your financial advice or services.

3. Interruption Insurance:

Business interruption insurance can be a lifeline for your business in case of unforeseen events that lead to an involuntary shutdown. It helps cover ongoing expenses and lost income during the downtime, allowing for a smoother recovery.

4. Property Insurance:

If you have a physical office location, consider property insurance to protect your office space and assets, including furniture, equipment, and computers.

5. Home-Based Business Insurance:

If you operate your financial planning business from home, notify your home insurance agent.

Operating a business from your residence may require specialized coverage or endorsements to avoid nullifying your existing home insurance policy.

6. Liability Coverage:

General liability insurance safeguards your business against third-party claims, such as slip-and-fall accidents at your office or damage caused by your business activities at a client’s location.

7. Cybersecurity Insurance:

As financial data is a primary component of your business, cybersecurity insurance helps protect against data breaches, cyberattacks, and potential legal consequences.

8. Workers’ Compensation:

If you have employees, workers’ compensation insurance is typically required.

It covers medical expenses and lost wages for employees injured on the job while protecting your business from related lawsuits.

9. Business Auto Insurance:

If you use vehicles for business purposes, consider commercial auto insurance to cover accidents or damages while employees are driving for work.

10. Consult an Insurance Broker:

Work with a competent insurance broker who specializes in business insurance.

They can assess your needs, recommend suitable coverage options, and ensure adequate protection.

11. Regular Review:

Periodically review your insurance coverage to ensure it aligns with your evolving business needs and industry changes.

Securing the right insurance coverage is a proactive step in risk management for your financial planning business.

It provides peace of mind and financial security, allowing you to focus on serving your clients and confidently growing your business.

For more, see What to Know About Business Insurance . You can also browse the latest Google search results for financial planning business insurance .

16. Suppliers and Service Providers

Building Strong Supplier Relationships for Your Financial Planning Business

Your suppliers play a vital role in your financial planning business’s success.

Here’s a few points to selecting and maintaining good supplier relationships:

Items and Services You May Need:

• Office Supplies: Paper, pens, stationery.
• Technology: Computers, software, IT services.
• Marketing Materials: Brochures, business cards.
• Furniture: Office chairs, desks.
• Financial Software: Accounting and tax software.
• Client Management Tools: CRM software.
• Financial Data Providers: Market analysis and data services.
• Professional Services: Legal, accounting, consultancy.

Supplier Relationship Tips:

• Reliability:  Choose suppliers known for consistent and on-time deliveries.
• Quality:  Prioritize quality over price to maintain your reputation.
• Communication:  Maintain open lines of communication for efficient collaboration.
• Payment Terms:  Honor payment agreements promptly to build trust.
• Loyalty:  Establish long-term relationships for better deals and mutual growth.
• Feedback:  Provide constructive feedback to help suppliers improve.
• Mutual Benefit:  Ensure both parties benefit financially from the relationship.

Selecting reliable suppliers and nurturing positive relationships will enhance your financial planning business’s efficiency and profitability.

17. Physical Setup

Layout and Setup Overview:

• Dedicated Workspace:  Designate a quiet, well-lit area as your office, even in an online setup.
• Ergonomic Setup:  Invest in a comfortable chair, desk, and computer setup to minimize physical strain.
• Organization:  Implement a filing system for digital documents and keep physical items well-organized.
• Virtual Tools:  Utilize project management and communication tools to streamline operations.
• Data Security:  Ensure robust cybersecurity measures are in place to protect client data.

Effective Signage: While online businesses don’t require physical signs, a professional digital presence is crucial. Focus on:

• Website:  Craft a user-friendly website with clear navigation and contact information.
• Email Signature:  Create a branded email signature with your business logo and contact details.
• Social Media Profiles:  Optimize social media profiles for consistent branding.

Office Organization:

• Efficient Software:  Invest in financial planning software for data management and client interactions.
• Financial Tools: Acquire accounting software to accurately track income, expenses, and taxes.
• Communication:  Set up dedicated phone and email systems for business communication.
• Cloud Storage:  Utilize cloud-based storage solutions for easy data access and backup.
• Client Management:  Implement a CRM system to organize client data and communications.

A well-organized and equipped virtual office enhances productivity and reflects professionalism to your clients.

See Here are Considerations for The Setup of Your Office  for tips and ideas to make your office work for you. Also, have a look at our article About Company Signs.

18. Creating a Website

The Essential Role of a Website in Your Financial Planning Business

In today’s digital age, a website is not merely an option but a fundamental necessity for your financial planning business. Here’s why your business needs a strong online presence:

• Professional Image: A website serves as your virtual storefront, presenting a professional image to potential clients. It establishes credibility and trust, which are essential in the financial planning industry.
• Control and Ownership: Unlike social media platforms, where you’re subject to algorithm changes and platform policies, your website provides complete control. You own and manage your online space, including domain registration and hosting.
• Information Hub: Your website is the primary source of information about your business. You can showcase your services, team, mission, and contact details in an organized and accessible manner.
• Marketing Tool: An effective website doubles as a marketing tool. Regularly updating your site with valuable content, such as blog posts and articles, enables you to engage your target audience, establish your expertise, and attract potential clients.
• Accessibility: Your website is accessible 24/7, allowing clients to learn about your services and contact you conveniently. It transcends geographical boundaries, enabling you to reach a broader audience.
• Client Trust: A well-designed website instills confidence in your potential clients. It demonstrates your commitment to professionalism and transparency, vital qualities in the financial planning industry.
• Online Services: As online financial planning gains popularity, your website can facilitate virtual consultations and transactions, expanding your reach beyond local clients.
• Analytics and Insights: Website analytics tools provide valuable insights into visitor behavior, allowing you to tailor your services and content to your target audience.

In conclusion, a website is not just a digital brochure but a dynamic tool for client acquisition, engagement, and business growth.

It’s an essential investment for your financial planning business, offering control, credibility, and a platform to showcase your expertise.

For more, see How to Build a Website for Your Business .

19. Create an External Support Team

Building an External Support Team for Your Financial Planning Business

An external support team of professionals is a valuable asset for your financial planning business.

These individuals provide expertise and services without being on your payroll, offering flexibility and cost-efficiency.

As your business grows, expanding this team becomes essential. Here’s why it matters:

• Diverse Expertise: Your external support team brings diverse skills and perspectives to the table, enriching your business with their specialized knowledge.
• Cost Efficiency: By utilizing their services on a project, contract, hourly, or retainer basis, you can control costs while accessing top-tier expertise.
• Flexibility: External professionals can be called upon as needed, offering flexibility in scaling your team according to business demands.
• Focus on Core Functions: Outsourcing tasks to experts allows you to concentrate on your core responsibilities, enhancing overall efficiency.
• Strategic Growth: Collaborating with specialists like accountants, lawyers, financial advisors, marketing experts, and technical consultants empowers strategic growth.
• Professional Relationships: Building strong professional relationships takes time but is a worthwhile investment. These trusted experts become reliable resources when you need them.

Your external support team may include the following:

• Accountant: Ensures financial accuracy, tax compliance, and efficient financial management.
• Lawyer: Provides legal guidance and contract review and assists with compliance matters.
• Financial Advisor: Offers investment insights and helps align client portfolios with financial goals.
• Marketing Specialist: Develops and executes marketing strategies to attract and retain clients.
• Technical Advisors: Assist with technology infrastructure, cybersecurity, and data management.
• Consultants: Provide specialized expertise in business development, compliance, or industry-specific knowledge.

While you don’t need all these professionals in place from the start, continuously work on building and nurturing these relationships.

As your financial planning business evolves, your external support team will play a pivotal role in enhancing service quality, expanding capabilities, and driving long-term success.

For more, see Building a Team of Professional Advisors for Your Business.

20. Hiring Employees

Managing Your Financial Planning Business Solo:

• Running a financial planning business solo initially can reduce costs, a crucial factor during startup.
• Payroll expenses can be high, and solo operation keeps overheads low.
• However, managing all aspects alone may become overwhelming as your business grows.
• Hiring employees becomes necessary to handle increased workload and client demands.
• Key considerations include hiring qualified personnel with strong work ethics .
• Ensure each new hire is a good fit for their role to maintain service quality.

List of Jobs Needed to Run a Financial Planning Business:

The following are job positions or outsourced services you may want to consider as your financial planning business grows:

• Financial Planner/Advisor: The core role responsible for client interactions, financial planning, and investment guidance.
• Administrative Assistant: Provides administrative support, appointment scheduling, and client communication.
• Compliance Officer: Ensures adherence to industry regulations and compliance with legal requirements.
• Portfolio Manager: Manages client investment portfolios and makes investment decisions.
• Accountant: Handles business financials, and tax planning and prepares financial statements.
• IT Support: Manages technology infrastructure, including software, security, and data management.
• Client Services Representative: Provides customer support, answers inquiries, and assists clients.
• Paraplanner: Assists financial planners with research, data analysis, and report preparation.
• Legal Advisor: Offers legal guidance on contracts, agreements, and compliance matters.
• Human Resources Manager: Oversees recruitment, staff development, and HR policies.
• Office Manager: Manages day-to-day office operations and ensures smooth workflow.
• Estate Planning Specialist: Provides expertise in estate planning and inheritance strategies.
• Tax Specialist: Offers tax planning services and manages tax-related matters for clients.
• Insurance Consultant: Assists clients in selecting insurance products tailored to their needs.
• Marketing Content Writer: Creates content for marketing materials, blogs, and client communication.
• Cybersecurity Expert: Ensures data security and protection against cyber threats.
• Client Relationship Manager: Nurtures client relationships, gathers feedback, and maintains client satisfaction.
• Financial Analyst: Conducts market research and analysis to support investment decisions.
• Public Relations Specialist: Manages public relations efforts and fosters a positive business image.
• Social Media Manager: Handles social media marketing and engagement.
• Data Analyst: Extracts insights from client data to inform financial strategies.
• Customer Support Team: Offers 24/7 assistance to clients for urgent inquiries or concerns.
• Outsourced Legal and Compliance Services: Contract external firms for specialized legal and compliance needs.
• Outsourced IT Services: Partner with IT service providers for technology maintenance and support.
• Outsourced Marketing Agency: Utilize marketing agencies for strategic marketing campaigns.
• Outsourced Accounting and Tax Services: Collaborate with accounting firms for specialized financial and tax expertise.

The roles required can vary based on the size and scope of your financial planning business.

As your business expands, consider these positions to ensure efficient operations and high-quality service delivery.

For more, see How and When to Hire a New Employee.

Points To Consider

Hours of operation:.

Consider standard business hours, typically 9:00 AM to 5:00 PM, Monday to Friday.

Before and after client meetings, allocate time for research, analysis, and administrative tasks.

Be prepared to put in additional hours, often evenings or weekends, to accommodate client needs, especially during tax season or market volatility, which may necessitate extra effort for optimal service.

A List of Equipment and Supplies to Consider for a Financial Planning Business:

Setting up a financial planning business requires essential equipment to facilitate operations.

While prices can vary, here’s a comprehensive list of equipment you may need:

1. Computer Workstations:

• Desktop or laptop computers with sufficient processing power.
• Monitors for extended screen real estate.
• Keyboard and mouse.

2. Financial Planning Software:

• Specialized financial planning software for data analysis, modeling, and client management.

3. Office Furniture:

• Desks and ergonomic chairs for staff.
• Meeting tables and chairs for client consultations.
• Filing cabinets for document organization.

4. Communication Tools:

• Phone system with voicemail and call forwarding.
• Fax machine or virtual fax service.
• Headsets for virtual meetings.

5. Internet Connection:

• High-speed internet service for data-intensive tasks.

6. Printer and Scanner:

• Multifunctional printer for document printing and scanning.
• Printer paper and ink or toner cartridges.

7. Document Management System:

• Software for organizing and storing client files securely.

8. Office Supplies:

• Pens, notepads, paper, and other stationery.
• Envelopes and postage for mail correspondence.

9. Accounting Software:

• Accounting software for managing your business finances.

10. Presentation Equipment: – Projector and screen for client presentations. – Whiteboard or interactive display for brainstorming and planning.

11. Security System: – Alarm system and security cameras to protect your office.

12. Backup Solutions: – Data backup systems to prevent data loss.

13. Client Management Software: – CRM (Customer Relationship Management) software for tracking client interactions.

14. Financial Calculators: – Calculators for financial modeling and calculations.

15. Office Decor: – Decorative elements to create a professional and welcoming ambiance.

16. External Storage: – External hard drives or cloud storage for data backup.

17. Mobile Devices: – Tablets or smartphones for on-the-go access to information.

18. Office Software: – Microsoft Office or similar software for word processing, spreadsheets, and presentations.

19. Business Cards: – Professionally designed business cards for networking.

20. Marketing Materials: – Brochures, pamphlets, and promotional materials for marketing.

21. Client Agreements: – Legal forms and contracts for client agreements.

22. Video Conferencing Tools: – Software and equipment for virtual client meetings.

23. Office Security: – Secure locks and access control systems for client confidentiality.

24. Financial Publications: – Investment journals and industry publications for research.

25. Ergonomic Accessories: – Ergonomic accessories like monitor stands and keyboard trays for comfort.

26. Lighting: – Adequate lighting fixtures for a well-lit office space.

27. Shredder: – Paper shredder for disposing of sensitive documents securely.

28. UPS (Uninterruptible Power Supply): – UPS units to protect equipment from power fluctuations.

29. Tax Software: – Tax preparation software for managing your clients’ tax needs.

30. Virtual Private Network (VPN): – VPN service for secure data transmission.

31. Office Cleaning Supplies: – Cleaning products and supplies for maintaining a tidy workspace.

32. Business Insurance: – Liability insurance and business insurance coverage.

33. Financial Planning Templates: – Templates for financial planning reports and documents.

34. Legal and Compliance Resources: – Access to legal and compliance resources for industry regulations.

35. Office Plants: – Indoor plants for a touch of greenery and improved air quality.

Remember that equipment needs may vary based on the size and scale of your financial planning business, and prices can fluctuate depending on brands and specifications.

Assessing your specific requirements and budget before making equipment purchases is essential.

Key Points To Succeeding in a Financial Planning Business

Keys to Success in Operating a Financial Planning Business

Succeeding in a financial planning business demands a multifaceted approach, addressing numerous critical aspects:

1. Building a Customer Base:

Initially challenging, acquiring clients during the startup phase is crucial. Effective marketing, networking, and offering exceptional value can help build a loyal clientele.

2. Building Strong Relationships:

Foster connections not only with clients but also with suppliers and employees. Solid relationships can lead to referrals, support, and a harmonious work environment.

3. Providing Desired Products and Services:

Listen to your clients and offer services aligned with their needs and financial goals. Regularly seek customer feedback to refine your offerings.

4. Customer Feedback and Action:

Act on credible customer feedback to enhance your services. Addressing issues that benefit most customers can set you apart in the industry.

5. High-Level Customer Service:

Exceptional customer service is paramount. Your clients are the lifeblood of your business; prioritize their satisfaction and trust.

6. Providing Value:

Consistently deliver value through personalized financial planning and advice. Prove your commitment to clients’ financial well-being.

7. Hiring the Right Team:

Assemble a skilled and dedicated team. Each position should be filled with the right talent to ensure efficient operations and client satisfaction.

8. Effective Staff Management:

Treat your staff respectfully, manage them effectively, and cultivate a healthy work environment. Employee satisfaction improves retention and overall business performance.

9. Cash Flow Management:

Maintain a vigilant eye on cash flow. Ensure income exceeds expenses to sustain and grow your business.

10. Cost Control:

Keep costs in check without compromising quality or customer service. Efficiency in operations can boost profitability.

11. Adaptation to Change:

Embrace change proactively, whether it’s industry trends, technology advancements, or evolving business processes. Adaptation is key to staying relevant.

12. Revenue Fluctuations:

Prepare for revenue fluctuations by maintaining a financial cushion. Diversify income streams and implement prudent financial planning.

13. Competition Management:

Analyze and adapt to both new and existing competition. Differentiate your services and value proposition to stand out.

14. Effective Marketing:

Effective marketing strategies to raise awareness of your financial planning business. Whether self-managed or professional, marketing is vital for growth.

Success in a financial planning business requires continuous effort across these fronts. Prioritizing client satisfaction, adaptability, and effective management can pave the way to a thriving and sustainable operation.

Making Your Financial Planning Business stand out

Ideas to Make a Financial Planning Business Stand Out

In a competitive market, a financial planning business must distinguish itself. Here are some ideas to make your business stand out:

1. Specialized Niche Focus:

Concentrate on a specific niche within financial planning, like retirement planning for small business owners or estate planning for high-net-worth individuals.

Expertise in a niche can attract clients seeking tailored solutions.

2. Transparent Fee Structure:

Be transparent about your fees. Offering a clear, easy-to-understand fee structure can build trust with clients, distinguishing you from those with hidden costs.

3. Holistic Financial Wellness:

Offer holistic financial wellness programs that encompass investments, budgeting, debt management, and financial education.

This comprehensive approach demonstrates a commitment to clients’ overall financial well-being.

4. Technology Integration:

Utilize cutting-edge financial planning software and tools to give clients real-time access to their financial data and investment portfolios.

Embrace technology to enhance convenience and service quality.

5. Personalized Services:

Tailor financial plans to each client’s unique circumstances and goals. Personalization demonstrates a client-centric approach, setting you apart from cookie-cutter solutions.

6. Ethical and Fiduciary Commitment:

Emphasize your fiduciary duty to act in the best interests of your clients. Highlight your ethical standards and commitment to transparency.

Add on Ideas for a Financial Planning Business

To enhance your financial planning business, consider offering valuable add-on services that can benefit your clients and set you apart from competitors:

1. Tax Planning Services:

Integrate tax planning into your offerings. Help clients minimize tax liabilities and optimize their financial strategies.

2. Estate Planning Guidance:

Provide expertise in estate planning, including wills, trusts, and inheritance strategies, to help clients efficiently preserve and pass on their wealth.

3. Investment Management:

Offer comprehensive investment management services, including portfolio creation and ongoing monitoring, to help clients grow their wealth.

4. Retirement Income Planning:

Help clients plan for a secure retirement by offering guidance on income sources, withdrawal strategies, and retirement account management.

5. Education Savings Plans:

Assist clients in saving for their children’s education with 529 plans and other education savings strategies.

6. Insurance Analysis:

Evaluate clients’ insurance coverage, including life, disability, and long-term care insurance, to ensure adequate protection.

7. Debt Management:

Helping clients manage and reduce their debt effectively gives them a holistic financial picture.

8. Financial Education Workshops:

Host workshops or webinars to educate clients and the community on various financial topics, building trust and credibility.

9. Charitable Giving Strategies:

Assist clients in developing philanthropic strategies, such as donor-advised funds or charitable trusts, to support causes they care about.

10. Behavioral Finance Coaching:

Offer coaching services to help clients overcome emotional biases and make rational financial decisions.

11. Legacy Planning:

Help clients create a lasting financial legacy by offering philanthropy and family wealth transfer guidance.

12. Health Savings Accounts (HSAs) Planning:

Educate clients on the benefits of HSAs and how to use them as a retirement savings tool.

13. Socially Responsible Investing:

Offer investment options that align with clients’ values and ethics, catering to socially responsible investors.

By incorporating these add-on services, you can provide your clients a more comprehensive and valuable experience, ultimately setting your financial planning business apart and attracting a wider range of clients.

Marketing Considerations

Building a Customer Base for Your Financial Planning Business

A financial planning business without customers is merely a concept. To thrive in this industry, attracting the right clientele is essential.

Initially, this can be challenging, especially when your operation is new and people are unaware of your services.

However, your journey becomes smoother with time, a solid reputation, and increased marketing experience.

Continuous Marketing Efforts

Marketing is not a one-time task; it’s an ongoing process.

The more effort and resources you invest in effective marketing techniques, the more revenue your business can generate.

While you don’t always need a marketing agency or expert, these professionals can be invaluable when you find the right fit.

Simplifying Your Marketing Approach

To simplify your marketing process, consider it as creating awareness about your business.

Opportunities to promote your financial planning services can arise at any time. Here are a few simple methods to get the word out:

1. Networking:

Attend industry events, join professional associations, and connect with potential clients. Personal connections can lead to referrals and business growth.

2. Online Presence:

Develop a user-friendly website showcasing your services, expertise, and client testimonials. Maintain an active presence on social media platforms to engage with potential clients.

3. Content Marketing:

Share valuable financial insights through blogs, articles, or videos. Position yourself as an authority in the field to attract an audience interested in financial planning.

4. Referral Programs:

Encourage satisfied clients to refer friends and family by offering incentives or discounts on services. Word-of-mouth recommendations can be powerful.

5. Public Speaking:

Present financial planning topics at local events, workshops, or webinars. Demonstrating your expertise can attract attendees seeking your services.

6. Collaborations:

Partner with related businesses, such as accountants or attorneys, for cross-referrals. Joint ventures can expand your reach.

7. Community Engagement:

Organize local community activities, sponsor events, or volunteer. Positive community relationships can lead to clients who trust and support your business.

Remember that building a customer base takes time and persistence.

Stay adaptable in your marketing approach, track what works best, and refine your strategies accordingly.

As your reputation grows, so will your ability to attract the right clients to your financial planning business.

See How To Get Customers Through the Door and our marketing section to provide ideas to help you bring awareness to your business.

Sample Ad Ideas:

1. Headline: “Secure Your Financial Future Today!”

Discover expert financial planning services tailored to your goals. Start building wealth and securing your financial future. Contact us now!

2. Headline: “Maximize Your Investments!”

Unlock the potential of your investments with our professional financial planning. Let us guide you toward financial success. Get started today!

3. Headline: “Retirement Planning Made Easy!”

Worried about retirement? Our financial experts create personalized retirement plans to ensure you live your dream retirement. Learn more now!

4. Headline: “Financial Peace of Mind Awaits!”

Say goodbye to financial stress. Our advisors offer comprehensive financial planning to provide you with peace of mind. Contact us for a brighter financial future!

5. Headline: “Tax-Efficient Wealth Growth!”

Minimize taxes and maximize wealth with our expert financial planning strategies. Start growing your wealth today. Get a free consultation!

Building Strategic Partnerships for Referrals in Your Financial Planning Business

Collaborating with complementary businesses can be a strategic move to expand your client base and foster mutually beneficial relationships. Here are some businesses you could approach and ways to incentivize referrals:

1. Accountants and Tax Professionals:

These professionals often work with clients seeking financial advice. Offer referral fees or reciprocal referrals to help clients with both financial planning and tax needs.

2. Attorneys:

Attorneys dealing with estate planning, wills, and trusts can refer clients who require financial planning services. In return, you could refer clients needing legal advice.

3. Real Estate Agents:

Real estate transactions often involve financial decisions. Collaborate with agents to offer financial planning services to homebuyers and sellers. Reciprocate by referring clients in need of real estate services.

4. Insurance Agents:

Insurance and financial planning go hand in hand. Establish partnerships where you refer clients for insurance needs, and they refer clients for financial planning.

5. Mortgage Brokers:

When people secure mortgages, they often consider long-term financial planning. Create a symbiotic relationship where you refer clients for mortgage services, and they refer individuals for financial planning.

6. Employee Benefits Consultants:

Partner with professionals who advise companies on employee benefits. They can recommend your services to employees seeking retirement planning or investment guidance.

7. Business Consultants:

Collaborate with consultants, helping startups and small businesses. Financial planning services can be valuable for clients looking to secure their financial future.

8. Health Professionals:

Health and wealth are closely linked—partner with healthcare providers or wellness centers to offer holistic services, including financial well-being.

9. Educational Institutions:

Establish relationships with universities or colleges to provide financial planning workshops for students and alumni. This can lead to referrals and enhance financial literacy.

10. Nonprofits:

Nonprofit organizations focusing on community development can benefit from financial literacy programs. Offer your expertise to their clients and receive referrals in return.

11. Professional Associations:

Join associations related to your field, such as CFA Institute or CFP Board. Network with fellow professionals who might refer clients seeking financial planning services.

When approaching these businesses, outline clear referral agreements, including how referrals will be tracked and rewarded.

Ensure the arrangement benefits both parties and aligns with ethical and legal guidelines.

Building such strategic partnerships can be a win-win, expanding your client base while supporting other businesses’ growth and benefiting customers.

The Significance of Skill Set Evaluation in Financial Planning Business

Starting and operating a successful financial planning business requires specific skills. Your ability to assess whether you possess these skills and take action to fill any gaps can significantly impact your business’s success. Here’s why it’s crucial:

1. Expertise Equals Confidence:

To inspire trust in your clients, you must exude confidence and competence. Evaluating your skill set ensures you’re well-equipped to handle complex financial matters, providing peace of mind to your clients.

2. Service Quality:

Your skills directly affect the quality of service you offer. Proper financial planning demands a deep understanding of investment strategies, taxation, risk assessment, etc. A lack of skills can result in subpar service.

3. Competitive Edge:

A thorough assessment allows you to identify areas where you excel and those where you may fall short compared to competitors. This insight can guide your business strategy and marketing efforts.

4. Adaptability:

The financial landscape is continually evolving. Evaluating your skill set helps you identify areas where you need ongoing education and growth to stay relevant.

5. Client Retention:

Clients are likelier to stay loyal when they perceive value in your services. Having the right skills ensures you can address their financial needs effectively.

6. Risk Mitigation:

Inadequate skills can lead to errors, resulting in financial losses and even legal issues. Assessing your abilities helps mitigate these risks.

Skills Essential for a Financial Planning Business Owner

To run a successful financial planning business, you should possess or develop the following essential skills:

1. Financial Expertise:

Understand investments, taxation, retirement planning, and risk management comprehensively.

2. Communication Skills:

Effectively convey complex financial concepts to clients in a clear, understandable manner.

3. Analytical Abilities:

Assess clients’ financial situations, identify goals, and develop tailored plans.

4. Compliance Knowledge:

Stay up-to-date with industry regulations and legal requirements.

5. Marketing and Client Acquisition:

Attract and retain clients through marketing and relationship-building skills.

6. Technology Proficiency:

Utilize financial planning software and tools effectively.

7. Business Acumen:

Manage finances, operations, and strategy for your business.

8. Emotional Intelligence:

Navigate clients’ emotions and build trust during financial discussions.

9. Networking:

Establish connections with professionals like accountants and lawyers to provide holistic financial advice.

10. Continuous Learning:

Stay updated with industry trends and adapt to evolving financial markets.

If you lack any of these skills, consider acquiring them through education, training, or hiring professionals who excel in them.

Evaluating and developing your skill set is crucial to building a thriving financial planning business.

Knowledge Is Power if You Use It!

Leveraging industry knowledge is powerful—access valuable startup and operational information through the provided links.

Trends and Statistics

Analyzing industry trends and statistics empowers financial planning businesses to make informed decisions, stay competitive, and adapt to changing market dynamics.

See the latest search results for trends and statistics related to the financial planning industry.

Financial Planning Associations

Trade associations provide industry news updates and networking opportunities, benefiting professionals staying informed and building valuable connections.

See the search results related to financial planning associations and the benefits of Joining the Chamber of Commerce.

The Top Financial Planning Businesses

Studying an established financial planning business sparks ideas, reveals industry gaps for competitive advantages, and uncovers overlooked services provided by competitors.

See the latest search results for the top financial advisory firms.

The Future of the Financial Planning

Researching the industry’s future equips potential financial planning business owners with insights to adapt, innovate, and seize opportunities in a dynamic market.

See the search results for the future of the financial planning industry.

Researching pricing before launching a financial planning business ensures competitive rates, attracting clients and establishing a strong foundation for profitability.

See the latest financial planning prices.

Financial Planning Businesses for Sale

Acquiring an existing financial planning business has distinct advantages:

• Immediate Revenue:  You start earning from day one.
• Skip Startup Phase:  Avoid the challenges of launching from scratch.
• Proven Success:  The business model is established.
• Financial Clarity:  You inherit knowledge of revenue, profit, and expenses.
• Existing Clientele:  A ready-made customer base.
• Established Reputation:  Benefit from the business’s standing.
• Higher Costs:  Purchasing goodwill often inflates the price.
• Customer Retention Challenge:  Altering the business can lead to customer loss.
• Inherited Reputation:  You take on both the positive and negative aspects.

Even if an exact match isn’t available, explore related opportunities in the industry

See the latest search results for a financial planning business for sale and others closely related.

Franchise Opportunities Related to Financial Planning

Owning a financial planning franchise presents advantages and drawbacks worth considering before venturing into this business:

• Proven Business Model:  You can follow a well-established corporate plan.
• Reputation and Marketing:  Benefit from the franchise’s existing brand recognition and marketing efforts.
• Comprehensive Training:  Access in-depth knowledge about the business before starting.
• Corporate Support:  Receive ongoing support from the franchise’s corporate office.
• High Costs:  Initial investment and ongoing fees can be substantial.
• Limited Autonomy:  Major changes require corporate approval.
• Product/Service Restrictions:  You must adhere to approved products and services.
• Operational Constraints:  Operate strictly within the franchise agreement guidelines.

While there might not be an exact financial planning franchise, explore related opportunities in the same industry using this link:

See the latest search results for franchise opportunities related to this industry.

Customer Expectations

Reviewing search results on customer expectations in financial planning provides valuable insights, enabling businesses to meet and exceed customer needs while uncovering potential issues and growth opportunities.

See the search results related to customer expectations for financial planning.

Expert Tips

Expert tips enhance skill sets, offering fresh perspectives for both experts and novices.

Experts gain efficiency insights, while novices improve skills and knowledge.

See the latest search results for financial planning to gain tips and insights.

Financial Planning Business Insights

Reviewing tips and insights aids idea generation, helps avoid pitfalls in the financial planning business, and boosts industry knowledge.

See the latest search results about insights into running a financial planning business.

Financial Planning Publications

Publications are a crucial source for staying updated on the latest information in the financial planning industry.

See the search results for financial planning publications.

Financial Planning Forums

Engage in financial planning forums to network and gain insights into customer perspectives, enhancing your industry understanding and relationships.

See the latest search results related to financial planning forums.

Online or local courses are essential for skill and knowledge enhancement in financial planning businesses.

See the latest courses that could benefit a financial planning business owner . Also, see our management articles for tips and insights for managing your business.

Financial Planning Blogs

Subscribe to financial planning blogs for industry insights. Initially, follow several, then curate based on updates and value.

Build a valuable collection of continuous information.

Look at the latest search results for financial planning blogs to follow.

Financial Planning News

The news is vital for staying updated on media coverage of financial planning topics, offering valuable insights and current events in this field.

See the latest results for financial planning news.

Millions of monthly YouTube uploads include valuable financial planning content. It’s wise to explore these videos for priceless financial information.

YouTube videos related to starting and operating a financial planning business.

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Retirement planning: Securing financial stability for MSME owners and employees

An exit plan for the founders at the appropriate age with a financial fallback is likely to give the business new impetus for growth.

By  Ambrose Dabani

CEO and Principal Officer

Britam Life Assurance

As the backbone of Kenya’s economy, micro, small, and medium enterprises (MSMEs) are the driving force behind economic growth and job creation.

The MSMEs account for more than 98 percent of all business entities in Kenya and provide about 30 percent of job opportunities annually.

However, the majority of the workforce, especially in the informal sector, lacks access to secure retirement savings. According to the Kenya National Bureau of Statistics, as of 2023, more than 13.9 million Kenyans have no form of retirement savings scheme.

Retirement planning: Why should I consider fixed annuity contracts?

Retirement planning: Strategies to ensure you save enough at end of your career

This low savings rate can be attributed to limited financial literacy on available financial products, particularly among small businesses.

MSME owners often prioritise the day-to-day operations and survival of their businesses over long-term planning, overlooking the importance of retirement planning solutions for their employees and in most cases, for themselves as well.

An exit plan for the founders at the appropriate age with a financial fallback is likely to give the business new impetus for growth as a younger generation takes over as the founders retire confidently.

However, the implications of this oversight can be far-reaching. Skilled and experienced staff are the lifeblood of any successful MSME. Their departure can severely impact a company’s ability to maintain a competitive edge.

Retirement planning solutions can be a powerful tool for MSMEs to attract and retain top talent. By offering a retirement plan, MSMEs can differentiate themselves from competitors and show their commitment to the long-term well-being of their staff.

This, in turn, foster a sense of loyalty and job satisfaction, leading to improved retention and a more stable workforce.

Moreover, the benefits of retirement planning extend beyond just employee retention. By investing in their employees’ financial future, MSMEs can cultivate a more engaged and motivated workforce.

Employees who feel valued and supported by their employer are more likely to be productive, innovative, and dedicated to the firm success. This can translate into tangible improvements in overall business performance and competitiveness.

To capitalise on these benefits, MSMEs in Kenya must take proactive steps to implement retirement planning solutions.

This may involve partnering with financial institutions that offer tailored retirement plans, such as personal pension plans or provident funds and umbrella schemes.

By understanding the different options available and engaging employees in the planning process, MSMEs can ensure that the chosen solution aligns with the needs and preferences of their workforce. These solutions help employees build a secure financial future beyond employment.

One innovative approach to enhancing retirement planning solutions for MSMEs is to integrate financial education and advisory services into the mix.

By providing their staff with comprehensive financial literacy training and personalised investment guidance, they can empower their workforce to make informed decisions about their retirement planning.

This can include topics such as budgeting, asset allocation, and risk management, equipping employees with the knowledge and tools they need to achieve their long-term financial goals.

MSMEs can also explore the possibility of offering matching contributions or other incentives to encourage employee participation in the retirement planning.

This can further demonstrate the MSME’s commitment to its employees’ financial well-being and create a sense of shared responsibility for the success of the retirement plan.

By incorporating these additional elements into their retirement planning solutions, MSMEs can create a more holistic and impactful programme that addresses the unique needs and challenges of their workforce.

This can not only enhance employee retention and engagement but also contribute to the overall financial stability and resilience of the Kenyan workforce.

It is time for MSME owners to prioritise retirement planning and take the necessary steps to secure the financial well-being of their employees and the future of their enterprises.

By doing so, they can pave the way for the continued success and growth of the MSME sector in Kenya.

The adoption of retirement planning solutions is a strategic imperative for MSMEs. By investing in their employees’ financial future and providing them with the tools and resources they need to achieve their retirement goals, MSMEs can unlock a powerful competitive advantage, build a loyal and motivated workforce, and ensure the long-term sustainability of their businesses.

The writer is the Britam Life Assurance CEO and Principal Officer

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Monday, 09 September

OPINION | Don't be the next 'Succession': Long-term planning for family businesses

Succession and continuity planning is essential for entrepreneurial families looking to safeguard their family businesses and the financial security of the next generation, says Nic Horn.

• For more financial news, go to the  News24 Business front page .

Succession and continuity planning is an essential endeavour for high-net-worth entrepreneurial families looking to safeguard their family businesses and the financial security of the next generation. This complex process must be navigated effectively to ensure that families who run businesses can continue to thrive even if their circumstances change.

Get realistic about succession

At the outset, it is important to understand the long-term intention behind the family business. If there is no natural family successor, the business will need to be set up to look beyond the current patriarch or matriarch, or be set up to sell.

Either way, important steps need to be taken while the head of the business is still alive to ensure that the full value is extracted from the business for the family, that the death of this person doesn’t destroy the business and that a situation with a potential for huge family conflict does not become that. Business strife can destroy a family and the wealth that has been so hard-earned.

Start with a comprehensive will

A comprehensive will is the cornerstone of any effective succession plan. Everything starts with the will that aligns with the broader succession strategy for the family business.

The will should clearly outline how the shares in the business and the business assets will be distributed among family members to prevent any potential disputes. For example, if the business shares are left to a spouse or child who is not involved in the business, this could create vulnerabilities, operational challenges, and value destruction.

If there is business assurance that allows the business to buy the shares from the surviving spouse, then this risk can be mitigated for the family.

Create a family constitution

A family constitution can provide a structured framework for decision-making and conflict resolution. This document should outline the roles and responsibilities of each family member involved in the business. While family constitutions are not yet widespread, they are becoming more common in South Africa and are worth exploring in consultation with an expert.

A well-drafted family constitution ensures that all family members are aware of the family’s succession plan, and everyone understands their roles and responsibilities and agrees on these, thereby reducing the chances of disputes when family leaders pass on. The tough conversation has thus been had and no one is out of the loop. And hopefully, conflict is averted.

Corporatise the business

Moving from a small family business model to a more formal corporate structure is critical for growing family businesses that want to ensure their continued survival. Corporatisation involves setting up formal shareholding agreements, which can include buy and sell agreements to facilitate the transfer of ownership.

You can fund the buyout of the business by the remaining family members. It is also often a wise decision to appoint a chief executive officer (CEO) or managing director (MD) who is not a family member, and who can provide an impartial perspective and professional management, to ensure continuity and the lasting success of the business, especially if the spouse or the children of the founder have no interest in taking over the business or want to play more peripheral roles. An independent CEO or MD might hold a minority share but would not own the business.

Families also need to appoint independent auditors and professionals in key financial positions for the sake of transparency, accountability and continuity. Establishing external mechanisms for continuity is especially important in cases where the next generation either would not be capable or has little to no interest in taking over the family business.

This would be the case, for instance, if the children have chosen different career paths, have emigrated or work abroad, or if they simply do not possess the right skills, interests or personality to run the family business.

Address inequalities proactively

Inequity among heirs can lead to significant family disputes. Situations where one child works in the business while others do not can create tension in the event of death or succession.

It’s important here to distinguish between shareholding and employment. Those family members working in the business will earn salaries and bonuses. But all family members could be shareholders. Families could then consider distributing dividends equally among all heirs, while the salary for the child involved in the business reflects their operational role and level of responsibility.

This approach helps maintain fairness and acknowledges the contributions of all family members.

Build wealth outside the business

Covid-19 showed us that a single, unanticipated event can destroy businesses and careers in a heartbeat. It is critical that over time, wealth is continually extracted from the business and placed in a diversified investment portfolio that will not be impacted by one single event.

Importantly, South African businesses are just that, South African, and this means that the family’s wealth is potentially all housed here. It therefore makes sense from a diversification point of view that a portion of these extracted assets are externalised.

This is not a statement against South Africa at all. Much of what happens to the rand and our markets is the result of external factors. South Africa is less than 1% of the world economy so it makes no sense to house all one’s family assets here. Offshore markets allow access to many more industries and ideas than are available in South Africa. This diversification builds robustness in the family’s wealth structure and ensures that one single event cannot lead to wealth destruction.

Embrace digital transformation

Gone are the days of family businesses running on hard-to-decipher paper systems. Digitising the family business and keeping secure digital records are increasingly important for maintaining efficient operations, accurate records and overall business management.

This also ensures that family businesses can be effectively co-managed by external professionals and that there is a smooth handover to the next generation of leaders. Also, no one wants to buy a business where the financial track record is not consistent, audited and verified because you cannot necessarily trust the valuations.

Succession planning is a multifaceted process that requires careful consideration and proactive measures. The key takeout is that families should bring in professional assistance and effective mechanisms for transparency, to help ensure a seamless and equitable transition, if and when the family’s circumstances change.

Nic Horn is Citadel director and regional head for KwaZulu-Natal.

News 24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.

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Could gamification help boost plan participant engagement and financial literacy.

The potential benefits of improving employee participation in financial education programming are hard to overstate. 

Enhanced financial literacy can help employees make more informed decisions about saving, investing and managing debt. When they understand big-picture financial principles, they may be more likely to participate in retirement plans. They may even experience less financial stress and anxiety, for better focus and productivity on the job.

But despite all the good reasons for employees to actively engage with financial education, some plan sponsors may find it tough to move the needle on participation rates.

And let’s be real: Despite its importance in achieving retirement readiness, financial education may not always have the appeal or excitement to draw in employees and hold their attention.

To address this challenge, some employers are integrating gamification into financial education programs. Incorporating game elements into financial learning is one way to help increase engagement, improve knowledge retention, and make financial learning more enjoyable.

What is gamification?

Gamification involves borrowing game design principles and elements and applying them to non-game contexts to boost engagement, motivation, interest, reward and recall. Gamifying financial literacy programming can enhance the participant’s experience by tapping into certain psychological principles that make games appealing, like the desire for achievement, competition, teamwork, urgency and the satisfaction of completing tasks.

Popular game elements can include avatars, points, levels, badges, competition, teamwork, and rewards. Applied thoughtfully, these elements can transform otherwise mundane topics and tasks into lively challenges that encourage participants to engage more deeply with the material.

How game elements can enhance the financial literacy learning experience

The multimedia, microlearning approach many financial education programs use to organize and deliver financial literacy learning can be a great match for a gamified user experience. Interactive game elements can reinforce learning with instant feedback. Earning points or attaining new levels by completing bite-sized learning modules can motivate users to stay engaged and keep learning. 

Here are a few ways gamification can enhance a financial literacy program:

Fun and enjoyment — Gamification helps transform learning into a more enjoyable experience. By making financial education more fun and immersive, it can encourage employees to participate and absorb the lessons.

Achievable learning goals — Building financial literacy involves mastering various skills and concepts, from foundational learning like how to build and follow a budget, to more advanced topics like investing. Gamification supports breaking complex subjects into smaller, more manageable goals, aligning with an incremental approach to learning.

Concrete and practical examples — Games often incorporate characters and scenarios to draw in participants. This can be an effective way to illustrate more abstract financial concepts, making them concrete, relatable and memorable for employees.

Relief of stress and anxiety — For many individuals, financial matters can be anxiety-inducing, and that may prevent plan participants from engaging meaningfully with financial education program content. Gamification can help put a “friendlier” face on financial learning, helping to alleviate stress and making financial literacy more achievable.

Feedback and reinforcement — Game design can be put to good use to provide immediate feedback to correct misconceptions and reinforce learning, to help users retain what they learn.

Pitfalls to avoid in a gamification strategy

While adding game elements to a financial education program can be a great way to level up participation and learning, it’s essential to take a thoughtful gamification approach to help avoid potential stumbling blocks. Consider these factors:

Relevance to and alignment with content — Game mechanics should complement, not compete with, educational content. The focus should always be on learning outcomes and the benefits to participants.

Voluntary participation — Gamification should be an option, not a mandate. Employees should be drawn in and encouraged, not forced to play. Those who prefer straightforward content should also have a game-free option.

Balanced competition and reward s — Recognize that not everyone is driven by competition. Good design finds a balance that meets diverse participant preferences.

Inclusivity — Game elements should appeal to a wide range of participants and diverse learning styles. Broader participation supports better outcomes for more employees.

Effective motivators — Balance internal motivators, like personal growth and achievement, with external ones like badges and rewards.

Human interaction — Gamified learning content can be convenient to access and use on demand. But it’s not a replacement for in-person guidance from a real-life financial professional. Make it part of your holistic approach to financial education.

Gamification can enhance financial education programs by making them more immersive, engaging and inviting, but it’s no substitute for easy-to-understand, actionable learning content that helps employees address their individual financial challenges. 

And just like retirement readiness, financial education’s not one-size-fits-all; that’s why it’s important for plan sponsors and financial professionals to explore a full range of plan types, investment solutions and innovative technologies that can help simplify plan management while supporting employees’ financial wellness.

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