financial planning in a business plan

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Financial projections how to write a financial plan

Resources on Business Plan Writing :

An article of the Accelerated MBA written by:

Antoine Martin (Ph.D) | Business coach

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By the way…

Before we dig into the financial projections’ discussion, let us give you a tiny bit of background!

We are professional business coaches, and our job is to push entrepreneurs and business owners to their next steps.

Business planning and business plans are part of that, obviously, therefore we have written a series of free articles on how to write a business plan – of which this page is a part.

We are on a mission to make entrepreneurship fun and accessible, so we provide about 80 percent of our content for free – including a free business plan template to be downloaded down this page.

Still, in case that’s not sufficient, we’ve also created our Business Plan Builder Module , which has been designed to make your life super easy.

Shameless plug: it gives you access to:

a complete and solid business plan writing work-frame tool
automated financial tables that take the hassle away (yayyy!)
two designer-made templates (comprehensive + pitch deck)
and two hours of tutorial videos recorded with a business coach to explain all the logic you’ll need to master if you plan on writing a business plan that converts.

There’s simply no way to make things easier!

Now, having said that, let’s get going.

As a reminder, what is a business plan about?

To start the discussion, remember that a business plan is about much more than just numbers. As we’ve explained in our article What are Business Plans For? , the role of such a document is to show that beyond a nice business plan pdf nobody really cares about, you have a real business and a plan to get it somewhere.

First, a business plan’s purpose is to help you explain what your project is about. In that sense, the document you need to write should be written as a storytelling instrument, designed, and formulated to tell people a story they will want to read AND remember.

Second, it should give you a way to showcase your main business objectives for the next few years, as well as the strategy you will put into place to get there and deliver on your promises.

Third, your business plan should also provide a market analysis, and a description of your main target segment. That gives the reader a better understanding of your ecosystem’s potential, but more importantly the exercise forces you to look around, open your eyes and do some meaningful research.

You wouldn’t want to drive blindfolded, would you?

Of course, your document should also have a financial component – which is the topic of this article – and there the challenge is to ensure that your financial projections make sense, that they are clear, accurate and easy to follow.

Long things short, investors and bankers expect you to match a very specific business plan outline and format (there’s a code!) and you don’t have much wiggle room there – so be careful in your approach!

What is a Financial Plan & what should it include?

Now, let’s get into the core of this article: financial plans and financial projections. What are they, why are they important – there is a lot to explore.

First things first, what is a financial plan? How important is it in a business plan? And what type of elements is it made of? What are the projected financial statements you need to provide? Oh, and what do we mean by ‘financial projections’ in the first place, by the way?

What is the role of a financial plan in business plan?

A financial plan is the financial part of your business plan. Its purpose is simple: explain to the reader what should be the ins and outs of your project from a financial perspective, and help them see if their own business projections are aligned with yours.

On the one hand, the idea is to put numbers on your project, to make it tangible and show that your vision includes the end and the means.

On the other, it is also to show that you are capable of defending your big idea as well as the projected financials that need to come with it – something that many wannabe entrepreneurs are actually unable to do…

As a side note, and as silly as that might sound, this means that your business plan should include a lot more than just a financial plan and a smart cash flow projection!

That point brings us back to the one we made earlier when we said that a business plan should follow a specific structure (go read that article!), but we mention it again because we want things to be very clear: your business plan should be a matter of storytelling, not just a matter of financial projections!

Typically, we often see accountants work on business plans, and what they produce is rarely enough because they only deliver financial estimates that make no real sense to non-accountants (even less to the entrepreneurs at stake) and leave aside the rest of the topics – particularly the storytelling!

Said differently? The numbers are one aspect of the story, but you still have to come up with the pitch – which is where the rest of the business plan comes in handy.

Make sure to deliver an easy-to-read mix!

Your financial plan must provide your financial projections

To get into the technical part of the discussion, the financial plan in your business plan should include your financial projections, organized in a very formal format.

That makes two distinct points to consider!

On the one hand, you should be able to show with clear numbers what money should come in and when (that’s the income forecasts), for this year but also for the next, the ones after that for three to five years.

On the other, you should also be able to show what money needs to go out to make the business roll. What are the production costs, the fixed and variable expenses, the salaries, and of course the various marketing expenses needed to generate the development you are planning on getting to.

On that point, remember that your cost of client acquisition should also be part of the formalized projections – otherwise your numbers will be flawed (and doomed).

Ultimately, you need to be very clear as to when your new business (or existing business) should break even, as to when should profits be expected, as to when lenders and investors will get their money back, so forth and so on.

It must include specific financial documents people will expect to see

From a very formal perspective, you shouldn’t be trying to make one single projection sheet. Nope! Your readers will expect to see three important financial documents in the financial section of the business plan you will introduce to them.

A profit and loss statement – also known as your P&L statement, or as an income statement
A cash flow statement
And a balance sheet.

First, the P&L table or income statement should show what money is expected to come in or go out, but it should also show if and when the business will make a profit or a loss, year by year, for the next five years.

The sales forecast and the operating expenses should be easy to understand at that stage, and you should also be able to provide your estimated gross profit, your gross margin, as well as your net profit and net margin.

In case you are wondering, your gross profit corresponds to your sales minus your cost of production. Your net profit corresponds to the gross profit minus all the remaining costs.

It’s okay to read that twice…

Not being profitable is also okay, by the way. That’s the game. However, you must be able to explain why you won’t be profitable in a given year, and how you plan on filling the gap in the bank – otherwise your business dies, right?

Second, the cashflow statement should explain your cash flow management strategy and indicate when you will need to fill the bank account in, and why.

For instance, important account receivables could justify a temporary cashflow need, but the gaps left from the previous years should also be visible. Obviously, the funding needs should also be there and aligned with the financial situation of the business.

Third, the balance sheet is a summary of the previous two tables, except that it shows the various elements in terms of assets or liabilities. For instance, the account receivables we mentioned just before would be an asset (because some money is owed to the business) while account payables would be a liability (since the business owes money to someone else).

Does all this sound a little complex?

That’s because it is.

No need to worry, though. We have you covered and will provide all the templates and tools you need further below. For now, just keep reading.

So, what’s the financial plan in a business plan for?

To conclude, the financial plan in business plan should act as a financial cartography of what you have in mind for that business of yours.

The financial plan should illustrate the plan you have for the business in terms of numbers
It should include precise financial projections of what you think can be achieved
It should clearly illustrate your cashflow management strategy
And it should summarize the information clearly
All of this through highly standardized tables financiers will understand very easily

What documents should a financial business plan contain?

Getting your financial business plan right is a lot simpler than it seems.

Now, when you’re pitching that business of yours to potential partners, investors or lenders, you’ll need to provide them with a series of financial statements.

Yet, how to produce those documents without jumping into a living nightmare? How to come up with cash flow projections that make sense instead of being purely random?

Word of caution: financial planning for businesses is typically complex.

The question is not only fair, but it is also super-duper common and literally blocks tons of entrepreneurs and small business owners on a daily basis.

Because financial planning for businesses is typically complex.

Because most people aren’t comfortable with numbers.

And because the vast majority of small business owners simply don’t know where to start.

That’s probably why you were looking for either a financial plan pdf template or an example of financial plan for small business owners a few minutes ago, isn’t it?

Typically, here is what happens.

Some try and do their best, but then they don’t feel confident with pitching and defending their financial analysis, so they keep delaying and nothing happens.

Others end up having recourse to external help, even though external business plan consultants usually aren’t a good idea at that stage.

And the rest gives up.

That’s a shame, especially if consider that financial planning for a small business and building a financial plan for a business plan are only a matter of having access to the right method and tools!

Yes, a big (big) part of the work is to guestimate, but the rest is about trusting the process with the right logic, method and tools – and there’s nothing you can’t manage here.

Especially with the right tools!

How to build your financial forecasts?

Now that you understand the different sections of a financial plan, let us talk about how to build financial forecasting.

In plain English, this part of the exercise is where you’ll estimate your company’s income and expenses for the next few years. Therefore, you should keep a few things in mind.

One, you need to have a good understanding of your business in order to create realistic forecasts.

Sounds silly? Maybe, but this is a mistake people make way too much, and when they fail at justifying their financial projections, everything else goes down.

Two, you absolutely want to make sure that your projections can explore various trends, i.e. your pessimistic, optimistic, and most likely scenarios.

If everything goes extremely well, we’ll get there.
If everything goes wrong, we’ll get there.
But… we should reasonably expect to achieve this and that if we obtain the funding we need…

Can you see the idea?

Be sure to also factor in any potential changes or risks that could affect your business.

For example, if you’re expecting a new competitor to enter the market, you’ll need to account for that in your projections. By being realistic and accounting for as many variables as possible, you’ll give yourself the best chance of success so give it some thought!

Pragmatically, how do I come up with reasonable financial forecasts for my business plan?

It’s all a question of common sense, really.

How much do you plan on selling?
What are your short, medium and long term financial goals?
What would be the cost of production?
What margin does that leave you with?
What fixed costs would you expect?
How about variable costs?
Have you included transaction fees and credit card fees in your costs?
What is the cost of insurance premiums?
Will there be any debt to repay?
What type of budget do you need for marketing purposes?
What is the cost of acquisition of the client?
What operational margin does it leave before the taxman comes in?
What kind of money do you need to meet your long term goals?
Have you planned for any emergency fund at all?

Right, that’s a long list. But! Answering those questions should give you a strong basis to build financial projections that make sense, because that’s literally how you would read your income statement in the end.

If you were trying to translate boring numbers into a meaningful story, that’s exactly where you would start!

Again, we have you covered with all this.

If you are looking for a concrete and practical financial plan example, make sure to download our business plan template down the page. It will give you the basic pro forma financials you’ll need.

If you need to understand the logic behind the template and would rather use an automated spreadsheet to get everything done, however, then it’s time to stop struggling.

The Impactified Business Plan Builder will provide everything you need: the automated tables and two hours of business coaching videos designed to explain all the logic you’ll need – what are you waiting for?

Why Are Financial Projections so Important in the end?

So, overall, why is creating financial projections so important? Are there various types of financial projections anyway? There are several things to keep in mind here.

First, your financial projections are important because they give bankers and investors the numbers they need (to make an informed decision) in a format they expect to see.

Second, your projections show whether your strategy is aligned with the means at your disposal to achieve it and whether you are aware of the financial engineering required to make your business roll.

Third, and in a related way, forecasts will give you, as the entrepreneur in charge, an opportunity to show if you understand the business for real (or if someone else not present during the discussion wrote the plan for you).

All of these documents are important, but you (nobody else!) will need to be able to tell a story around them.

Investors aren’t just looking for numbers! They invest in teams and people before investing in projects, so they want to know that you understand your business and that you have a plan for the future!

So, make sure your financial projections are accurate and be prepared to answer any questions investors have about them.

Understanding the investment process

To understand how to handle the exercise properly, understanding the investment and funding process in general is important.

What do bankers and investors expect when they are looking at a business plan? How do they decide whether to invest or not? And how do the financial projections help them make that decision?

In short, investors are looking for a return on their investment. So, they want to know what they can expect to earn from their investment, and how that compares to the risks they’re taking.

Your projected income statement is important there, but so are your cashflow projections!

Your financial estimates should therefore show how your business will grow and what profits you’ll generate, both in the short-term and long-term. This information will help investors determine whether or not your business is a good investment.

In contrast, bankers have a much lower risk tolerance and are not interested in funding you – they lend money to those who have money to repay the debt (or some assets to engage as collateral in case something goes wrong). Hence, what they look for is not a high return on investment based on risk, but a repayment capacity based on predictability and wise financial management.

Said differently? You need to create financial projections that make sense and adapt your financial pitch to your audience accordingly.

Show investors that there is a great opportunity to make money at a later stage and show bankers you will be able to start repaying as soon as possible.

Again, if you need to explore the question of investors’ mindsets, we elaborate on that in our video module – it’s time to give it a try!

Business valuation and exit thinking

Last but not least, understanding the investment process means that you also need to start thinking in terms of valuation and exit.

Or, said differently, the financial plan in your business plan must lead you to think about what your business will be worth a few years from now, and about how you will be able to make money (for you and your investment partners) by selling it.

On the one hand, exit thinking relates to the idea that investors invest in a business with the expectation that the business will raise more money later on, at which stage a larger investor will come in and buy the existing investors out.

To make your investors some money, therefore, you have to start thinking in terms of exiting the business at some point – which means progressively turning the business into an asset that works on its own, for you and as much as possible without you.

This mindset is absolutely key – think about it!

On the other hand, the discussion leads us to think in terms of business valuation – understand, how much is the business worth, and how much could it be sold for.

That topic is probably getting too technical for this article’s discussion, so we’ll explore it in another post.

Meanwhile, make sure to listen to the exit & valuation video in The Business Plan Builder module . We explain all this and even go as far as giving you an automated valuation calculator in the financial tables part of the tool – again, you have no excuse!

Avoiding the typical mistakes small businesses make with financial planning

To finish with the discussion, what should you keep in mind if you wanted to turn your financial plan into an asset that generates money rather than frustration?

Like it or not, but small business financial planning isn’t an intuitive thing and people tend to make very typical mistakes you should avoid at all costs!

Know your business

First piece of advice, you really (really, really) want to know your business from every angle.

When you are writing the financial plan in your business plan, it’s important to remember that your projections should represent an estimate of future performance. That’s how investors and lenders will read your numbers anyway.

So, your financial projections and forecasts should be based on realistic assumptions and calculations that you should always be prepared to adjust as needed.

In order to make accurate projections, it is therefore extremely important to have a good understanding of your business and the industry it operates in. You should also consult with industry experts and other professionals who can help you make informed decisions about your business.

Do the exercise yourself!

When you’re writing your financial plan, it’s important to avoid making common mistakes. One of the most common errors is underestimating how much money your business will need to operate.

Another is to rely on business plan consultants to write your financial projections without being able to understand the numbers yourself. This can lead to mistakes if the numbers are incorrect, and it can lead to embarrassing ahem! moments if you can’t explain how this or that number ended up in the document.

The best way to ensure accuracy is to do the exercise yourself with the right tools in hand and the brainstorming support of someone you trust to challenge your thoughts and conclusions.

This can be done with your acting CFO or close financial advisor if you have one, or with a fellow entrepreneur if anyone around you has the right mindset to dig into the discussion with you.

Alternatively, hiring a business coach is another way to brainstorm and challenge yourself – follow the link to find out more about that.

Don’t be a tourist. That’s stupid.

Third piece of advice: don’t enter into a discussion with a potential partner as a tourist – this is stupid, and that could very well kill you.

We have seen countless entrepreneurs walk into a room (let alone into a large startup event) saying that they were raising money for their startup. Yet, more often than not, their financial targets are not set or beyond approximative, which means they can’t explain why they need money and how they are going to spend it.

When you do that, the only thing you do is be stupid and make sure everyone knows about it.

First, because they won’t take you seriously. Would you invest money into someone who can’t tell you how they’ll use it and with what return on investment expectations?

And second, because the people you talk to will most likely ask you to come back to them once you have more information to provide. Which either means “don’t come back before six months to a year” or “please don’t come back at all, I have better things to do with my time and more competent people to talk to”.

Don’t be a tourist or you’ll just burn yourself. That’s stupid.

Turn your numbers into a story

The fourth piece of advice is going to be a repeat from earlier, but it’s important so let’s be redundant.

Now that you’ve written your financial projections, it’s time to go beyond the numbers and start telling your business story. The financial plan in your business plan is a great place to start but remember that it’s just one part of your overall pitch.

You’ll also need to be ready to pitch your idea, product, or service, and be ready to defend your financial plan against questions from investors or lenders.

Think holistically and build a story people will want to listen to, remember and act on. Period!

TL;DR: Get your financial projections right!

Now that you understand the different components of a financial plan, it’s time to learn how to write it. The key to writing a good financial plan is to be realistic. Don’t make assumptions that are unrealistic or impossible to achieve.

Start by estimating your sales and expenses for the first year of business. Be as specific as possible, and remember to include both fixed and variable costs. From there, you can create a cash flow statement that shows how your business will generate and spend money over time.

The goal of a financial plan is to paint a realistic picture of your business’s financial future. So make sure to update your plan as your business changes and grows. With careful planning and accurate numbers, you can ensure that your business will be successful for years to come.

What should your business plan financial plan include?

A profit and loss statement – also known as your P&L statement, or as an income statement
A cash flow statement showing if your business plan financial projections are realistic

What is the purpose of your business plan’s financial projections?

To how the plan you have for the business in terms of numbers
To show a financial overview of what you think can be achieved, by when, with what means
To show you have a cashflow management strategy that makes sense
To show you understand the standardized expectations and know how to play by the book
To show that, overall, your business proposal makes sense whatever the angle!

Need a reliable template and video tutorial to get your financial business plan & financial projections right?

It’s built around over 2 hours of explanatory videos and comes with everything you’ll need to:

Figure out what you need to figure out – powerful, uh?
Understand the business plan code!
Write a top business plan – with just the right amount of words and pages!
Build your financial estimates – with an automated financial projections template excel spreadsheet!
Create a visually appealing pitch deck people will want to read thanks to our designer-made templates!

If you want to stop wasting your time, this is THE most simple business plan template, and you can’t afford to miss it!

Wanna’ start with something free? Our free business plan template is also here to help !

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What is Financial planning in a business plan

If one is new to the field of business and entrepreneurship, then Finance is unquestionably the vital section of the business plan. Even if your ideas and innovations are important what matters the most at the end of the day is the marketing strategies and how much your vision can help in making an earning. Hence it is vital to explain your start-up with good figures which are done with the help of accurate numbers included in the business plans and briefing about it in such a way that genuinely makes your business more attractive and profitable to the investors.

What is a business plan?

In simple words, it is a guide for the company to achieve its goal. It is a written document that describes in detail how a business, especially a start-up , what are its objectives or how it is about to achieve its goal. This can be considered as a roadmap to success with detailed plans and budgets saying how they will be achieved. It lays a road map from marketing, financial and operating point of view as well.

Business plans are documents which are vital papers used to attract investors even before the company has shown a proven record. They do this by giving a vision to the investor and trying to convince them that their business idea is worth investing for. From that, there comes a firm assurance and hence the business idea is sound and has every chance of success. For any newcomer, preparing a business plan is an important first step. It is this rigid milestone that will help the entry towards the path of success.

When you are about to begin a new venture, a business plan gives you a clear idea which in turn can determine whether your business idea is viable or not; that is, there is no point in business if there aren’t any chances of earning. A business plan is also a good way for companies to maintain a regular track.

We can also describe the business plan as a living document that you can use to prove two sources as it shows that one’s dreams are no longer just a dream but can be made into a viable reality. In the majority of cases, the main barrier in commencing a business is the fact that they don’t have enough money to be in the business or to start the business they wish to begin. In the case of start-ups, a ready business plan is essential to show potential investors how the proposed business can bring profit.

What is Financial Plan ?

In the world of start-ups, the importance of perfect business planning is beyond explanation. Plan length of business is different for different businesses. As mentioned no two businesses have the same sort of plans but they all have the same elements from which financial planning can be considered as a vital key in the making of a business plan.

A company financial plan is a document containing the current money situation and long-term goals of an individual as well as the strategies for achieving the goals. A financial plan can be done independently or with the help of a specialist who is a certified financial planner where he will have a deep evaluation of the person’s current financial state and, future goals and expectations.

It gives you a clear picture of current finances and how it can be utilized to achieve your goals. This is also a process which will reduce the amount of stress about money and help you to set a long-term goal. It is very important as it shows how to make use of your assets in an orderly manner.

The main purpose of financial planning is that it helps you to make strong business decisions about what are the resources that the company requires and what are the strategies that the company needs to be successful. It helps to obtain necessary financing, thus helping it grow.

Financial Planning can be explained with six steps:-

1. Setting up of Financial Goals:-

The secret of a successful business is setting up proper financial goals.

2. Track your Money:-

Since the financial plan is a guide for good business flow, having an accurate idea about your savings or pay-downs is helpful to develop medium and long term plans.

3. Emergency expenses:-

Collecting cash for emergency expenses is the bedrock of the financial plan.

4. Investing your savings:-

Investing isn’t always meant for the rich alone. Building credit is another way to shock proof of your budget.

5. Have a check of high-interest debt:-

Sometimes it happens that the interest rates most of the time, we end up repaying 2 or 3 times what we have actually borrowed. Paying down the ‘toxic’ high-interest debt like title loans, rent-to-own payment, credit card balances etc. are the crucial steps in any financial plan.

6. Setting up of a moat:-

It is essential to build a moat to protect you and your family from financial setbacks. Financial moats can be improved by:-

Retirement accounts should be increased
Padding your emergency fund until you earn a constant profit.
By using insurance so that a sudden illness or accident can alter you thus, ensuring financial stability.

Financial planning is at the heart of all successful business ventures. As mentioned earlier, it consists of details of statement and financial projections, forming the overall core of your business plan. Financial planning is supposed to be completed within a year and revised monthly for better results. In addition to impressing your investors that you are serious and knowledgeable with the business the financial planning allows them to evaluate :

•The short and long term prospects

• Profit potential

•Your company’s weakness as well as strengths

•Opportunities and challenges

•What type of financing can make your business successful

For a strong financial plan, there should be careful calculations and reliable numbers. If you are starting a new business then your financial plan should consist of:-

• Start-up costs

•Cash flow projection

•Projected Balance sheet

•Balance and income statement (if it isn’t a new business)

•Break-even analysis

Start-up Costs

If you are about to start a business, first you are supposed to determine start-up costs. They are the first time expenditures that you have to spend before opening your business. It includes all costs such as furniture, supplies, equipment, renovations, license permits and incorporation fees; if necessary.

Cash flow projections

All the business activities, large or small depends on cash. Cash flow projections show the expected amount of money that you can earn in a business along with what will be spent on expenses It is the cash that you expect from sales.

Projection of cash flow projections

The first is to calculate how much revenue you expect to generate from the sales every month. For that:

consider the best and worst.
reach to the clients who can repay loan on a regular-schedule basis
set a credit policy .
which bills should be delayed and what to be paid. The projections must be completed on an ongoing basis.

Income statements

It shows your actual business expenses and revenues, the difference between the net profit over some time it sometimes often referred to as profit and loss statement or an operating statement.

From a regular check-in, the projected income statement (at least every three months) can help you identify an emerging problem in your business.

Balance Sheets

It is a snapshot record which contains all the details of what your business assets (owns) are or on as well as its liabilities (owes). Assets can be money, property, vehicle, inventory etc. The projected balance sheet is what predicts the net worth of your business over a specific period in future. It should be from at least one year to three years into the future

Break-even Analysis

It is a useful tool which calculates at what point your company will be able to make a profit . This is where the total costs equal total revenues. It is based on three factors:- Selling price, fixed cost and variable cost.

Methods Of Financing for Businesses

After you have completed financial statement, projections and calculations, you will have a clear idea on how to finance your business.

The two main financings are:-

Equity Financing

The financing in which you and your partner put the money or raise from the investor’s for the business.

Equity financing is not a debt or loan, but the investors just share the profits or losses.

2. Debt Financing

With your equity capital, you are now in a position to approach lenders for a business loan. It is the money you borrow for business. Unlike equity financing, it should be repaid with interest over a specific period. The lenders won’t be getting the profit however, they must be repaid-with interest no matter whether the business is in profit or loss. The potential lenders include banks, credit unions , private investors, trust companies etc.

In the end, financial planning is a crucial step in mapping out a company’s financial future. In that sense, it is financial planning which gives clarity to your business plan and thus to one’s life!

A detailed guide to writing a successful business pitch

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Financial Planning

Financial planning definition.

Financial planning enables a business to determine how it will afford to achieve its objectives and strategic goals. A business typically sets a vision and objectives, and then immediately creates a financial plan to support those goals. The financial plan describes all of the resources and activities that the company will require—and the expected timeframes—for achieving these objectives.

Financial planning is crucial to organizational success because it compliments the business plan as a whole, confirming that set objectives are financially achievable.

The financial planning process includes multiple tasks, including:

Confirming the vision and objectives of the business
Assessing the business environment and company priorities
Identifying which resources the business needs to achieve its objectives
Assigning costs business costs centers included in the plan
Quantifying the amount of equipment, labor, materials, and other resources needed
Creating and setting a budget
Identifying any issues and risks with the budget
Establishing the time period of the plan or planning horizon, either short-term (typically 12 months) or long-term (2 to 5 years)
Preparing a full financial plan summarizing all key investments, budgets and departmental costs

Generally, the financial partner role includes three areas:

Strategic financial management;
Determining financial management objectives; and
Managing the planning cycle itself.
Connecting business partners and teams to financial plan

What Is Financial Planning?

Financial planning is the process of assessing the current financial situation of a business to identify future financial goals and how to achieve them. The financial plan itself is a document that serves as a roadmap for a company’s financial growth. It reflects the current status of the business, what progress they intend to make, and how they intend to make it.

Financial plans include budgets, but the terms are not interchangeable. Budgets are just one piece of a financial business plan, which should also include other important information that contribute to a complete picture of a business’ financial health, such as detailed, itemized breakdowns of company assets; typical expenditures; and forecasts of income, cash flow, and revenue.

Typically, business financial plans also focus on specific growth goals and other long-term objectives, as well as potential obstacles to achieving those objectives. A detailed financial planning checklist can identify overlooked opportunities and highlight possible risks that will affect the growth plan.

The comprehensive financial planning process in business is designed to determine how to most effectively use the company’s financial resources to support the objectives of the organization, both short- and long-range, by accurately forecasting future financial results. Financial planning processes are both analytical and informative, balancing the use of data and metrics to predict the future as well as institutional knowledge in departments and teams.

What is Financial Planning and Analysis (FP&A)?

Financial planning and analysis (FP&A) is a group within a company’s finance organization that supports the health of the organization by engaging in several types of activities: budgeting, integrated financial planning, modeling, and forecasting; decision support via reporting on management and performance; and various special projects. FP&A solutions link corporate strategy and execution, enhancing the ability of the finance department to manage performance.

FP&A professionals provide senior management with forecasts of the company’s operating performance and profit and loss for each upcoming quarter and year. These forecasts allow leadership to assess investments and strategic plans for effectiveness and progress. They also enable improved communication between external stakeholders and management.

To map out future goals and plans and evaluate the company’s progress toward achieving its goals, corporate FP&A professionals analyze the company’s operational aspects both quantitatively and qualitatively. FP&A analysts review past company performance, consider business and economic trends, and identify risks and possible obstacles, all to more effectively forecast future financial results for a company.

In contrast to accountants, who are tasked with accurate recordkeeping, consolidations and reporting, financial analysts must analyze and evaluate the totality of a company’s financial activities and map out the financial future of the business. FP&A professionals manage a broad range of financial scenarios and plans, including capital expenditures, expenses, financial statements, income, investments, and taxes.

Budgeting, planning, modeling, and forecasting

The primary responsibility of FP&A is to anchor the company, unite the business and translate plans to actionable & informed results. . So, what is financial planning and analysis, and how does it look in practice?

Senior management creates and drives the strategic plan in a top-down way, setting net income and revenue goals, core strategic initiatives, and other high-level business targets for the company’s next 2 to 10 years. FP&A’s corporate performance management aim is to develop the financial plan needed to achieve the strategic plan created by management.

In the past, financial planning and analysis teams developed annual budgets that remained mostly static and updated annually. However, whether in tandem with a traditional budget or as a replacement altogether, modern FP&A teams are increasingly developing rolling forecasts to cope with stale static budgets. Other important tasks of FP&A teams that are related to the budgeting, planning, and forecasting process include:

Creating, maintaining, and updating detailed forecasts and financial models of future business operations
Comparing budgets and forecasts to historical results, and conducting variance analysis to illustrate to management how actual performance and the rolling forecast or budget compare, suggesting ways to improve future performance
Assessing expansion and growth opportunities based on forecasts and other projections
Mapping out capital expenditures and investments, and other growth plans
Generating long-term financial forecasts in the three- to five-year range

Decision support and reporting

FP&A reports variances and forecasts, naturally. However, the team also advises management using that data, offering support on decisions concerning performance improvement, risk minimization, or risk benefit analysis of new opportunities from outside and within the company.

One primary piece of this the FP&A team typically generates is the monthly budget versus actual variance comparison. This report explanations of variances; analysis of historical financials; an updated version of the forecast with opportunities and risks related to the current stage of plan; and Key Performance Indicators (KPIs). Ideally, this report or analysis offers leadership information sufficient to identify ways to meet specific goals or optimize performance, and answer imminent questions of stakeholders. However, the true goal of the budget vs. actual report should be to inform the business around gaps or opportunities that inform the future.

Other ongoing pieces of the FP&A team’s reporting and decision support role include:

Using key financial ratios such as the current ratio, debt to equity ratio, and interest coverage ratio to gauge the overall financial health of the business
Identifying which company products, product lines, or services generate the most net profit
Determining which products, product lines, or services have the highest and lowest profit margins—separate from total profit
Assessing and evaluating each department’s cost-efficiency in light of the percentage of total company financial resources it consumes
Collaborating with departments to prepare and consolidate budgets into a single corporate budget
Preparing other internal reports in support of decision making for executive leadership

Special projects

Inevitably, the FP&A team works on special projects, depending on the size and needs of the business. For example:

Capital allocation. How much of the organization’s capital should be spent, and on what? Based on factors such as return on investment (ROI) and comparisons with increased stock dividends, different possible investments, and other ways the business could utilize its cash flow, are the company’s current investments and assets the best use of excess working capital?

Market research. What are the sizes and contours of a given market in which the organization may have a competitive advantage? Who are its laggards and leaders, and what potential opportunities does it hold for the company?

M&A. Which potential buy-side support, acquisition targets, integration, and divestiture opportunities exist for the company?

Process optimization. How can the company improve problems of process and workflow inefficiency? How can tools and technology in use by the business speak to and work with each other more effectively?

Ultimately, the FP&A team provides upper management with advice and analysis concerning how to best deploy the organization’s financial resources for optimal growth and increased profitability, while avoiding serious financial risk.

What is Corporate Financial Planning and Analysis?

Corporate financial planning is the process of determining what a company’s financial needs and goals for the future are, and how best to achieve them. Corporate financial planning considers the individual circumstances of the company as well as its broader economic context to determine which activities and investments would be most advantageous and appropriate. Generally, because short-term market trends are more predictable, short-term corporate financial planning involves less uncertainty and more readily adaptable financial plans.

Balanced corporate financial planning should elucidate how the company can achieve its goals and priorities while upholding its values. A financial plan for a corporation achieves at least two aims.

First, it forces management to think about the company’s prospects for business success objectively by basing their analysis on company finances. It also gives lenders and investors a good reason to invest into the business performance, by showing the growth and profit projections. Unrealistic or unbalanced financial plans or plans that understate profits tell investors to reconsider their investment or evaluation.

As a basic matter, three financial statements form the core of a corporate financial plan: income statement, statement of cash flow, and balance sheet. These statements clarify how much profit the business earns, and how much cash actually comes in, compared to the income reflected in accounts receivables. They also detail the relationships between corporate liabilities, corporate assets, and owner equity.

What is the Financial Planning Process?

The financial planning process results in the development of a financial plan, a financial forecast, or both. There are several well-understood steps in this process, and they often come out of sequence, depending on the deliverable or project at hand. However, it’s often simplest to think about these as steps in financial planning as financial planning tips, all of which are parts of a larger, flexible financial planning process.

With that in mind, these key components of financial planning for businesses are, in a sense, a set of best practices for your financial planning checklist.

Forecast revenue

Project revenue or sales for the next three years in a spreadsheet, or even better, in Planful. You’ll track numbers at least monthly in year one, and quarterly in years two and three.

Ideally you want to include sections that track unit sales, pricing, units times price to calculate sales, unit costs, and units times unit cost to calculate COGS or cost of goods sold, also called direct costs. Calculate gross margin, which is sales less cost of sales, and it’s a useful number for considering a new line of business or a new product expansion.

Budget expenses

Here you want to determine the actual cost of making the revenue you have forecasted. Differentiate between fixed costs such as payroll and rent and variable costs such as most promotional and advertising expenses. Lower fixed costs mean less risk; higher fixed costs may signal a need for reduced risk tolerance.

Remember, this is not accountancy, but a forecast, so you will have to estimate things such as taxes and interest. Use run rates or average assumptions whenever possible, and estimate taxes by multiplying estimated profits by estimated tax percentage rate. Then estimate interest by multiplying estimated debts balance by estimated interest rate.

Project cash flow

Project cash flow, or dollars moving in and out of the business, in this statement is based partly on balance sheet items, sales forecasts, and reasonable assumptions.

An existing company should have historical documents to base these forecasts on, such as balance sheets and profit and loss statements from years past. A new business which lacks these historical financial statements can project a cash-flow statement broken down month by month.

Remember 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 when compiling a cash-flow projection so you are not reliant on collecting 100 percent to pay your expenses. Some financial planning platforms build these formulas to make these projections simpler.

Project income

The income projection is the company’s pro forma profit and loss statement or P&L, which offers detailed business forecasts for the coming three years. To project income, use expense projections, sales forecasts, and cash flow statement numbers. Sales minus cost of sales equals gross margin. Gross margin minus expenses, interest, and taxes equals net profit.

Compile assets and liabilities

To deal with assets and liabilities that project the net worth of your business at the end of the fiscal year but are not in the profit and loss statement you need a projected balance sheet. Some of these, such as startup assets, are obvious and affect just one part of the process. However, others are less apparent.

For example, although the profit and loss reflects interest, it does not reflect repayment of principle. This means that loans and inventory register only as assets, but only up until you pay for them.

Cope with this by compiling a complete list of assets, equipment, real estate, and an estimate month by month of inventory if the business has it, accounts receivable (money owed to the company), and cash the business will have on hand. Then compile a complete list of liabilities and debts, including outstanding loans.

Conduct breakeven analysis

The breakeven point is when the expenses of the business match volumes or revenue. Undertake this analysis using the three-year income projection. Overall revenue will exceed overall expenses, including interest, within this period of time if the business is viable. Potential investors must engage in this critical analysis to ensure they are investing in a healthy business that is fast-growing and maintains reasonable profit.

Put the plan to work

Many companies work hard to create a financial plan for small business, only to ignore it as soon as it has been created. Placing all of the focus on creating the plan is a major error, because it is a powerful management tool. It is a better practice to compare actual numbers in the profit and loss statement with projections in the financial plan once a month, and use that data to revise future projections.

Compare statements over time

Undertake a financial statement analysis to compare specific items and entire financial statements over time—even the statements of the business to those of other companies. Conduct a ratio analysis to determine the prevailing industry ratios for profitability analysis, liquidity analysis, and debt. Measure the business both against its past performance and other similar businesses by comparing these standard ratios. You can also use the business plans from similar companies as financial plan examples.

Pitch with past plans

Include past financial plans as supplementary documentation of the business’s financial history as the organization applies for a loan or works to attract investment.

Use financial planning software

Obviously, this is a tremendous amount of dynamic information and calculation, making financial planning software a good option for many teams assembling a business plan’s financial section. These digital financial planning tools also enable visual financial projections such as bar graphs and pie charts.

What Should Financial Planning Include?

All business financial plans should include: a profit and loss statement; a cash flow statement; a balance sheet; a sales forecast; a personnel plan; business ratios; and a break-even analysis.

Profit and loss statement

The profit and loss statement is a financial statement that goes by several names, including P&L, income statement, and pro forma income statement. By any name, the profit and loss statement is essentially an explanation of how the business either made a profit or incurred a loss over a specific time period—typically three-months. The table lists all revenue streams and expenses, along with the total net profit or loss.

Depending on the type and structure of the business, there are different formats for profit and loss statements. However, in general, include in the profit and loss statement:

Revenue or sales
Cost of sale or cost of goods sold (COGS), although services companies may not have COGS
Gross margin, which is revenue less COGS

Revenue, COGS, and gross margin are at the heart of how most businesses make money.

The P&L should also include operating expenses, those expenses that are not directly associated with making a sale but that are associated with running the business. These are the fixed costs that fluctuations in business really don’t affect, such as utilities, rent, and insurance.

The P&L statement should also include operating income:

Gross Margin – Operating Expenses = Operating Income

Typically, operating income is equivalent to EBITDA: earnings before interest, taxes, depreciation, and amortization—although this depends on how the organization classifies expenses. Another way to think about operating income is the amount in profit before tax and interest but after operational costs.

The net income is the bottom line of the business, found at the end of the profit and loss statement. It represents going back to EBITDA and going a few steps further, subtracting expenses for interest, taxes, depreciation, and amortization to find net income:

Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income

Cash flow statement

Just as critical as the P&L, the cash flow statement is typically a per-month explanation of how much cash the business brings in, pays out, and the ending cash balance. This detailed map of how much cash is in play, where it originates and goes to, and the cash flow schedule itself, is essential to any healthy, functional business.

The cash flow statement assists management in understanding the difference between the company’s actual cash position and the reported income on the profit and loss statement. It is just as important to clearly lay this information out for investors and lenders in the cash flow statement to raise funds.

Some businesses might be profitable but still lack the cash to pay expenses and continue to operate. Others might have the cash on hand to stay open even if they are unprofitable—cash flow break-even is vital to future company scale.. Therefore, the cash flow statement is important to understand.

There are two methods of accounting in the cash flow statement—the indirect method and the direct method. Which you select can affect how the cash flow statement and profit and loss statement compare, and accrual accounting might better reflect actual cash flow than cash accounting for many businesses.

Balance sheet

The balance sheet is a picture of the financial position of the business at a specific point in time. It reflects how much cash and equity is on hand, how much is in receivables, and how the business owes vendors and other debtors.

A balance sheet should include:

Assets: Cash, inventory, accounts receivable, etc.
Liabilities: Debt, loan repayments, accounts payable, etc.
Equity: Owners’ equity, investors’ shares, stock proceeds, retained earnings, etc.

Ideally, as the name suggests, the balance sheet items should balance out. Total assets on one side should always equal total liabilities plus total equity.

Assets = Liabilities + Equity

Sales forecast

The sales forecast is the FP&A team’s forecast or projections for a set period of what they think will generate revenue. Particularly if a business is seeking investment from investors or lenders, the sales forecast is among the fundamentals of financial planning, and should be part of a dynamic, ongoing process.

The sales or revenue number in the profit and loss statement and the sales forecast should be consistent. In fact, many types of financial planning software automatically connect these projects. Develop, organize, and segment an individualized sales forecast to meet the needs of a specific business.

Personnel plan

The personnel plan identifies the resourced structure and positions needed to run the company operations. How important the personnel plan is depends in large part on the company.

A sole proprietor doesn’t need much of a personnel plan. A large company with high labor costs requires a detailed personnel plan and should invest the necessary time in determining how personnel impacts the business.

A complete personnel plan should describe the expertise, training, and market or product knowledge of each member of the management team. Some businesses might find listing entire departments as a better tactic for the personnel plan.

Business ratios and break-even analysis

To calculate standard business ratios, all that is required are the profit and loss statement, cash flow statement, and balance sheet. Common profitability ratios and liquidity ratios include the gross margin, return on investment (ROI), and debt-to-equity ratios.

The break-even analysis determines how much revenue a business needs to cover all of its expenses, or break even. To assess the break-even point for the business, find the contribution margin—those are the costs necessary to generate revenue.

For management to get an accurate sense of how high revenue must be for the company to stay profitable, they must subtract those contribution margin costs as well as fixed costs from the profit to find that break-even point. For example, most businesses have some labor costs as well as things like insurance and rent—those are fixed costs. Then there might be contribution costs per sale, such as costs per meal prepared in a restaurant or costs per package shipped or outfit sold in a store. A functional business has to cover them all and generate additional profit to break-even.

What are the Steps in Financial Planning?

There are many routes toward creating a solid financial plan. A well-designed financial business plan thoroughly clarifies business goals in financial context and helps a company plan for the future. Although there is no one correct way to engage in financial planning, understanding some basic steps in financial planning can make the process easier.

Review your strategic plan

The strategic plan of the business is usually where comprehensive financial planning services start. If the business lacks such a plan, it’s time to develop one.

As management reviews the plan, they should consider several questions for the coming year:

Will we want or need to expand?
Will we need to hire talent/staff?
Will we need more equipment?
What about additional new resources?
Are there any other plans that we have in mind this year that will require resources?
How will these plans impact cash flow?
Will we need financing? If so, how much? Can we revise our plans? Should we?

Fully assess the financial impact of all spending on major projects over the next 12 months.

Develop financial projections

Develop financial projections based on anticipated income and anticipated expenses. Sales forecasts are the basis for anticipated income, while things like costs for supplies, labor, and other overhead form the basis for anticipated expenses. Typically these financial projections will be monthly, but weekly projections may be better for businesses focused on cash optimization.

To make a financial projection, the business will compare project costs from the strategic plan to these anticipated costs and expenses. In other words, the team will look at the costs of doing business as normal plus the costs of adding in the projects, keeping in mind that sales will not always convert to cash immediately.

To create a financial projection, management often also must refer to a projected profit and loss or income statement and a projected balance sheet which it may need to develop in tandem with the financial projection. To assist the team in evaluating the impact of each possible scenario, it can be useful to include various outcomes—optimistic, most likely, and pessimistic—for the projections.

Finance’s advice may be essential to developing financial projections. However, ensure that leadership and anyone who will be seeking financing and explaining the plan to investors and lenders understands the projections and how they fit into the plan.

Arrange financing, plan for growth and contingencies

Determine the financing needs of the business using the financial projections. Well-prepared projections presented to financial stakeholders in advance of deadlines are always more reassuring.

How will the business grow in the coming year? Turn to the FP&A team to make smart investment and growth decisions.

Keep emergency sources of money on hand in case business finances suddenly pivot.. Maintaining credit or a cash reserve are possibilities. Keep laser focus on cash management and optimization.

Financial planning is a dynamic process. Compare projections to actual results throughout the year to see if they are accurate or require adjustments. Monitoring assists businesses in spotting financial problems before they are out of control, and ultimately in identifying smarter growth opportunities.

Consult and use tools

For some businesses, expert help in the form of financial planning services may be necessary to create a financial plan. For many others, the right financial planning software and other financial planning tools are critical to the job.

Why is Financial Planning Important?

A financial business plan has two main purposes. A business needs a financial plan that proves the business will grow, scale, and provide shareholder value over the long term.. Ensuring growth, scale and consistent shareholder value is vital to all stakeholders in the business. . Similarly, the financial plan proves to lenders and banks that the business will be able to repay any loans.

Just as critically, though, a financial forecast benefits leadership. A realistic projection of how the business is likely to perform prepares management and staff. A financial plan is a guide to running a healthy business and should be considered a living document.

There are several other reasons why financial planning is important to a business:

Credibility

Be realistic when developing a financial business plan, make sure your forecast or plan mirrors business reality. However, if you can demonstrate that your financial plan is realistic in a step-by-step way, your financial forecast will be credible. For example, if you break down your figures into components or channels to provide more detailed estimates, you may be able to reassure lenders, investors, and leadership more.

Balancing the balance sheet

Balance sheet optimization is one of the powerful benefits of financial planning. Identifying and assessing all business assets and liabilities and planning in advance how and when to pay all taxes, salaries, expenses, overheads, and miscellaneous costs is part of this process. Another strategy is to divide the business into functions or departments and prioritize them to better identify which important and urgent investment areas.

Long-term visibility

Efficient, comprehensive financial planning gives businesses improved long-term visibility into fund allocation. Analysis of how funds are deployed within a business can positively affect productivity and revenue and offer deeper insight into the health of the business. This kind of visibility also empowers more insightful decision making.

Strategic marketing

No business has endless money to burn on marketing, and a well-designed financial plan helps identify which marketing strategies are most productive for that particular business. Business marketing strategies frame tasks for a company, from planning to execution and implementation.

The marketing team may well be experts across the board when it comes to marketing channels and strategies. However, only actions that generate more business in measurable ways should be planned for the company. Ultimately, finance partnership with the business assesses whether the metrics in the reports justify ongoing marketing campaigns, so for every strategy the team formulates for business, they should highlight the ratio of expense and profits.

Monitoring assets (In’s) and liabilities(Out’s)

The financial team protects the stability of the business by routinely monitoring its assets and liabilities and the ratio of liabilities and assets. This ongoing activity provides insight into needed improvements and actionable ways to decrease liabilities and increase assets.

Measuring profit and loss

The finance team compiles financial planning reports to support evaluation of organizational profits and loss. These reports also showcase the net profits and their main causes, assisting management in evaluating which strategies worked best for the business.

What are Financial Planning Benefits?

It is easier for businesses that focus on financial planning to grow their revenues at a quicker pace than it is for companies that lack an efficient financial planning process. Corporate financial planning offers decision making support in the form of forecasts or budgets. It assists businesses in managing costs and building revenues by highlighting where they should focus resources for optimal effectiveness. Impactful financial management nurtures more growth by freeing up more funds for expanding operations, marketing, and product development.

As a broader matter, strategic business planning develops tasks and determines who will be responsible for delivering those tasks in a timely way, thus determining the company’s direction. Financial planning aligns to the strategic plan which then translates to actionable outcomes and measurable results.

The financial plan projects the revenues the team thinks will result from implementing the strategies and the expenses taking those actions will require. Senior management, operations, and marketing personnel are all deeply involved in strategic financial planning, and finance is focused on developing deep business partnerships, connecting the business and tracking the results. Here are some of the specific benefits of financial planning:

The starting point for the financial plan as a whole is what the company aims to achieve in the coming quarter, year, three years, five years, and longer. This is because it is essential to establish that a real need for the business exists, and this company in particular fills the need—a product/market fit.

Many startups devote several years to establishing that product/market fit as they build out and refine their product. In fact, achieving that kind of fit, with smaller checkpoints along the way, is a good one-to-two year goal. In these early stages, the financial plan can reveal to the team that it doesn’t yet make sense to set massive marketing KPIs or sales targets as the refinement process continues.

Business alignment

The financial plan sets forth clear cash flow expectations. For new businesses, the amount of cash going out is often more than is coming in, but it remains important to determine an acceptable level of expense, and ensure the business stays on track, and the statement helps achieve this. Cash flow management is also an important part of a financial plan, so that even team members who are not seasoned finance experts can efficiently and accurately track cash flow as needed. For all of these reasons, a solid financial plan assists with sensible cash flow management.

Agility, collaborative and actionable budgeting

Closely related to both cost reductions and cash flow management, it is essential to know the best way to spend the funding that is actually available to the business, whether through investments, revenue, or some other source. The business should break down the overall budget for the quarter or year into separate budgets for specific teams such as customer support, marketing, product development, and sales. This way management can ensure each budget accurately reflects the team’s productivity and relative importance.

Budgets also allow each team to build within a known set of limits. Team members can effectively plan campaigns and other tasks because they know what resources are available. Furthermore, it is always simpler to track team or project budgets than to monitor overspending at the company level.

Identify spend reductions

A financial plan enables the FP&A team to identify ways to reduce spend in advance. Building a financial plan includes a careful look back over the speed of current growth and what has already been spent. The goal with this kind of spend control is to detect over-inflated costs and unnecessary spending in the past to eliminate it in future budgets. The result from this kind of periodic review is keeping spending in line with expectations and making better use of resources.

Mitigated risks

The finance team assists the business in avoiding risk and navigating pitfalls when they occur. Many risks, from fraud and other forms of economic crises, are predictable and avoidable.

A strong financial plan should account for some uncertainty, business insurance expenses, and other unexpected expenses, and set aside resources to cope with them. Some teams create several financial forecasts with various business outcomes: one that shows results under conditions with more revenue, and others under conditions with less.

Especially during economically volatile times, prepare for many contingencies in the financial plan, which should clarify how the roadmap for the business will change as growth fluctuates.

Crisis management

During a crisis in any business, the first move is typically to review and re-build strategic plans. Without strategic plans in place, a crisis response is merely improvisational.

As the coronavirus crisis and surrounding financial crisis in 2020 and beyond have revealed, finance teams and leaders must constantly reforecast to deal with adversity. Businesses are developing new financial plans quarterly or even monthly to cope, and nobody truly knows when the crises will end.

The financial-planning team should help get through this particular challenge and other crises by focusing on several steps, all using their ongoing financial planning process. The first step in crisis management is to reassess new business operational baselines. Next, the team should use the plans and feedback to build a reality-based plan they will review many different business scenarios.

The team will next determine the business’s general direction and align on a financial plan that fits with this possibly new direction, in context. Then they will identify the best actions for the company to take, as well as any trigger points that could require further changes. A strong financial planning process, FP&A team, and store of financial statements can all make these crisis management steps much simpler.

Be opportunistic around fundraising

Any prospective bank, lender, or investor needs to see financial planning in the form of a business plan. A financial plan must tell a story to investors, while communicating the trustworthiness of the projections.

Roadmap for growth

A financial plan clarifies both the current financial situation of a business, and helps it project where it intends to be in the future. This may be reflected in various specifics, such as number of employees to hire; markets to penetrate; or new services or products to sell. The financial plan itself augments these goals with specific data, such as a budget for a particular number of new employees, including talent and recruitment costs and other resourcing needs.

Transparency

Of course transparency in the financial plan is critical for lenders and investors. But it’s just as important for the team and staff. To ensure your team that the business is healthy, following a solid plan towards growth and scale, and in good leadership hands, a transparent financial plan is key.

Does Planful Help With Financial Planning?

Yes. Planful delivers a continuous planning platform elevating the financial conversation, aligning finance’s need for structured planning with the business’ need for dynamic planning, and enabling your organization to make better decisions more confidently, quickly, and strategically by uniting the business together.

Comprehensive budgeting, planning, and forecasting features offer the financial planning and analysis team the control, structure, and partnership with the business they want. Meanwhile, dynamic planning features empower business leaders and finance with individualized, agile models and plans to manage for multiple business outcomes

Planful also delivers complete financial consolidation, including inter-company eliminations, partial ownership rules, and statutory reporting. The platform also ensures your business meets every management, financial, regulatory, and ad hoc reporting need with a robust library of delivery options and reporting formats.

Planful can help your business:

Reduce reporting time up to 90% by automating manual processes
Replace annual planning cycles with rolling forecasts to better respond to changing business conditions with increased agility, more accurate financial plans, and optimized financial results in real-time
Leverage data from across the business to drive strategic planning, long-term value, and growth
Free up time for collaboration and analysis by automating tedious, manual tasks in the planning process
Simplify complex ad-hoc financial analysis and explore financial insights with greater confidence and speed
Reduce time to close by up to 75% by automating data collection, aggregation, and validation across the organization with low risk and high security thanks to robust, searchable audit logs and strong internal controls
Create impressive, professional financial and management reports that share insights with clarity
Improve collaboration and workflow with accurate, current data

Find out more about Planful’s Financial Planning solution here.

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Small Business Trends

How to create a business plan: examples & free template.

This is the ultimate guide to creating a comprehensive and effective plan to start a business . In today’s dynamic business landscape, having a well-crafted business plan is an important first step to securing funding, attracting partners, and navigating the challenges of entrepreneurship.

This guide has been designed to help you create a winning plan that stands out in the ever-evolving marketplace. U sing real-world examples and a free downloadable template, it will walk you through each step of the process.

Whether you’re a seasoned entrepreneur or launching your very first startup, the guide will give you the insights, tools, and confidence you need to create a solid foundation for your business.

Table of Contents

How to Write a Business Plan

Embarking on the journey of creating a successful business requires a solid foundation, and a well-crafted business plan is the cornerstone. Here is the process of writing a comprehensive business plan and the main parts of a winning business plan . From setting objectives to conducting market research, this guide will have everything you need.

Executive Summary

The Executive Summary serves as the gateway to your business plan, offering a snapshot of your venture’s core aspects. This section should captivate and inform, succinctly summarizing the essence of your plan.

It’s crucial to include a clear mission statement, a brief description of your primary products or services, an overview of your target market, and key financial projections or achievements.

Think of it as an elevator pitch in written form: it should be compelling enough to engage potential investors or stakeholders and provide them with a clear understanding of what your business is about, its goals, and why it’s a promising investment.

Example: EcoTech is a technology company specializing in eco-friendly and sustainable products designed to reduce energy consumption and minimize waste. Our mission is to create innovative solutions that contribute to a cleaner, greener environment.

Our target market includes environmentally conscious consumers and businesses seeking to reduce their carbon footprint. We project a 200% increase in revenue within the first three years of operation.

Overview and Business Objectives

In the Overview and Business Objectives section, outline your business’s core goals and the strategic approaches you plan to use to achieve them. This section should set forth clear, specific objectives that are attainable and time-bound, providing a roadmap for your business’s growth and success.

It’s important to detail how these objectives align with your company’s overall mission and vision. Discuss the milestones you aim to achieve and the timeframe you’ve set for these accomplishments.

This part of the plan demonstrates to investors and stakeholders your vision for growth and the practical steps you’ll take to get there.

Example: EcoTech’s primary objective is to become a market leader in sustainable technology products within the next five years. Our key objectives include:

Introducing three new products within the first two years of operation.
Achieving annual revenue growth of 30%.
Expanding our customer base to over 10,000 clients by the end of the third year.

Company Description

The Company Description section is your opportunity to delve into the details of your business. Provide a comprehensive overview that includes your company’s history, its mission statement, and its vision for the future.

Highlight your unique selling proposition (USP) – what makes your business stand out in the market. Explain the problems your company solves and how it benefits your customers.

Include information about the company’s founders, their expertise, and why they are suited to lead the business to success. This section should paint a vivid picture of your business, its values, and its place in the industry.

Example: EcoTech is committed to developing cutting-edge sustainable technology products that benefit both the environment and our customers. Our unique combination of innovative solutions and eco-friendly design sets us apart from the competition. We envision a future where technology and sustainability go hand in hand, leading to a greener planet.

Define Your Target Market

Defining Your Target Market is critical for tailoring your business strategy effectively. This section should describe your ideal customer base in detail, including demographic information (such as age, gender, income level, and location) and psychographic data (like interests, values, and lifestyle).

Elucidate on the specific needs or pain points of your target audience and how your product or service addresses these. This information will help you know your target market and develop targeted marketing strategies.

Example: Our target market comprises environmentally conscious consumers and businesses looking for innovative solutions to reduce their carbon footprint. Our ideal customers are those who prioritize sustainability and are willing to invest in eco-friendly products.

Market Analysis

The Market Analysis section requires thorough research and a keen understanding of the industry. It involves examining the current trends within your industry, understanding the needs and preferences of your customers, and analyzing the strengths and weaknesses of your competitors.

This analysis will enable you to spot market opportunities and anticipate potential challenges. Include data and statistics to back up your claims, and use graphs or charts to illustrate market trends.

This section should demonstrate that you have a deep understanding of the market in which you operate and that your business is well-positioned to capitalize on its opportunities.

Example: The market for eco-friendly technology products has experienced significant growth in recent years, with an estimated annual growth rate of 10%. As consumers become increasingly aware of environmental issues, the demand for sustainable solutions continues to rise.

Our research indicates a gap in the market for high-quality, innovative eco-friendly technology products that cater to both individual and business clients.

SWOT Analysis

A SWOT analysis in your business plan offers a comprehensive examination of your company’s internal and external factors. By assessing Strengths, you showcase what your business does best and where your capabilities lie.

Weaknesses involve an honest introspection of areas where your business may be lacking or could improve. Opportunities can be external factors that your business could capitalize on, such as market gaps or emerging trends.

Threats include external challenges your business may face, like competition or market changes. This analysis is crucial for strategic planning, as it helps in recognizing and leveraging your strengths, addressing weaknesses, seizing opportunities, and preparing for potential threats.

Including a SWOT analysis demonstrates to stakeholders that you have a balanced and realistic understanding of your business in its operational context.

Innovative and eco-friendly product offerings.
Strong commitment to sustainability and environmental responsibility.
Skilled and experienced team with expertise in technology and sustainability.

Weaknesses:

Limited brand recognition compared to established competitors.
Reliance on third-party manufacturers for product development.

Opportunities:

Growing consumer interest in sustainable products.
Partnerships with environmentally-focused organizations and influencers.
Expansion into international markets.
Intense competition from established technology companies.
Regulatory changes could impact the sustainable technology market.

Competitive Analysis

In this section, you’ll analyze your competitors in-depth, examining their products, services, market positioning, and pricing strategies. Understanding your competition allows you to identify gaps in the market and tailor your offerings to outperform them.

By conducting a thorough competitive analysis, you can gain insights into your competitors’ strengths and weaknesses, enabling you to develop strategies to differentiate your business and gain a competitive advantage in the marketplace.

Example: Key competitors include:

GreenTech: A well-known brand offering eco-friendly technology products, but with a narrower focus on energy-saving devices.

EarthSolutions: A direct competitor specializing in sustainable technology, but with a limited product range and higher prices.

By offering a diverse product portfolio, competitive pricing, and continuous innovation, we believe we can capture a significant share of the growing sustainable technology market.

Organization and Management Team

Provide an overview of your company’s organizational structure, including key roles and responsibilities. Introduce your management team, highlighting their expertise and experience to demonstrate that your team is capable of executing the business plan successfully.

Showcasing your team’s background, skills, and accomplishments instills confidence in investors and other stakeholders, proving that your business has the leadership and talent necessary to achieve its objectives and manage growth effectively.

Example: EcoTech’s organizational structure comprises the following key roles: CEO, CTO, CFO, Sales Director, Marketing Director, and R&D Manager. Our management team has extensive experience in technology, sustainability, and business development, ensuring that we are well-equipped to execute our business plan successfully.

Products and Services Offered

Describe the products or services your business offers, focusing on their unique features and benefits. Explain how your offerings solve customer pain points and why they will choose your products or services over the competition.

This section should emphasize the value you provide to customers, demonstrating that your business has a deep understanding of customer needs and is well-positioned to deliver innovative solutions that address those needs and set your company apart from competitors.

Example: EcoTech offers a range of eco-friendly technology products, including energy-efficient lighting solutions, solar chargers, and smart home devices that optimize energy usage. Our products are designed to help customers reduce energy consumption, minimize waste, and contribute to a cleaner environment.

Marketing and Sales Strategy

In this section, articulate your comprehensive strategy for reaching your target market and driving sales. Detail the specific marketing channels you plan to use, such as social media, email marketing, SEO, or traditional advertising.

Describe the nature of your advertising campaigns and promotional activities, explaining how they will capture the attention of your target audience and convey the value of your products or services. Outline your sales strategy, including your sales process, team structure, and sales targets.

Discuss how these marketing and sales efforts will work together to attract and retain customers, generate leads, and ultimately contribute to achieving your business’s revenue goals.

This section is critical to convey to investors and stakeholders that you have a well-thought-out approach to market your business effectively and drive sales growth.

Example: Our marketing strategy includes digital advertising, content marketing, social media promotion, and influencer partnerships. We will also attend trade shows and conferences to showcase our products and connect with potential clients. Our sales strategy involves both direct sales and partnerships with retail stores, as well as online sales through our website and e-commerce platforms.

Logistics and Operations Plan

The Logistics and Operations Plan is a critical component that outlines the inner workings of your business. It encompasses the management of your supply chain, detailing how you acquire raw materials and manage vendor relationships.

Inventory control is another crucial aspect, where you explain strategies for inventory management to ensure efficiency and reduce wastage. The section should also describe your production processes, emphasizing scalability and adaptability to meet changing market demands.

Quality control measures are essential to maintain product standards and customer satisfaction. This plan assures investors and stakeholders of your operational competency and readiness to meet business demands.

Highlighting your commitment to operational efficiency and customer satisfaction underlines your business’s capability to maintain smooth, effective operations even as it scales.

Example: EcoTech partners with reliable third-party manufacturers to produce our eco-friendly technology products. Our operations involve maintaining strong relationships with suppliers, ensuring quality control, and managing inventory.

We also prioritize efficient distribution through various channels, including online platforms and retail partners, to deliver products to our customers in a timely manner.

Financial Projections Plan

In the Financial Projections Plan, lay out a clear and realistic financial future for your business. This should include detailed projections for revenue, costs, and profitability over the next three to five years.

Ground these projections in solid assumptions based on your market analysis, industry benchmarks, and realistic growth scenarios. Break down revenue streams and include an analysis of the cost of goods sold, operating expenses, and potential investments.

This section should also discuss your break-even analysis, cash flow projections, and any assumptions about external funding requirements.

By presenting a thorough and data-backed financial forecast, you instill confidence in potential investors and lenders, showcasing your business’s potential for profitability and financial stability.

This forward-looking financial plan is crucial for demonstrating that you have a firm grasp of the financial nuances of your business and are prepared to manage its financial health effectively.

Example: Over the next three years, we expect to see significant growth in revenue, driven by new product launches and market expansion. Our financial projections include:

Year 1: $1.5 million in revenue, with a net profit of $200,000.
Year 2: $3 million in revenue, with a net profit of $500,000.
Year 3: $4.5 million in revenue, with a net profit of $1 million.

These projections are based on realistic market analysis, growth rates, and product pricing.

Income Statement

The income statement , also known as the profit and loss statement, provides a summary of your company’s revenues and expenses over a specified period. It helps you track your business’s financial performance and identify trends, ensuring you stay on track to achieve your financial goals.

Regularly reviewing and analyzing your income statement allows you to monitor the health of your business, evaluate the effectiveness of your strategies, and make data-driven decisions to optimize profitability and growth.

Example: The income statement for EcoTech’s first year of operation is as follows:

Revenue: $1,500,000
Cost of Goods Sold: $800,000
Gross Profit: $700,000
Operating Expenses: $450,000
Net Income: $250,000

This statement highlights our company’s profitability and overall financial health during the first year of operation.

Cash Flow Statement

A cash flow statement is a crucial part of a financial business plan that shows the inflows and outflows of cash within your business. It helps you monitor your company’s liquidity, ensuring you have enough cash on hand to cover operating expenses, pay debts, and invest in growth opportunities.

By including a cash flow statement in your business plan, you demonstrate your ability to manage your company’s finances effectively.

Example: The cash flow statement for EcoTech’s first year of operation is as follows:

Operating Activities:

Depreciation: $10,000
Changes in Working Capital: -$50,000
Net Cash from Operating Activities: $210,000

Investing Activities:

Capital Expenditures: -$100,000
Net Cash from Investing Activities: -$100,000

Financing Activities:

Proceeds from Loans: $150,000
Loan Repayments: -$50,000
Net Cash from Financing Activities: $100,000
Net Increase in Cash: $210,000

This statement demonstrates EcoTech’s ability to generate positive cash flow from operations, maintain sufficient liquidity, and invest in growth opportunities.

Tips on Writing a Business Plan

1. Be clear and concise: Keep your language simple and straightforward. Avoid jargon and overly technical terms. A clear and concise business plan is easier for investors and stakeholders to understand and demonstrates your ability to communicate effectively.

2. Conduct thorough research: Before writing your business plan, gather as much information as possible about your industry, competitors, and target market. Use reliable sources and industry reports to inform your analysis and make data-driven decisions.

3. Set realistic goals: Your business plan should outline achievable objectives that are specific, measurable, attainable, relevant, and time-bound (SMART). Setting realistic goals demonstrates your understanding of the market and increases the likelihood of success.

4. Focus on your unique selling proposition (USP): Clearly articulate what sets your business apart from the competition. Emphasize your USP throughout your business plan to showcase your company’s value and potential for success.

5. Be flexible and adaptable: A business plan is a living document that should evolve as your business grows and changes. Be prepared to update and revise your plan as you gather new information and learn from your experiences.

6. Use visuals to enhance understanding: Include charts, graphs, and other visuals to help convey complex data and ideas. Visuals can make your business plan more engaging and easier to digest, especially for those who prefer visual learning.

7. Seek feedback from trusted sources: Share your business plan with mentors, industry experts, or colleagues and ask for their feedback. Their insights can help you identify areas for improvement and strengthen your plan before presenting it to potential investors or partners.

FREE Business Plan Template

To help you get started on your business plan, we have created a template that includes all the essential components discussed in the “How to Write a Business Plan” section. This easy-to-use template will guide you through each step of the process, ensuring you don’t miss any critical details.

The template is divided into the following sections:

Mission statement
Business Overview
Key products or services
Target market
Financial highlights
Company goals
Strategies to achieve goals
Measurable, time-bound objectives
Company History
Mission and vision
Unique selling proposition
Demographics
Psychographics
Pain points
Industry trends
Customer needs
Competitor strengths and weaknesses
Opportunities
Competitor products and services
Market positioning
Pricing strategies
Organizational structure
Key roles and responsibilities
Management team backgrounds
Product or service features
Competitive advantages
Marketing channels
Advertising campaigns
Promotional activities
Sales strategies
Supply chain management
Inventory control
Production processes
Quality control measures
Projected revenue
Assumptions
Cash inflows
Cash outflows
Net cash flow

What is a Business Plan?

A business plan is a strategic document that outlines an organization’s goals, objectives, and the steps required to achieve them. It serves as a roadmap as you start a business , guiding the company’s direction and growth while identifying potential obstacles and opportunities.

Typically, a business plan covers areas such as market analysis, financial projections, marketing strategies, and organizational structure. It not only helps in securing funding from investors and lenders but also provides clarity and focus to the management team.

A well-crafted business plan is a very important part of your business startup checklist because it fosters informed decision-making and long-term success.

Why You Should Write a Business Plan

Understanding the importance of a business plan in today’s competitive environment is crucial for entrepreneurs and business owners. Here are five compelling reasons to write a business plan:

Attract Investors and Secure Funding : A well-written business plan demonstrates your venture’s potential and profitability, making it easier to attract investors and secure the necessary funding for growth and development. It provides a detailed overview of your business model, target market, financial projections, and growth strategies, instilling confidence in potential investors and lenders that your company is a worthy investment.
Clarify Business Objectives and Strategies : Crafting a business plan forces you to think critically about your goals and the strategies you’ll employ to achieve them, providing a clear roadmap for success. This process helps you refine your vision and prioritize the most critical objectives, ensuring that your efforts are focused on achieving the desired results.
Identify Potential Risks and Opportunities : Analyzing the market, competition, and industry trends within your business plan helps identify potential risks and uncover untapped opportunities for growth and expansion. This insight enables you to develop proactive strategies to mitigate risks and capitalize on opportunities, positioning your business for long-term success.
Improve Decision-Making : A business plan serves as a reference point so you can make informed decisions that align with your company’s overall objectives and long-term vision. By consistently referring to your plan and adjusting it as needed, you can ensure that your business remains on track and adapts to changes in the market, industry, or internal operations.
Foster Team Alignment and Communication : A shared business plan helps ensure that all team members are on the same page, promoting clear communication, collaboration, and a unified approach to achieving the company’s goals. By involving your team in the planning process and regularly reviewing the plan together, you can foster a sense of ownership, commitment, and accountability that drives success.

What are the Different Types of Business Plans?

In today’s fast-paced business world, having a well-structured roadmap is more important than ever. A traditional business plan provides a comprehensive overview of your company’s goals and strategies, helping you make informed decisions and achieve long-term success. There are various types of business plans, each designed to suit different needs and purposes. Let’s explore the main types:

Startup Business Plan: Tailored for new ventures, a startup business plan outlines the company’s mission, objectives, target market, competition, marketing strategies, and financial projections. It helps entrepreneurs clarify their vision, secure funding from investors, and create a roadmap for their business’s future. Additionally, this plan identifies potential challenges and opportunities, which are crucial for making informed decisions and adapting to changing market conditions.
Internal Business Plan: This type of plan is intended for internal use, focusing on strategies, milestones, deadlines, and resource allocation. It serves as a management tool for guiding the company’s growth, evaluating its progress, and ensuring that all departments are aligned with the overall vision. The internal business plan also helps identify areas of improvement, fosters collaboration among team members, and provides a reference point for measuring performance.
Strategic Business Plan: A strategic business plan outlines long-term goals and the steps to achieve them, providing a clear roadmap for the company’s direction. It typically includes a SWOT analysis, market research, and competitive analysis. This plan allows businesses to align their resources with their objectives, anticipate changes in the market, and develop contingency plans. By focusing on the big picture, a strategic business plan fosters long-term success and stability.
Feasibility Business Plan: This plan is designed to assess the viability of a business idea, examining factors such as market demand, competition, and financial projections. It is often used to decide whether or not to pursue a particular venture. By conducting a thorough feasibility analysis, entrepreneurs can avoid investing time and resources into an unviable business concept. This plan also helps refine the business idea, identify potential obstacles, and determine the necessary resources for success.
Growth Business Plan: Also known as an expansion plan, a growth business plan focuses on strategies for scaling up an existing business. It includes market analysis, new product or service offerings, and financial projections to support expansion plans. This type of plan is essential for businesses looking to enter new markets, increase their customer base, or launch new products or services. By outlining clear growth strategies, the plan helps ensure that expansion efforts are well-coordinated and sustainable.
Operational Business Plan: This type of plan outlines the company’s day-to-day operations, detailing the processes, procedures, and organizational structure. It is an essential tool for managing resources, streamlining workflows, and ensuring smooth operations. The operational business plan also helps identify inefficiencies, implement best practices, and establish a strong foundation for future growth. By providing a clear understanding of daily operations, this plan enables businesses to optimize their resources and enhance productivity.
Lean Business Plan: A lean business plan is a simplified, agile version of a traditional plan, focusing on key elements such as value proposition, customer segments, revenue streams, and cost structure. It is perfect for startups looking for a flexible, adaptable planning approach. The lean business plan allows for rapid iteration and continuous improvement, enabling businesses to pivot and adapt to changing market conditions. This streamlined approach is particularly beneficial for businesses in fast-paced or uncertain industries.
One-Page Business Plan: As the name suggests, a one-page business plan is a concise summary of your company’s key objectives, strategies, and milestones. It serves as a quick reference guide and is ideal for pitching to potential investors or partners. This plan helps keep teams focused on essential goals and priorities, fosters clear communication, and provides a snapshot of the company’s progress. While not as comprehensive as other plans, a one-page business plan is an effective tool for maintaining clarity and direction.
Nonprofit Business Plan: Specifically designed for nonprofit organizations, this plan outlines the mission, goals, target audience, fundraising strategies, and budget allocation. It helps secure grants and donations while ensuring the organization stays on track with its objectives. The nonprofit business plan also helps attract volunteers, board members, and community support. By demonstrating the organization’s impact and plans for the future, this plan is essential for maintaining transparency, accountability, and long-term sustainability within the nonprofit sector.
Franchise Business Plan: For entrepreneurs seeking to open a franchise, this type of plan focuses on the franchisor’s requirements, as well as the franchisee’s goals, strategies, and financial projections. It is crucial for securing a franchise agreement and ensuring the business’s success within the franchise system. This plan outlines the franchisee’s commitment to brand standards, marketing efforts, and operational procedures, while also addressing local market conditions and opportunities. By creating a solid franchise business plan, entrepreneurs can demonstrate their ability to effectively manage and grow their franchise, increasing the likelihood of a successful partnership with the franchisor.

Using Business Plan Software

Creating a comprehensive business plan can be intimidating, but business plan software can streamline the process and help you produce a professional document. These tools offer a number of benefits, including guided step-by-step instructions, financial projections, and industry-specific templates. Here are the top 5 business plan software options available to help you craft a great business plan.

1. LivePlan

LivePlan is a popular choice for its user-friendly interface and comprehensive features. It offers over 500 sample plans, financial forecasting tools, and the ability to track your progress against key performance indicators. With LivePlan, you can create visually appealing, professional business plans that will impress investors and stakeholders.

2. Upmetrics

Upmetrics provides a simple and intuitive platform for creating a well-structured business plan. It features customizable templates, financial forecasting tools, and collaboration capabilities, allowing you to work with team members and advisors. Upmetrics also offers a library of resources to guide you through the business planning process.

Bizplan is designed to simplify the business planning process with a drag-and-drop builder and modular sections. It offers financial forecasting tools, progress tracking, and a visually appealing interface. With Bizplan, you can create a business plan that is both easy to understand and visually engaging.

Enloop is a robust business plan software that automatically generates a tailored plan based on your inputs. It provides industry-specific templates, financial forecasting, and a unique performance score that updates as you make changes to your plan. Enloop also offers a free version, making it accessible for businesses on a budget.

5. Tarkenton GoSmallBiz

Developed by NFL Hall of Famer Fran Tarkenton, GoSmallBiz is tailored for small businesses and startups. It features a guided business plan builder, customizable templates, and financial projection tools. GoSmallBiz also offers additional resources, such as CRM tools and legal document templates, to support your business beyond the planning stage.

Business Plan FAQs

What is a good business plan.

A good business plan is a well-researched, clear, and concise document that outlines a company’s goals, strategies, target market, competitive advantages, and financial projections. It should be adaptable to change and provide a roadmap for achieving success.

What are the 3 main purposes of a business plan?

The three main purposes of a business plan are to guide the company’s strategy, attract investment, and evaluate performance against objectives. Here’s a closer look at each of these:

It outlines the company’s purpose and core values to ensure that all activities align with its mission and vision.
It provides an in-depth analysis of the market, including trends, customer needs, and competition, helping the company tailor its products and services to meet market demands.
It defines the company’s marketing and sales strategies, guiding how the company will attract and retain customers.
It describes the company’s organizational structure and management team, outlining roles and responsibilities to ensure effective operation and leadership.
It sets measurable, time-bound objectives, allowing the company to plan its activities effectively and make strategic decisions to achieve these goals.
It provides a comprehensive overview of the company and its business model, demonstrating its uniqueness and potential for success.
It presents the company’s financial projections, showing its potential for profitability and return on investment.
It demonstrates the company’s understanding of the market, including its target customers and competition, convincing investors that the company is capable of gaining a significant market share.
It showcases the management team’s expertise and experience, instilling confidence in investors that the team is capable of executing the business plan successfully.
It establishes clear, measurable objectives that serve as performance benchmarks.
It provides a basis for regular performance reviews, allowing the company to monitor its progress and identify areas for improvement.
It enables the company to assess the effectiveness of its strategies and make adjustments as needed to achieve its objectives.
It helps the company identify potential risks and challenges, enabling it to develop contingency plans and manage risks effectively.
It provides a mechanism for evaluating the company’s financial performance, including revenue, expenses, profitability, and cash flow.

Can I write a business plan by myself?

Yes, you can write a business plan by yourself, but it can be helpful to consult with mentors, colleagues, or industry experts to gather feedback and insights. There are also many creative business plan templates and business plan examples available online, including those above.

We also have examples for specific industries, including a using food truck business plan , salon business plan , farm business plan , daycare business plan , and restaurant business plan .

Is it possible to create a one-page business plan?

Yes, a one-page business plan is a condensed version that highlights the most essential elements, including the company’s mission, target market, unique selling proposition, and financial goals.

How long should a business plan be?

A typical business plan ranges from 20 to 50 pages, but the length may vary depending on the complexity and needs of the business.

What is a business plan outline?

A business plan outline is a structured framework that organizes the content of a business plan into sections, such as the executive summary, company description, market analysis, and financial projections.

What are the 5 most common business plan mistakes?

The five most common business plan mistakes include inadequate research, unrealistic financial projections, lack of focus on the unique selling proposition, poor organization and structure, and failure to update the plan as circumstances change.

What questions should be asked in a business plan?

A business plan should address questions such as: What problem does the business solve? Who is the specific target market ? What is the unique selling proposition? What are the company’s objectives? How will it achieve those objectives?

What’s the difference between a business plan and a strategic plan?

A business plan focuses on the overall vision, goals, and tactics of a company, while a strategic plan outlines the specific strategies, action steps, and performance measures necessary to achieve the company’s objectives.

How is business planning for a nonprofit different?

Nonprofit business planning focuses on the organization’s mission, social impact, and resource management, rather than profit generation. The financial section typically includes funding sources, expenses, and projected budgets for programs and operations.

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9 key benefits of business financial planning

Published on January 31, 2024

Building a business financial plan is never easy. It requires effort, good data, and a fair amount of imagination. And if you’ve never done this before, you’ll likely hit a few roadblocks along the way.

But this post will show you why it’s so valuable, nonetheless.

A good financial plan keeps you focused and on track as the company grows , when new challenges arise, and when unexpected crises hit. It helps you communicate clearly with staff and investors, and build a modern, transparent business.

And there are plenty of other advantages .

We’ll explore nine of our favorites shortly. But first, let’s define exactly what we’re talking about.

What is business financial planning?

Your company’s financial plan is essentially just the financial section of your overall business plan . It applies real financial data and projections to put the rest of your business plan in context.

And crucially, it is forward-looking. While you use existing accounting figures (if you have them already) and experience to create your plan, it’s not simply a copy/paste of your accounting data. Instead, you look at your business goals and define the level of investment you’re willing to make to achieve each of these.

But this doesn’t mean that financial plans are just “made up.” If anything, this section of your business plan is the most grounded in reality.

As Elizabeth Wasserman writes for Inc :

“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.

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.”

The importance of financial planning in business

This probably won’t come as a surprise to most readers, but financial planning is essential to building a successful business. Your business plan dictates how you plan to do business over the next month, quarter, year, or longer - depending on how far out you plan.

It includes an assessment of the business environment, your goals, resources needed to reach these goals, team and resource budgets, and highlights any risks you might face. While you can’t guarantee that everything will play out exactly as planned, this exercise prepares you for what’s to come.

We’ll look at the precise individual benefits next, but suffice it to say that, without a clear financial plan, you’re basically just hoping for the best .

9 benefits of financial planning for business

So what exactly can you hope to gain from business financial planning? The benefits of business planning are probably endless, but here are nine clear advantages.

1. Clear company goals

This is really the starting point for your whole financial plan. What is the company supposed to achieve in the next quarter, year, three years, and so on?

Early on, you’ll want to establish that there is a real need for your business , and that your business fills this need. This is also known as “product/market fit.” For many startups, the first several years may be devoted to building a product and establishing that product/market fit. So this would be your chief one-to-two year goal, with smaller checkpoints along the way.

Crucially, if this is your key goal, you won’t set lofty sales targets or huge marketing KPIs. What’s the point of investing in sales and marketing for new customers, if the product isn’t ready to sell?

We’ll refer back to your company goals throughout this post, so it’s worth getting a handle on them from the start.

2. Sensible cash flow management

Your financial plan should also set clear expectations for cash flow - the amount coming in and out of the company. In the beginning, you’ll of course spend more than you make. But what is an acceptable level of expense, and how will you stay on track?

As part of this plan, you also need to figure out how you’ll measure cash flow easily. You may not have seasoned finance experts in the team, so can you accurately and efficiently keep track of where your money’s going?

By making your plan now, you can anticipate challenges both in receiving money and spending it , and identify ways to do both more effectively.

3. Smart budget allocation

This is obviously closely related to cash flow management (above) and cost reductions (below). Once you have a clear understanding of the amount of funding you have to spend - whether through sales income or investments - you need to figure out how you’ll actually spend it.

The company has its overall budget - essentially its “burn rate” for each quarter or year. Break this down into specific team budgets (product development, marketing, customer support, etc), and ensure that the amounts dedicated to each reflect their importance.

Budgets give each team their own constraints from within which to build . They know what resources are available to them, and can plan out campaigns and personal or product development accordingly.

At the company level, tracking project or team budgets is always going to be easier than monitoring spending as a whole . Once you break each budget down, it’s relatively straightforward to keep an eye on who’s spending what.

Get our free marketing budget template to help.

4. Necessary cost reductions

Aside from setting out how much you can afford to spend (and on what), a financial plan also lets you spot savings ahead of time. If you’ve already been in business for some time, building your financial plan involves first looking back at what you’ve already spent and how fast you’re currently growing.

As you set out your budget(s) for next year, you’ll refer back to past spending and identify unnecessary or over-inflated costs along the way. And then for next year’s budget , you simply adjust accordingly.

This conscious effort is all part of spend control , the practice of keeping company spending in line with your expectations. Even better, a quarterly or annual review almost always unearths areas where you can save money and put your resources to better use.

Learn more about effective spend control .

5. Risk mitigation

A crucial aspect of the finance team’s role is to help companies avoid and navigate risk - from financial fraud to economic crisis . And while plenty of risks are hard to predict or even avoid, there are plenty that you can see coming.

Your financial plan should make room for certain business insurance expenses, losses through risky inefficiencies, and perhaps set aside resources for unexpected expenses . Particularly during turbulent times, you may in fact create several financial forecasts which show different outcomes for the business: one where revenue is easy to come by, and one or two others where times are tougher.

Again, the point is to have contingency plans in place, and to attempt to determine how your roadmap changes if you grow only 20% next quarter instead of 30% (or 50%) . There’s no reason to go overboard, but you can find risky areas within the business, and also consider your best responses if things go wrong.

6. Crisis management

The first thing that tends to happen in any company crisis is you review and re-build your plans. Which of course means that you must have a clear business plan in the first place . Otherwise, your crisis response is simply to improvise.

As the 2020 financial crisis unfolded, the key refrain we heard from finance leaders was the need to reforecast constantly. Nobody truly knew how long the crisis would last, or how it would impact their business. So companies created new financial plans on a monthly or quarterly basis, at least.

And those with robust and well thought-out financial plans found this process easier. They weren't starting from scratch over and over, and they’d already identified obvious risks and the key levers to pull in response.

7. Smooth fundraising

Let’s shift away from risk entirely now. Whether you’re a brand new startup, a sustainable company that needs a small cash injection, or looking for a significant series-level investment, at some point you’ll likely need funds.

And the first thing any prospective investor or bank will ask you for is your business plan . They want to see how you intend to grow the business, what risks and uncertainties are involved, and how you’ll put their money to good use.

A financial plan that speaks to investors is critical, and the better your history of planning is, the more likely they’ll trust your projections. So whether or not you’re looking for funds today , a business financial plan is an important tool in your chest.

8. A growth roadmap

Finally, your financial plan helps you analyze your current situation, and project where you want the business to be in the future . Again, your wider business plan will do this on a broad level: the markets you’d like to be present in; the number of employees you’ll have; the products or services you hope to sell.

The financial section adds data to these goals, and plugs in your level of investment along the way . For example, if you wish to hire 100 new employees this year, your financial plan will likely need to include recruiters, and a specific budget to find new talent.

Take the time to set out how large you expect the company to be, your expenses with a larger company, and the amount of revenue coming in to compensate. If you’ve raised venture capital to help grow financially , you can probably expect to burn cash faster than you make it - this is normal.

But if you burn through money and can’t reach your growth targets, then you’ll need to re-evaluate your position. So set those growth targets out now, and you’ll be able to assess as you go.

9. Transparency with staff and investors

We already mentioned how necessary your financial plan is for investors. So we won’t dive into them more here.

But the same is true for staff. It is now expected that company executives will be open and honest with staff . Some startups go so far as to publicize their salaries for the world to see.

At the very least, modern employees want to see that the company is in good hands and on the road to success. And when executives can share the financial plan in all-hands meetings, they bring real data to what would otherwise be a business plan lacking in details.

Employees love to see key figures like revenue coming in, costs, and where you are on the road to profitability .

What to include in a business financial plan

We won’t go into too much detail here, but it’s worth giving an idea of what belongs in the typical financial plan.

A three-year financial plan is most common. But whatever the period in question is, your plan should include:

Sales projections : Project your expected sales growth for the near future, as well as the cost of sales . You can break these down in different pricing groups, products, and other important factors.

Expenses & budgets : Most important here are costs - separated into fixed and variable expenses. (Lower fixed costs usually mean lower risk for the business).

Profit & loss statement : Alternatively, you can create a cash flow statement, which achieves a similar outcome. You essentially want to project money in and money out over the next three years.

Assets & liabilities : These will usually be separated from your P&L statement, and will certainly include startup costs and assets for new businesses.

Break-even analysis : Ideally, you’ll be able to identify your break-even point within the coming three years.

Hiring & team structure : This one is not essential, but it makes sense to add as part of your business plan. Who will you need - and when will you acquire them - in order to reach your goals?

For more information - especially on forecasting in uncertain times - read our expert’s guide to startup financial planning .

There’s no time like the present to create your business financial plan

We’ve seen nine excellent reasons to get to work on your company financial plan as soon as possible. As we explored, the financials form a critical part of your overall business plan , without which you’ll have a hard time assessing your performance as a company.

Of course, this exercise requires projection - you can’t just rely on the numbers you have today. But that’s not the same thing as guesswork . Follow best practices and consider all potential outcomes, and you’ll walk away with a clear roadmap to get you to business success in the foreseeable future.

From there, it’s a matter of putting in the work, measuring success, and regularly updating your financial plan.

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Financial Plan

A comprehensive picture of the current economic situation and financial goals.

Chris currently works as an investment associate with Ascension Ventures, a strategic healthcare venture fund that invests on behalf of thirteen of the nation's leading health systems with $88 billion in combined operating revenue. Previously, Chris served as an investment analyst with New Holland Capital, a hedge fund-of-funds asset management firm with $20 billion under management, and as an investment banking analyst in SunTrust Robinson Humphrey 's Financial Sponsor Group.

Chris graduated Magna Cum Laude from the University of Florida with a Bachelor of Arts in Economics and earned a Master of Finance (MSF) from the Olin School of Business at Washington University in St. Louis.

Prior to accepting a position as the Director of Operations Strategy at DJO Global, Manu was a management consultant with McKinsey & Company in Houston. He served clients, including presenting directly to C-level executives, in digital, strategy, M&A , and operations projects.

Manu holds a PHD in Biomedical Engineering from Duke University and a BA in Physics from Cornell University.

What Is A Financial Plan?

Understanding A Financial Plan
Benefits Of A Financial Plan
How Do Financial Plans Save Real-Life Situations?
Steps To Create A Financial Plan
Why Is A Financial Plan Important For Your Business?

A financial plan is a comprehensive strategy or a document that details an individual's or company's present expenditures and future financial situation by predicting future income, asset values, and withdrawal plans based on known variables.

It includes a roadmap to aid in organizing a person's finances and may include actions or precise goals for future spending and saving. This allocation distributes future earnings to various expenses, such as rent or utilities.

In addition, financial planning is considered more than that; a lot more goes into business and regular life planning. It also involves setting aside some funds for both short—and long-term financial goals.

A financial plan is sometimes confused with an investment plan; however, in personal finance, it can focus on other areas such as risk management, estate planning, college planning, or retirement planning.

A financial plan will include strategic considerations for

Investments
Managing risks
Debt management,

Sound financial planning will help you achieve future goals, such as making money, planning for retirement, funding a child's education, saving taxes, and starting a business.

In this article, we will understand financial plans' fundamentals, components, purpose in personal and business life, and unique considerations.

Key Takeaways

A financial plan is a comprehensive strategy or document detailing an individual's or company's current financial status and future financial outlook.
Financial planning aims to organize finances efficiently, set precise goals for future spending and saving, and allocate future earnings to various expenses and investments.
It offers numerous advantages, including boosting savings, affording a better standard of living, establishing emergency and reserve funds, better management of personal finances, and promoting long-term financial stability.
Financial planning for businesses helps in goal setting, budgeting, expense management, resource allocation, risk management, capital management, financing, and performance evaluation.

Understanding a Financial Plan

The financial plan is considered a comprehensive picture of the current economic situation, financial goals, and any strategies to accomplish them. Cash, savings, debt, investments, insurance, and other elements of financial life can be included in financial planning.

In addition, it is a continuous process that will lower any financial stress about money; it helps to save for long-term goals such as retirement. Financial planning is essential because it allows you to maximize your assets while achieving your plans.

'Financial planning is not only for the wealthy; anyone can benefit from creating a future financial roadmap.'

Whether you are making a financial plan on your own or with the help of a financial planner , the first step is collecting many needed documents and clipping and pasting numbers from multiple web-based accounts into a document or spreadsheet.

It is impossible to overestimate the value of financial planning. It is not simply about increasing money away and cutting costs because Financial planning is more than that; a lot more goes into financial planning. This includes achieving future goals like the following.

Making Money

Once the cost of standard products increases, you will need to save up enough money if you want to maintain or improve your current lifestyle in the future.

Also, we must not forget that all this requires money to grow wealth. Therefore, effectively investing your money in the right areas can help you achieve your goals.

Equity mutual funds can also be a good choice for long-term goals. In the long run, these funds can help the investor build wealth.

Retirement Planning

Your retirement can be between 25-30 years in the future. However, this does not mean you should plan for it when you retire. However, it will help if you begin planning your safety net to live a happy and comfortable retirement.|

Early planning can help secure your financial future in the face of economic uncertainty. Furthermore, if you start early, you can benefit from the force of compounding, which can help you develop a large enough corpus over a 25-30-year period.

Child's Education

As we know, education has become very expensive, and it will keep increasing in the future. This is why it is necessary to begin planning as soon as your child is born. Knowing how much money you want to earn and starting investing can help you reach your objective.

Everyone is most likely to pay a substantial amount of tax each year. But you can now be able to reduce your tax bill legally. The Income Tax Act contains various provisions that allow people to lower their tax outgo.

You may determine the best ways to invest your money and lower your taxable income by preparing your taxes ahead of time. Also, mutual funds are considered tax-efficient for investing in your long-term goals.

Benefits Of a Financial Plan

Financial planning has various practical advantages. It helps many things, like boosting your savings, affording a standard life, retirement planning, making an emergency fund , reserve fund, saving money for education loans for their children, and more.

Without a financial plan, it may be possible to save money, but it may not be the most efficient method.

Business Planning: Making a financial plan can give you a lot of insight into your income and expenses. In the long run, it increases your savings and tracks and consciously cuts down your costs.
Promoting A Better Standard Of Living : Another benefit is a better, higher standard of living. Unfortunately, most people believe that they will have to reduce their living level to pay their monthly bills and EMI repayments. However, if you had a solid financial strategy, you would not have to compromise your lifestyle.
Establishing an Emergency Fund: Forming an emergency fund is an essential part of financial planning, which is considered one of the benefits. The person must ensure that he or she has at least six months of monthly salary because you can not know when precisely the emergency might happen.
But, a medical emergency occurs in the family. Unfortunately, he will have to pay for medical expenses out of his pocket because he does not have medical insurance. This depletes his retirement fund and adds to his financial obligations.
This will guide an individual in better planning for future expenses and of personal income.

All of these benefits can be realized only when the user of a financial plan sets clear goals. Apart from this, a thorough examination of financial statements and risks involved, along with constant monitoring and review of the implemented plan, can help reap the benefits of this plan.

How do financial plans save real-life situations?

A sudden job loss or a medical emergency might completely destabilize your finances; this is why an emergency fund is needed to deal with such situations.

Financial experts urge investors to set aside a contingency fund equal to six months' salary. This fund can be invested in a liquid fund to receive money immediately in an emergency.

If you have enough money, you can also cover monthly costs, invest in your future objectives, and spend a bit for yourself and your family without stress. Financial planning allows you to manage your money effectively while also providing you with peace of mind.

Example Of Real-Life Application Of Financial Planning

Imagine you have $100, and a chocolate bar costs $10. With this amount, you can buy 10 chocolate bars. Consider keeping $100 in a bank for the next year at a 5% yearly interest rate . At the end of the year, you will have $105 left.

However, say the price of the chocolate bar rises to $11 in a year. This implies you will have to pay $110 next year to get the same 10 chocolate bars. But you are short of $5 because you only have $105. This is how Inflation eats at one's savings.

Inflation reduces purchasing power over time, and you have to pay more to buy the same goods. You can fight Inflation by investing your money in things that will give you better returns over time. However, financial planning is essential.

You may spend more time with your family, pursue your passions, and travel the world. However, you must consider one important question: how will I be able to cover all of these costs? To fully enjoy your retired life, you must have enough money.

This is doable if you have financial planning that ensures regular income post-retirement.

Steps to create a financial plan

There can be no exhaustive list of steps to be taken in assembling a financial plan. These plans can change, and the steps could overlap, or some can be omitted due to irrelevance.

There are a few steps to create a financial plan that is discussed below.

Establish Financial Goals

Start by clearly identifying and stating the financial goals. These should include short-, medium-, and long-term financial goals. Goals should be prioritized based on urgency or need.

These goals should include planning for retirement and emergencies, funding education, initiating a business, and paying off debt.

Your financial goals guide an excellent financial plan. It is possible to feel more intentional about saving if you approach financial planning from the perspective of what your money can do for you, whether buying a house or helping you retire early.

Assessing Current Financial Situation

We need to get a picture of all sources of income and track the expenses. Apart from this, we need to assess the net worth , that is the difference between total assets owned and liabilities owed.

Get a sense of monthly financial flow - how much money comes in and leaves. An accurate image is vital for making a financial plan, as it can identify opportunities to increase savings or debt repayment.

It's recommended that you track expenses by categorizing them, such as rent, utilities, general expenses, and so on.

Evaluating The Risks Involved

It's imperative that we understand the risks involved. More importantly, we need to assess our risk tolerance . This will help us allocate resources appropriately.

Risk tolerance can often be assessed based on an individual's age, financial goals, time horizon, and economic and emotional ability to handle market fluctuations.

Creating A Budget

In this stage, it is imperative that a budget should be created. A budget that aligns with the financial goals and suits the income and expenses efficiently.

Allocations should be made for different expenses, debt repayment (if any), discretionary expenses (if any), savings, emergencies, and reserve funds.

Developing An Emergency Fund

Putting money aside for unexpected needs is the cornerstone of every financial plan. Starting with a small amount, like $500, will be plenty to cover minor emergencies and repairs and prevent credit card debt from accumulating.

Another way to protect your budget is to build credit. When you have good credit, you have more options, such as the potential to secure a reasonable vehicle loan rate. In addition, it can boost your budget by lowering your insurance rates and allowing you to skip utility deposits.

Debt Management

Paying down "toxic" high-interest debt, such as credit card balances, payday loans, title loans, and rent-to-own payments, is an integral part of any financial strategy. Some of these have such interest rates that you will have to return two or three times what you borrowed.

If you are struggling with revolving debt, a debt consolidation loan or debt management plan may help you consolidate multiple bills into a single monthly payment with a lower interest rate.

The priority should be to pay the high-interest debts first, while also making the minimum payment on other debts.

Investment Management

Before starting investing, it is of priority to set an investing strategy that reflects financial goals, risk tolerance, and time horizon.

The investor should consider different financial instruments, such as stocks, bonds , real estate, and alternative investments.

There should be regular reviews on how the portfolio is performing, and there should be an alternate plan ready on where to invest next or when the current portfolio isn't performing well.

Tax And Retirement Planning

If you go to a financial advisor, he or she will inquire if you have an employer-sponsored retirement plan, such as a 401(k) , and if so, does your employer matches any of your contributions.

Note that 401(k) contributions reduce your take-home pay today, but it's worth it to contribute enough to obtain the total match amount because that match is free money.

Building a moat to protect yourself and your family from financial failures with previous steps is possible. Also, you can continue to improve your economic moat as your career grows by:

Increasing your retirement account contributions.
Increasing the size of your emergency fund until you have three to six months' worth of living expenses.
Using insurance helps protect your financial stability in the event of a car accident or illness. Life insurance protects those who rely on your income. Term life insurance, which covers 10—to 30-year intervals, meets most people's needs.

Regular Review And Monitoring

Review your financial plan regularly to monitor your progress toward your objectives, identify any changes to your financial circumstances or goals, and make the required modifications.

Your plan may need to be updated as your financial goals, life circumstances, and the state of the economy change over time.

Why is a financial plan important for your business?

The financial plan, as previously said, is a snapshot of your company's current situation. The projections will inform your short- and long-term financial goals, which will be a starting point for developing a strategy.

Goal Setting And Strategic Direction

A financial plan assists you in setting realistic expectations for your company's performance as a business owner.

A comprehensive financial plan also makes you more appealing to investors, aside from helping you better manage your business. It lowers your risks and demonstrates that you have a solid strategy and track record for expanding your business.

It results in immediate productivity, efficiency, or market penetration increases versus those that can be postponed until cash is more abundant. Most companies go through this prioritization process, weighing the costs and advantages of each planned spending.

Budgets And Expenses Management

It should be of high priority that any business should be able to project revenues and expenses over time. Apart from this, identifying and prioritizing costs and their coverage will prove to be beneficial for the organization.

Whether you are beginning a new firm or expanding an existing one, all business plans should include the following elements:

A profit and loss statement
Statement of cash flows
Balance sheet
Expected sales ( sales forecast )
Personnel plan
Break-even analysis and
Financial ratios

These financial statements can be helpful even if you are just getting started. Preparing these financial statements can help a great deal in understanding the expected and actual figures of the business.

Resource Allocation

A business's ability to conserve financial resources and allocate capital wisely is vital to its success. The advantages of business financial planning include recognizing the most significant expenditures.

With its forward-looking focus, the financial plan allows the business owner to better determine which resources are being utilized well and where the organization is underutilizing.

With plans and budgets in sight, the organization can better understand the expenditures required to improve operational functionality. This will provide an organization with a boost for growth and staying ahead of competitors.

Risk Management

Financial planning helps businesses understand various scenarios through which the business has to go through. Conducting a scenario analysis can help business owners understand potential risks such as market volatility, economic downturns, changes in industrial trends, and more.

It is easy in business to focus on daily crises or challenges. However, being too short-term may cause the owner to not devote enough time to preparing to grow the company over time.

Financial planning helps a great deal in identifying and mitigating the financial risks involved. Motivating the management to carve strategies to minimize such risks.

Capital Management And Financing

In addition, having a firm financial strategy allows you to break down what is required in your short-term finances. For example, many firms experience monthly or seasonal revenue fluctuations, resulting in times when cash is plentiful and cash shortages occur.

Poor capital and cash management can lead to problems such as not being able to pay your investors, shareholders, and employees.

On the other hand, a well-structured financial plan that includes a cash cushion allows the business owner to sleep better at night. The financial cushion enables the company to take advantage of opportunities that arise, such as buying inventory from a supplier at a discounted price for a limited time.

Performance Evaluation And Decision-Making

One of the primary advantages of using a budget is to be able to compare the performance of the different line items. This helps in the performance evaluation of different costs and line items.

The business owner can examine whether an increase in advertising costs resulted in the expected increase in sales and judge how to distribute marketing resources based on trends in particular product sales.

The figures can be favorable and unfavorable, indicating how well the department's performance was over the years.

If actual outcomes are better than expected, it provides much-needed encouragement to the small business owner. For example, a graph demonstrating consistent month-over-month revenue growth or a rising cash balance is a powerful motivator.

The importance of a financial plan in the company is similar to the extent of financial planning for students: it allows the owner to understand, with the clarity of complex data, whether or not the business is on track to succeed.

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Annual Financial Planning for Business Owners: 5 Tips for Creating an Effective Strategy

A robust and well-thought-out annual financial plan can help you boost profits and drive business growth in the new year. here are tips to get yours started..

man writing on a brainstorm board with sticky notes

In an uncertain economy, effective financial planning and analysis are more important than ever. The end of a fiscal or calendar year is an opportune time for your business to reflect on and evaluate its progress, and begin strategizing for the year ahead. Developing a yearly financial plan can provide you with an overview of your business’s financial health, identify opportunities to reduce costs and help you set realistic goals for growth.

However, creating a yearly financial plan for your business can be a daunting task. While it may be tempting to put it off or forgo it entirely, doing so can have lasting implications for your business, both financial and otherwise. With a solid plan in place, you can make more informed spending decisions, allocate your resources effectively, save valuable time and minimize stress.

In this post, we’ll explore what a typical financial plan includes and provide you with five tips for creating your own.

What is the purpose of a financial plan?

A financial plan provides an overview of your business’s financial condition and projections for future growth. Developing a financial plan involves reviewing your revenue, expenses, assets, working capital, inventory and anything else concerning your financial affairs.

There are usually six key components in a financial plan: sales forecasting, expense outlay, a statement of financial position, cash flow projection, break-even analysis and an operations plan.

Several small business organizations offer free financial plan templates for small and mid-sized business owners to use. You can find templates for the financial plan components listed here via the US Small Business Administration (SBA) or SCORE .

Tips to help you develop your financial plan

1. revisit last year’s goals and performance.

Set aside time to review your financial plan from the previous year and revisit the financial goals that were set. What progress did your business make? Your evaluation should help you determine which goals you accomplished and which you might choose to revise or continue pursuing in the year ahead.

2. Review your operating expenses

Reviewing and tracking your operating expenses (OpEx) over time is a critical aspect of financial planning because it can help you identify areas to optimize so you can increase profitability. OpEx refers to ongoing expenditures your business incurs from core operations, including overhead costs such as rent, inventory, utilities, marketing and payroll. These are recorded as costs in your profit and loss (P&L) statement because they directly relate to the day-to-day cost of running your business.

Understanding operating expenses is essential for calculating your company’s overall profit and getting a clear financial picture of how operations are impacting your bottom line. With this information, you can determine your net profit and identify areas of opportunity and for improvement. For instance, if the cost of inventory has increased significantly, you may need to adjust your pricing or look into changing suppliers to protect your margins and improve profitability.

3. Forecast demand

Demand planning is an important step in developing your financial plan because it provides valuable insights you can use to optimize working capital and increase profitability, efficiency and customer satisfaction. It involves analyzing your historical sales, consumer trends and seasonality data to improve your ability to efficiently meet customer demand. The demand planning process combines sales forecasting, supply chain management and inventory management to strike the right balance between sufficient inventory levels and customer demand.

Failing to plan for demand can have major consequences for your business. For example, excess inventory ties up working capital , adds to carrying costs and increases the risk of the business being stuck with low-value or obsolete inventory. Alternatively, poor demand forecasting can leave you short on products, which can result in back orders or leave you scrambling last minute for higher-cost raw materials.

4. Map out goals for the year ahead

With your review of operating expenses, and last year’s performance and goals freshly in mind, you can begin the process of setting new financial goals for the year. Start with what you want to achieve and outline actionable steps you can take to meet these goals. If appropriate, you might also include stretch goals .

It’s helpful to break down your goals into measurable parts to make them easier to achieve. Whether you want to improve the financial health of your business, increase market share or create a new product, SMART goals — ones that are Specific, Measurable, Attainable, Realistic and Timely — can help you get there. Be precise with the numbers you want to see at the year’s end, too. For example, if you’ve set a goal of $200,000 in revenue, you could split this into quarterly, monthly or even weekly goals, so you can better gauge your success throughout the year.

Setting objectives and key results (OKRs) is another valuable approach to goal setting and tracking progress. OKRs comprise an objective (a clearly defined goal) and three to five key results (specific measures used to track the achievement of that goal). As you are setting your goals, ensure you consider growth opportunities and put money aside to properly invest in them. A commitment to growing your business will drive innovation, profit, employee retention and customer satisfaction.

5. Consider cash flow and working capital

Paying close attention to your cash flow and working capital is one of the most important aspects of financial planning. Conducting a comprehensive analysis of your key financial statements and metrics will tell you how much money is flowing in and out of your business. Tracking and managing cash flow can help you uncover unexpected cash flow gaps, or it may indicate you have a healthy enough cash reserve to make investments. For example, even if sales are high, you could be at risk of cash shortages if invoice payments are delayed in accounts receivable.

Positive cash flow enables you to cover your day-to-day operating costs while also building a reserve for investments and/or emergencies. Monitoring and forecasting your cash flow and working capital enable you to predict cash flow shortages and make more informed, proactive financial decisions. While drafting your financial plan, you’ll want to determine if you have the money you need to cover your overhead expenses and achieve the goals you have set.

If your working capital falls short of what you’ll need, it’s important to investigate why that is and explore debt-free ways to improve your company’s position . Consider implementing strategies or solutions that can help you optimize your working capital quickly.

For example, consider improving your billing practices, updating invoicing terms or leveraging an early payment program with dynamic discounting to get paid faster and free up cash. Or, see if you can increase working capital by reducing DIO (days inventory outstanding) or DSO (days sales outstanding) to tighten your cash conversion cycle . In some cases, you may need to use a combination of financial strategies and solutions to achieve your goals, or otherwise consider your options for working capital financing .

The takeaway

Strategic financial planning can help you find ways to overcome supply chain disruptions, handle rising costs and identify innovative solutions to optimize your financial position. But as a small to mid-sized business owner navigating a fluctuating economy, it can be challenging enough to plan on a quarterly basis, let alone annually.

It can be even more difficult if you lack the in-house expertise to help you create and realize your financial goals. If this is the case, it may be in your best interest to hire a finance manager to help your company execute a robust financial plan.

Ultimately, taking the time to review your finances, set goals and put together a plan to accomplish them will propel your business forward in the new year.

In this article:

5 tips to help you develop your financial plan

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What Is an Annual Financial Plan?

Create Your Financial Inventory

Set Financial Goals

Create a family plan.

Review Retirement Savings Plans

Review Your Investments

Rebalance your portfolio.

Address Tax Planning
Your Financial Emergency Plan

Look Ahead to Future Savings

Build alternative income streams, what is a financial plan, why do i need a financial plan checklist, do i need professional help to complete my checklist, the bottom line.

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Financial Planning

Your Annual Financial Planning Checklist

It’s vital to stay on top of what you have and haven’t accomplished

If you’ve taken on the task of mapping out your annual financial plan, you deserve a pat on the back. Making sure you’ve covered all the bases is important to both your short-term and long-term financial health. Keeping track of your progress with an annual financial planning checklist makes it easier to see which tasks have been completed and which you still need to tackle.

Key Takeaways

An annual financial plan allows you to determine your financial situation at the given moment.
It should include looking at all your assets and liabilities, deciding what your goals are, and selecting the methods you intend to employ to achieve them.
Make sure you check off every strategy you’ve considered, even if you decided not to pursue it.

An annual financial plan is a way to determine where you are financially at this moment in time. This means considering all your assets—how much you get paid, what’s in your savings and checking accounts, and how much is in your retirement fund. It also means considering your liabilities, including loans, credit cards, and other personal debts. Don’t forget to include things such as your mortgage, rent, utility bills, and other monthly expenses.

This snapshot should also factor in what your goals are and what you’ll need to accomplish in order to accomplish them. This can include things such as retirement planning, tax planning, and investing.

This checklist includes the most important steps in the process of reviewing your annual financial plan. Check off each step as you go, even if you decide not to refinance your mortgage or if you have already paid off your credit cards. This will help you get a complete picture of your finances.

Create a Personal Financial Inventory

Your personal financial inventory is important because it gives you a snapshot of the health of your bottom line. This annual self-check should include:

A list of assets, including items such as your emergency fund , retirement accounts, other investment and savings accounts, real estate equity, and education savings (any valuable jewelry, such as an engagement ring, belongs here too)
A list of debts, including your mortgage, student loans, car loans, credit cards, and other loans
A calculation of your credit utilization ratio , which is the percentage of a borrower’s available credit that they're currently using
A credit report and credit score
A review of the fees you’re paying to a financial advisor, if any, and the services they provide

Once you have completed a personal financial inventory, you can move on to setting goals for the next 12 months. You should divide them into short-term, mid-term, and long-term goals

Short-term goals

Establish a budget , which can be made easier by using one of the best budgeting apps to manage your money.
Create an emergency fund or increase your emergency fund savings.
Pay off your credit cards.

Mid-term goals

Get life insurance and disability income insurance .
Think about your dreams, such as buying a home, renovating a house, saving money to start a family, or sending children to college.

Long-term goals:

Determine how much of a nest egg you’ll need to save for a comfortable retirement.
Figure out how to increase your retirement savings.

There are certain things that you should think about on the financial front if you want to have children or if you plan to care for aging relatives. These are some of the items that may be on your punch list:

If you have children, determine how much you’ll need to save for future college expenses.
Choose the right college savings account.
If you are caring for elderly parents, explore whether long-term care insurance or life insurance can help.
Consider whether you should purchase long-term care insurance or life insurance for yourself or your spouse.
Start to plan how you will time your retirement, including your strategy for claiming Social Security .

Review Your Retirement Savings Plans

Saving for retirement in an individual retirement account (IRA) or a 401(k) plan is a smart way to enjoy some tax advantages while preparing for the future. As you review your annual financial plan, you should consider the following:

Decide whether a Roth or traditional IRA is best for you.
Consider switching an existing IRA to a different brokerage .
Convert a traditional IRA to a Roth IRA . When either your income or the value of your account is lower, it can be a good time to make this change at the lowest possible cost.
Do the same for your 401(k), which can also be Roth or regular.
Roll over any old 401(k) accounts from a previous employer.
If you’re self-employed, get an update on the limits for a Simplified Employee Pension Plan (SEP-IRA) or other self-employment retirement accounts and maximize your contribution amounts.
Increase or decrease your annual contribution to your retirement accounts.

It’s vital to review where your investments are, especially during a market shift, such as when the market cratered early in the COVID-19 pandemic.

It’s important for investors to take stock of where their investments are during the annual financial planning process. This is especially true when the economy undergoes a shift.

Check your asset allocation . If stocks are taking a dive, for example, you may consider adding real estate or fixed-income investments into your portfolio mix to offset some of the volatility.
Figure out which investments will best meet your asset allocation goals, and whether your current investments still fit that profile.

Periodically rebalancing your portfolio ensures that you’re not carrying too much risk or wasting your investment dollars on securities that aren’t generating a decent rate of return. It also makes sure that your current portfolio reflects your investment strategy, as changes in the market often cause a shift that needs to be corrected to maintain the diversification you originally planned.

Look at which asset classes you have in your portfolio and where the gaps are. If necessary, refocus your investments to even things out.
Consider the expense of managing your portfolio and decide whether it’s time to try a robo-advisor or another strategy to reduce costs.

When making your plan, don’t forget to consider the tax implications of any financial changes you make.

Address Tax Planning for Investments

While you’re looking over your portfolio and rebalancing, don’t forget to factor in how selling off assets may affect your tax liability. If you’re selling investments at a profit, you’ll be responsible for paying short- or long-term capital gains tax , depending on how long you held the assets. This step can wait until the end of the year. When you get to that point, you’ll want to consider these strategies:

Try tax-loss harvesting , which means taking a loss on some investments in order to offset the income taxes you owe.
Explore whether it makes sense to use appreciated securities to make charitable donations or support lower-income family members.

Update Your Emergency Plan

As the world learned due to the COVID-19 pandemic, a sizable emergency fund is helpful when financial troubles descend, so be sure you have saved adequate resources.

If you don’t have three to six months’ worth of expenses tucked away, building your emergency savings should be a top priority.
Invest in insurance. Are you covered in the case of a temporary disability, for example?
Make sure you have both financial and medical powers of attorney in place.

As you move through the year, think about where else you could be saving money to fully fund your emergency savings and put aside more for the future. Consider whether you should:

Refinance your mortgage
Rethink your car insurance
Lower your food bill
Utilize flexible spending or health savings accounts
Cut spending on cable TV or streaming services
Curb your energy bill
Divert your paycheck to savings by contributing more to retirement accounts or funneling money directly from your paycheck into an emergency savings account

A 401(k), pension plan, or Social Security benefits may all be potential sources of income in retirement, but they’re not your only options. Consider what else you could use to supplement your income.

Investing in a rental property and becoming a landlord can provide regular income.
The best real estate crowdfunding sites can help investors diversify their portfolios and offer opportunities for competitive returns without having to own physical property.
Consider taking on a part-time job. With the growing number of work-from-home gigs, you could find a flexible job that will add to your primary income.
If funds are tight, you are old enough, and you own your home, explore whether a reverse mortgage could be a good solution for you.
Think about purchasing dividend stocks, starting a side hustle, or making investments in peer-to-peer lending . These options require varying degrees of time and money to get started, but they all provide avenues for boosting income in retirement.

Use Financial Planning Apps

Using financial planning apps to track your expenses and income can simplify your financial life, but not all programs are created equal. As you wrap up your annual financial plan, review the apps and software you’re using to see if they still fit your needs. If you’re not putting any apps to work yet, take the time to review the options and see how they can help you manage your money.

A financial plan takes a snapshot look at the state of your personal finances. It balances your assets against your liabilities while considering your financial goals and what you may need to do to realize them. It’s a good idea to look at your financial plan annually, as well as after any major life event—such as marriage, divorce, birth, or death—that can substantially affect your finances.

You need a checklist so that you don’t forget something important that you should be monitoring. It is vital to check off every item on the list, even if you don’t intend to implement some of them, like refinancing a mortgage, for example. It's helpful to know that you considered all options and possibilities.

If your finances are relatively simple, you should be fine creating and checking your own list. However, the more complicated your finances, the more you should consider hiring a tax specialist, financial advisor, and perhaps an estate-planning lawyer, to help you see the fullest picture possible. A professional can help you understand your asset allocation, taxes, estate planning needs, and even your insurance requirements.

An annual financial plan is an exceptionally valuable tool for maintaining peace of mind about your finances today and in the future. Best-case scenario: You’ve checked off all the items on this punch list by now. If not, don’t hesitate to put time on your calendar to do so.

Internal Revenue Service. " Topic No. 409 Capital Gains and Losses ."

Financial Plans: Meaning, Purpose, and Key Components 1 of 14
How To Conduct a Financial Checkup 2 of 14
How to Manage Lifestyle Inflation 3 of 14
Your Annual Financial Planning Checklist 4 of 14
Financial Planning: Can You Do It Yourself? 5 of 14
The Importance of Making an Annual Financial Plan 6 of 14
What Is Retirement Planning? Steps, Stages, and What to Consider 7 of 14
10 Steps to Financial Security Before Age 30 8 of 14
10 Steps to Retire as a Millionaire 9 of 14
Why Should I Pay Myself First? 10 of 14
How Can I Budget for Short-Term Expenses and Long-Term Goals? 11 of 14
How To Adjust and Renew Your Portfolio 12 of 14
Financial New Year's Resolutions You Can Keep 13 of 14
How to Conduct a Financial Intervention 14 of 14

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Mastering your financial journey into retirement Retirement is a significant milestone in one's life, marking the end of a long journey of work and the beginning of a new phase of relaxation and leisure. However, the...

By Taylor Sohns MBA, CIMA®, CFP® • May 7, 2024

This story originally appeared on Due

Retirement is a significant milestone in one's life, marking the end of a long journey of work and the beginning of a new phase of relaxation and leisure. However, the transition to retirement is not always smooth, mainly regarding financial matters. One of the most critical questions individuals face when planning for retirement is, "How much money will I be able to spend monthly?" This question concerns not only the amount of money you have saved but also how you manage your investments and expenses.

View this post on Instagram A post shared by Taylor Sohns – CFP®, CIMA®, MBA – Finance (@lifegoalinvestments)

Deciphering your retirement cash flow

The first step in understanding your retirement cash flow is to consider your retirement age and your current income. These two factors play a significant role in determining how much money you will have available to spend in retirement. If you plan to retire early , you must have a larger nest egg to support your expenses for extended periods. On the other hand, if you have a high income, you may be able to save more money for retirement , which can increase your monthly spending in retirement.

Investment portfolios and their impact on retirement

Your investment portfolio is another crucial factor affecting your retirement cash flow. The types of investments you hold, their performance, and the level of risk you are willing to take can significantly impact the amount of money you will have available in retirement . For instance, if you have a conservative investment portfolio primarily composed of bonds, you may have a steady income stream . Still, your portfolio may not grow as much as it would with riskier investments like stocks.

On the other hand, if you have a more aggressive investment portfolio, you may see higher growth, but you also expose yourself to more risk, potentially leading to losses. Therefore, having a well-balanced portfolio that aligns with your risk tolerance and retirement goals is essential.

Understanding expenses in retirement

Your retirement expenses can significantly impact how much money you will be able to spend each month. Some costs, like housing and healthcare , are likely to be higher in retirement, while others, like commuting and work clothes, may decrease. It's essential to have a realistic understanding of your retirement expenses and plan accordingly.

The role of financial planning software in retirement planning

In today's digital age, financial planning software has become an invaluable tool for retirement planning. Such software can forecast your retirement cash flow based on various factors, including your retirement age, current income, investment portfolio, and expenses. This can give you a specific answer to the question, "How much money will I be able to spend per month in retirement?"

Moreover, financial planning software can also provide a specific probability of whether you'll have enough cash flow in retirement. This can be incredibly helpful in planning for retirement , as it can give you a clear picture of your financial future and help you make informed decisions about your retirement planning.

The importance of a financial plan in retirement

A financial plan is a roadmap that guides your financial decisions and helps you achieve your financial goals . Regarding retirement planning , a financial plan can dictate what your investment portfolio should look like. It can help you determine the right mix of investments to meet your retirement goals while also considering your risk tolerance.

A financial plan can also help you manage your retirement expenses. It can help you budget for your retirement expenses and ensure that you have enough money to cover your needs. Moreover, a financial plan can also help you plan for unexpected expenses in retirement, providing you with a safety net in case of unforeseen circumstances.

Wrapping up

Understanding your retirement cash flow is crucial for a comfortable and stress-free retirement. By considering your retirement age, current income, investment portfolio, and expenses, you can clearly see how much money you can spend per month in retirement. Financial planning software can be invaluable in this process, providing specific forecasts and probabilities to guide your retirement planning . Lastly, a well-crafted financial plan can dictate your investment strategy and help you manage your expenses, ensuring you have enough money to enjoy your golden years.

Frequently Asked Questions

Q. what is the significance of retirement.

Q. How can I decipher my retirement cash flow?

Understanding your retirement cash flow involves considering your retirement age and your current income . These two factors play a significant role in determining how much money you will have available to spend in retirement.

Q. How do investment portfolios impact retirement?

Your investment portfolio is a crucial factor affecting your retirement cash flow. The types of investments you hold, their performance, and the level of risk you are willing to take can significantly impact the amount of money you will have available in retirement.

Q. What role do expenses play in retirement?

Your retirement expenses can significantly impact how much money you can spend each month. Some costs, like housing and healthcare, are likely to be higher in retirement, while others, like commuting and work clothes, may decrease.

Q. How can financial planning software assist in retirement planning?

Financial planning software can forecast your retirement cash flow based on various factors, including your retirement age, current income, investment portfolio, and expenses. This can give you a specific answer to the question, "How much money will I be able to spend monthly in retirement?"

Q. Why is a financial plan important in retirement?

A financial plan is a roadmap that guides your financial decisions and helps you achieve your financial goals. When it comes to retirement planning , a financial plan can dictate what your investment portfolio should look like and help you manage your retirement expenses.

The post Mastering your financial journey into retirement appeared first on Due .

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Wealth Management
Meaning & Definition
Personal Finance Guide

Financial Planning

What is Financial Planning?

Importance of financial planning, objectives of financial planning, types of financial plans, how to do financial planning, frequently asked questions.

Financial planning is a step-by-step approach in determining how you would meet your life goals with your money. A good financial plan will help you to remain in control of your expenses and investments at all times. It examines your goals, helps you prioritize, save and invest money in order to achieve targets in the defined time.

For instance, you may need Rs. 25 Lakh for your daughter’s college education by the time she turns 18. For that, you need to have proper financial planning and investments to achieve the goal.

Financial planning can also be defined as the process of managing your money to achieve personal financial satisfaction. You will be able to control your financial situation by following such a planning process.

Every individual, family, and household has a unique financial position and all financial activities must be meticulously planned to meet specific needs and goals.

A comprehensive financial plan enhances the quality of life and increases your satisfaction as it does away with all uncertainties about your future needs and resources.

The specific advantages of personal financial planning include greater effectiveness in obtaining, using, and protecting your financial resources throughout your life.

Recommended Read: Difference Between Financial Planning & Wealth Management

Financial planning plays an important role in giving direction to your goals. It helps you set short-term and long-term goals in life and helps you make financial decisions more easily.

Financial planning instills discipline in terms of managing your money. You cut on unnecessary expenses and start saving. The following points will help you understand the importance of financial planning;

1. Helps manage income

A good financial plan helps you manage your income better. We need money for our basic needs but occasionally tend to splurge on unnecessary luxuries. Planning your finances will keep a check on your expenses and help you make savings.

As you will have a budget ready, you can easily assess whether you are overspending or are within budget. This will help you understand how much you need to save to reach your goals.

2. Help choose investments

It is essential to have a financial plan for choosing investments in line with your income, risk capacity, and goals. This will help you maintain a balanced investment portfolio at all times.

A sound financial plan will also help you assess your tax obligations at the beginning of a financial year. So you can plan your finances accordingly in such a manner that you pay the least amount as tax legally.

3. Retirement lifestyle

Relaxed retirement life is possible only if your finances are in a healthy state and are in order. This means having enough cash reserves for medical expenses and other emergencies.

A proper financial plan will have your retirement goals listed, including your income and expenses as detailed as possible.

4. Manage inflation

Financial planning helps you manage inflation by planning your budget in a better way. This eventually gives you peace of mind because then only you will be able to get a clear picture of your future finances.

You will be aware of when your investments will give returns and how and when you will achieve your goals.

5. Takes care of the estate

A financial plan will guide those taking care of your finances to manage your estate efficiently. Financial planning includes estate planning, which means the smooth distribution of your wealth after your death.

In essence, a proper financial plan makes things smoother. Life is unpredictable, any untoward incident can happen at any moment and you may need money urgently.

Financial planning anticipates future cash requirements and ensures smooth cash flow at all times.

Financial planning allows you to control your financial matters by avoiding excessive debt and dependence on others. It improves personal relationships as all financial decisions become well planned and are communicated to others effectively.

Personal financial planning instills in you a sense of freedom from financial worries by helping you anticipate expenses.

The objectives of a sound financial plan are to make you cash ready by creating reserves to meet the following needs;

1. Medical Emergencies

Medical expenses are an area where cash flows out unexpectedly. Therefore, the first part of your financial plan should be focused on protecting yourself and your family through a good medical claim policy.

Doing so will also take care of any unexpected expenses related to medical emergencies. Besides protection from medical expenses, you can also avail of tax benefits under the Income Tax Act.

2. Insurance

The term insurance component of financial planning offers you the much-needed protection for uncertainties. Term policies require low premiums and provide maximum protection, making them cost-efficient.

Term policies also provide you tax exemptions under India’s Income Tax Act. Further, you can apply for policies to protect major assets such as your home and vehicle from theft, fire or other unforeseen incidents.

3. Children’s future

One of the prime objectives of a financial plan is to keep us prepared for our children’s expenses, like their education and wedding.

Mutual fund investments can help secure our children’s future. Investment in equity mutual funds or children’s fund can help build a corpus of wealth until they turn into young adults.

4. Retirement

Proper financial planning will help you plan better for your retirement period right from the beginning of your career.

You can choose investment instruments such as mutual funds, bank fixed deposits or invest in the stock market through expert advice. This will help in timely creating a retirement fund so that you lead a happy and relaxed retired life.

Financial plans consider future fund requirements in three stages. These stages form the basis of the financial plan categorization.

Let us have a look at the types of financial plans.

1. Short-term Financial Plan

The short-term financial plan outlines financial goals and the investment needs for a one-year period. Such a plan is less uncertain than a long-term plan and can be easily corrected if required. The short-term financial plans include creating an emergency fund.

The corpus requires you to at least have funded four times your monthly salary. The emergency funds are helpful in meeting medical exigencies and temporary income loss.

The emergency funds can be created by investing in liquid mutual funds .

2. Medium-term Financial Plan

A financial plan for a period of five to seven-year comes under medium-term plans. This is the period wherein you have goals to buy your dream vehicle, go on a foreign vacation or purchase a house by cashing in on your investments.

You can also look for creating a safe multipurpose corpus of the fund to retire a loan or for your wedding expenses.

The medium-term financial plans identify above life goals that need an assured amount of money. It will also suggest you make investments in debt mutual funds , bonds or fixed deposits in order to help you achieve your goals.

3. Long-term Financial Plan

The long-term financial plan is for periods over seven years and beyond. Planning for the long-term is essential to enjoy financial security in your retirement years.

Preparing for children’s higher education and wedding also come under long-term financial planning.

The long-term plans can be best met through investments into equity mutu a l funds and shares. This is because over a longer horizon the market volatility levels out and you have better chances of earning higher returns.

Most individuals want to handle their finances for getting full satisfaction from each rupee spent. Financial goals include a new car, a bigger home, a foreign vacation, and self-sufficiency in retirement. For achieving these goals, you need to identify them and set priorities.

The financial planning process involves a six-step procedure.

1. Determining your present financial status

The first step of a financial planning process is to determine your current financial status in terms of income, savings, living expenses, and debts. This is your present net-worth.

You can prepare a list of existing assets and debt balances and the money spent on various items. Doing so will create a foundation for financial planning activities.

2. Developing financial goals

Developing financial goals refers to analyzing & identifying how you feel about money and why you feel that way. The reason for this analysis is to differentiate your needs from your wants.

Specific financial goals are very important for creating a proper financial plan. You must decide which financial goals to pursue. Your financial goals can vary from spending all your current income to developing extensive savings & investment plans for financial security and freedom in the future.

3. Identifying & evaluating alternatives

While planning, it is vital to be creative because it helps in arriving at effective choices. You will be able to make more effective and satisfying decisions if you consider all of the possible alternatives.

Even though many factors influence the alternatives, the possible course of action typically fall under the following categories;

Continuing the same course of action
Expanding the current situation
Changing the current situation
Taking a new course of action

The alternatives represent possible courses of action and all of them will not apply to every decision-making situation.

You should evaluate possible courses of action by taking into consideration factors such as your life situation, personal values, and current financial condition.

4. Evaluating risks

Every decision-making involves a certain degree of uncertainty. For example, you may not be able to build a multi-crore corpus of funds for retirement as desired. This can be due to market volatility, downtrend or inadequate returns from your investments. So there is an element of risk in every step.

Other decisions entail low risk or no risk at all and these could be depositing money in a savings account or purchasing items of everyday use. Your chances of losing something of great value are lower/ zero in such situations.

In many financial decision-making situations, identifying and evaluating risk is a difficult task. Hence, you must keep on obtaining relevant information related to your financial plans. You must continually build up and update your knowledge as personal, social and economic conditions do not remain static.

You also have the option to take the help of financial planning experts.

5. Creating and implementing a financial action plan

The next step of the financial planning process is developing an action plan. This refers to choosing ways to achieve your goals in a systematic manner.

Once you achieve your short-term goals, the goals next in importance will come into the limelight, until you have all the short, medium and long term financial plans covered.

You can take the assistance of an expert while implementing your financial action plan. This will involve making investments into financial assets like mutual funds, liquid funds PPF, ELSS, and bank deposits.

6. Re-evaluating and revise your financial plan

Financial planning is a constantly changing process and does not come to a halt when you take a certain action. This means assessing your financial decisions on a regular basis. Frequent assessments become necessary given the changes in personal, social and economic factors.

In situations of medical emergencies or accidents, the existing financial planning process will become an instrument for adapting and adjusting to such an unto event. Post the event you once again need to revisit your plans.

Reviewing the decision-making process regularly will help you make adjustments to your priorities. Doing so will align your financial goals and activities with your current life situation.

You may think that time is with you, but you may not continue to work throughout your life. This means your income and other financial sources will not remain the same forever.

It requires real work for anyone to live on their own terms even after retirement. This goes to show the importance of financial planning and should nudge you to go for sound financial planning for your future years.

Financial planning is a process of determining a way to achieve financial goals. It helps set financial goals to achieve in life. Financial planning acts as a guide for decision making. It sets a road map for a secure financial future. One can decide on where to invest and when using a financial plan. It also helps set standards and helps in continuous monitoring of the performance of investments with the goals. Financial planning helps not only secure the financial future but also reduces mental and emotional stress. It also acts as a great source of motivation.

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Anjana Dhand

Anjana Dhand is a Chartered Accountant who brings over 5 years of experience and a stronghold on finance and income tax. She is a writer by day and reader by night. You can find her churning content at express speed. She is on a mission to stamp out unawareness and uncomplicate boring personal finance blogs to sparkle. Anjana believes in the power of education in making a smart financial decision.

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Financial Consumer Agency of Canada Business Plan 2024–2025

From: Financial Consumer Agency of Canada

Business Plan 2024–2025 [ PDF - 311 KB ]

Information contained in this publication or product may be reproduced, in part or in whole, and by any means, for personal or public non-commercial purposes without charge or further permission, unless otherwise specified.

Commercial reproduction and distribution are prohibited except with written permission from the Financial Consumer Agency of Canada.

For more information, contact:

Financial Consumer Agency of Canada 427 Laurier Ave. West Ottawa, Ontario K1R 7Y2

ww.canada.ca/en/financial-consumer-agency

Cat. No. FC2-4E-PDF (PDF, English)

ISSN 2562-5896

Aussi disponible en français sous le titre : Plan d’activités 2024-2025

Message from the Interim Commissioner

Picture of Werner Liedtke, Interim Commissioner of the Financial Consumer Agency of Canada

I am pleased to present the 2024–2025 Business Plan for the Financial Consumer Agency of Canada (FCAC).

The transformation of the financial services industry and the escalating pace of change is continuing. This brings both risks and opportunities that require all members of the financial ecosystem to work together to protect financial consumers and support their diverse needs. The Agency’s activities for the coming fiscal year demonstrate an ongoing commitment to advance the rights and interests of consumers in this changing and challenging environment.

The Agency is currently in a transition phase as we await the appointment of a new Commissioner. During this time, we will continue the steady progress we’ve achieved over the past 4–5 years. This includes advancing the strategic goals identified in our five-year 2021–2026 Strategic Plan, which position us to be a leader and innovator in financial consumer protection.

The Agency can also look forward to taking on new responsibilities because of Budget 2024, which included announcements that demonstrate the importance of our consumer protection mandate. FCAC will be mandated to oversee, administer and enforce a Consumer–Driven Banking Framework (also known as open banking). We are excited about this opportunity which we are well-placed to take on. Our policy, research and education functions have already made important contributions to the development of a future framework that prioritizes innovation and ensures strong and consistent protection for financial consumers.

The Agency will remain focused on mobilizing efforts to advance financial consumer protections, guided by the milestone Financial Consumer Protection Framework and our ambitious National Financial Literacy Strategy. We will also continue to grow our capacity to leverage data and conduct cutting-edge research. Data-driven approaches, such as our analysis of regulatory data and the National Strategy’s Measurement Plan, are an essential component of designing effective interventions and informing policy responses to protect consumers and enable them to build financial resilience.

As always, at the core of everything we do is our people. We know that by investing in our team members and promoting initiatives that prioritize their well-being, we not only enhance individual growth but also propel the organization towards greater heights of achievement. This work is founded on a commitment of continuous improvement, and includes actions to modernize our internal processes, enhance our risk management practices, and administer our resources in an affective and disciplined manner.

It is an honour to lead FCAC during this exciting period. FCAC is adapting to changing dynamics in the financial sector, embracing emerging technologies, and responding to evolving regulatory frameworks. We are staying ahead of the curve and meeting the needs of Canadians in an ever-changing landscape.

Werner Liedtke Interim Commissioner

The Financial Consumer Agency of Canada (FCAC) is a federal government agency that was established in 2001 to protect the rights and interests of Canadian consumers of financial products and services. FCAC derives its mandate from the Financial Consumer Agency of Canada Act .

As a regulator, FCAC protects financial consumers by supervising the compliance of federally regulated entities with their market conduct obligations as established by legislation, codes of conduct and public commitments. The Supervision Framework describes the Agency’s approach and the variety of supervisory tools and activities that FCAC uses to promote, monitor and enforce the obligations that govern federally regulated entities in Canada’s financial ecosystem.

The Agency is also mandated to strengthen the financial literacy of Canadians and:

promote awareness of the rights and responsibilities of Canadians in their dealings with financial institutions
monitor, evaluate and promote awareness of trends and issues that may affect financial consumers
develop and publish research, content, tools and programs to strengthen the financial literacy of Canadians
foster an understanding of financial services and related issues in collaboration with stakeholders, including government, regulatory and community organizations

Our vision and mission

To be a leader and innovator in financial consumer protection

Our mission

To protect consumers of financial products and services
To supervise regulated entities
To educate Canadians and strengthen their financial literacy

Our core responsibility: The protection of financial consumers

FCAC’s core responsibility is to protect financial consumers in Canada. This is achieved by delivering 2 programs — ‘‘Supervision and Enforcement’’ and ‘’Research, Policy and Education’’ — that are designed to:

promote, monitor and enforce compliance on the part of regulated entities that are subject to market conduct obligations established by legislation, codes of conduct and public commitments
strengthen the financial literacy and resilience of Canadians by working with stakeholders and relying on evidence-based research and collaboration to propose policies, educate consumers and encourage them to take beneficial financial action

FCAC’s programs are supported by a solid foundation of expert advice and services provided by its marketing, communications, stakeholder relations, legal, human resources, information technology, finance and administration teams. (See Annex A for performance information related to this core responsibility.)

FCAC’s strategic goals

In September 2021, FCAC released its 5-year strategic plan , which articulates 4 strategic goals:

Be the national leader in financial consumer protection FCAC provides national leadership in financial consumer protection through the effective supervision of regulated entities and constructive contributions to policymaking.
Strengthen the financial literacy of Canadians for an increasingly digital world FCAC strengthens the financial literacy of Canadians through educational tools and resources, research, experimentation, and stakeholder collaboration and partnerships, to foster responsible financial behaviours and decision-making.
Be the authoritative source of Canadian financial consumer protection information FCAC is recognized by Canadians, partners and stakeholders as a trusted source of unbiased, evidence-based information pertaining to the protection of financial consumers.
Enable the future of work FCAC invests in its people and optimizes its workplace and processes to enable an inclusive culture of innovation, collaboration and excellence.

FCAC’s 2024–2025 Business Plan supports and builds on these 4 strategic goals with proactive, responsive and innovative initiatives that will advance financial consumer protection for all Canadians.

FCAC recognizes that the risk environment in which it operates is dynamic, with emerging new technologies that affect how financial products and services are created, distributed and sold, and that could impact how the Agency delivers on its mandate.

In 2023–2024, FCAC continued refining its internal risk management processes, improving its monitoring and early identification of current and potential risks, and developing sound strategies to manage and mitigate these risks.

In 2024–2025, FCAC will implement an enhanced risk management framework that sets out FCAC’s mission-critical risks and outlines its commitment to sound risk management practices and principles. A strong risk culture—with norms, attitudes and behaviours related to the awareness, management and control of risks—and a disciplined approach to managing these factors, enables the Agency to operate proactively, enhance governance, increase accountability and improve overall performance. For 2024–2025, the Agency identified 5 key areas of operational risk:

Foresight and responsiveness: FCAC must ensure it can anticipate and respond to emerging risks and challenges that could compromise the Agency’s ability to effectively protect consumers.
External crisis management: FCAC must be adequately prepared for, and able to effectively respond to, a Canada-wide and/or large-scale catastrophic event, such as a major banking incident, terrorist attack, cyber-related event or climate disaster.
Digital capabilities and capacity: FCAC must ensure sufficient skills and capacity to advance its digital priorities and fulfill its ongoing operational requirements. These requirements include managing and analyzing information and data, developing enterprise solutions, and maintaining secure and effective information technology (IT) systems.
Workforce and workplace resilience: FCAC must sustain workplace conditions and a workforce culture that supports adaptation, innovation and resilience.
Business processes: FCAC must ensure its current business processes are efficient and effective, to ensure the sound management of its resources and the delivery of its mandate.

FCAC continues to implement strategies and measures to mitigate each of these risks, and its governance bodies monitor them on a regular basis.

2024–2025 planning context

The changing financial landscape and the expansion of financial vulnerabilities over the past few years underscores the importance of consumer protection in financial services. Consumer protection builds trust and confidence that contribute to the stability of Canada’s financial system. In its regulatory, research and education roles, FCAC is working alongside its federal, provincial and international partners to ensure progress in made in advancing consumer protection to meet the evolving needs of Canadians.

Consumer protection in a complex and changing financial landscape

Canadian households are expected to continue facing economic pressures over 2024–2025. As a result, FCAC will remain focused on protecting and informing consumers who are experiencing financial stress. The Agency will continue to engage in initiatives that encourage Canadians to check up on their financial health, manage their debt, seek advice when experiencing financial difficulties and understand how to protect themselves against scams and frauds.

Last year, FCAC published its expectations for how federally regulated financial institutions should work with residential mortgage holders, to provide tailored relief measures to consumers at risk. These expectations are set out in the Agency’s Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances . FCAC is actively monitoring the compliance of financial institutions with the guideline. In addition, the Agency is leading an initiative to modernize the current public commitment on low- and no-cost bank accounts to make them more responsive to the current needs of consumers.

FCAC is also continuing to focus on mobilizing the financial ecosystem—including members from the financial industry, governments and regulators, as well as community organizations and other key players—to improve financial outcomes for Canadian consumers. All ecosystem members share a responsibility to reduce barriers and catalyze actions that will help Canadians build financial resilience in an increasingly complex and digital financial marketplace. FCAC’s planned activities demonstrate the Agency’s commitment to work with the financial ecosystem to adapt to the changing conditions and sector evolution. The focus on improving consumer outcomes is central to the Framework and National Strategy, both of which will continue to drive the Agency’s efforts for the coming year. FCAC will bring insights from its research and education together with its regulatory interventions, exemplifying how the 2 sides of FCAC’s mandate work in tandem to meet the needs of financial consumers.

Managing money in today’s financial marketplace

Significant growth in new and emerging technologies is reshaping traditional financial services and provides increased choice and convenience. Saving, depositing and borrowing money can now be transacted on faster and more efficient digital platforms. However, consumers are generally not aware that the use of novel technologies in financial services can occur on platforms that are largely unregulated. Further, these platforms may not be subject to consumer protection measures set out in legal frameworks, such as the right to make a complaint through a financial institution’s complaint-handling process if something goes wrong.

FCAC will continue to closely monitor this evolving space and conduct on-going research and analysis. The Agency will also look for opportunities to help shape policy frameworks, to ensure that consumers benefit from consistent protections and market conduct standards as products and markets evolve.

In addition, consumer education will increase in importance while appropriate regulatory frameworks are being considered and implemented in response to emerging technologies. A better-informed consumer is a better-protected consumer. To that end, the Agency will continue to share information with consumers both proactively and responsively, and to serve as a leader and authoritative source of Canadian financial consumer protection information.

The need for trustworthy and reliable information and resources

Consumers are faced with a wide and growing array of products and services, and conflicting messages about how they should manage their money.

The importance of consumers’ trust in the financial sector and the need for dependable information were thrown into sharp relief in 2023, when front page news was made by the sudden collapse of banks in the US and internationally. The bank runs seen at these financial institutions were amplified and accelerated due to information and misinformation that spread quickly on social media, and risked extending to other banks.

While strong regulation, good supervision, and an agile risk culture greatly protect Canada’s banking industry and support overall financial stability in Canada, these recent events also underline the vital importance of consumer confidence and trust in the financial system. FCAC’s mandate and mission serve to bolster Canadian financial consumers’ confidence in the financial system by protecting financial consumers, supervising federally regulated financial institutions (FRFEs) and educating Canadians to strengthen their financial literacy.

The Agency works with its partners to help consumers understand the Canadian financial system and appropriately use financial products and services. Information on consumers’ rights and responsibilities, alerts of risks and areas of concern, along with clarity on what steps to take when problems occur will continue to be a focus. Increasingly, this financial education work is informed by behavioural design, in recognition that simply disseminating information is insufficient as a driver of success. Rather, information must be presented in ways that facilitate and motivate positive behaviours.

The National Strategy includes a strong focus on behavioural design and FCAC is leading by example. As outlined in this plan, the Agency is leveraging its research and behavioural science experiments to provide trustworthy and unbiased information for financial consumers about managing money and their rights in dealing with financial institutions, with a particular focus on vulnerable populations.

Budgetary planning summary

FCAC is a federal government agency that covers its costs through revenues from assessments of the financial entities it supervises, and from an annual statutory expenditure that supports its activities related to strengthening the financial literacy of Canadian consumers. The Agency’s disciplined administration of its resources ensures it delivers high-quality services and programs for both ecosystem stakeholders and financial consumers in Canada.

In recent years, FCAC has made significant investments in its program capabilities and resources. The expanded legislative mandate of the Framework and increased opportunities related to the National Strategy have contributed to the required resource growth. Additional investments in internal services—especially in its information management/information technology (IM/IT) functions, to support the growth in data acquisition, management and analytics—have also been prioritized. “Internal services” includes FCAC’s marketing, communications, stakeholder relations, legal, human resources, information technology, finance and administration teams that are required to support the Agency’s programs and other corporate obligations.

Budget 2023 committed to reduce planned spending by the Government of Canada and its agencies on consulting, other professional services, and travel. FCAC’s planned expenses are compliant with these targeted reductions. The table below identifies the planned spending over the next 3 years.

Note: Totals may not add up due to rounding.

2024–2025 planning highlights

This section presents the key enabling initiatives and activities that FCAC plans to undertake during the 2024–2025 fiscal year to advance its strategic goals. These initiatives and activities are in addition to, and enhance, the core business functions—that is, the daily work to protect, supervise and educate—that help the Agency fulfill its legislated requirements as set out in the Financial Consumer Agency of Canada Act and other statutes.

Strategic goal 1: Be the national leader in financial consumer protection

Enabling initiative: Strengthen the risk-based, outcome-driven Supervision and Enforcement program

FCAC’s Supervision and Enforcement program actively oversees the federal financial sector through supervisory engagements, industry self-reporting and, increasingly, data and trend analysis. The program is designed to be risk-based and outcome-driven. It seeks to promote and enable compliance on the part of regulated entities by ensuring supervisory activities are transparent, proactive, timely, and effective. The Supervision Framework describes the Agency’s approach and the variety of supervisory tools and activities that the Agency uses to promote, monitor and enforce the obligations that govern federally regulated entities in Canada’s financial ecosystem.

2024–2025 activities:

Deliver on the Government of Canada’s public commitment to make low-cost/no-cost accounts meet the evolving banking needs of Canadians. FCAC is leading the review and revision of the current public commitment by banks to offer low-cost and no-cost accounts to reflect the current needs of Canadian consumers.
Oversee the transition to a single External Complaints Body. In October 2023, the Government of Canada announced the designation of a single external complaints body for banking. FCAC conducted the open application process leading to the designation; the Ombudsman for Banking Services and Investments will assume its responsibilities as Canada’s single external complaints body for banking on November 1, 2024. FCAC will supervise regulatory compliance and oversee the transition to ensure minimal impact on consumers.
Monitor industry compliance with FCAC’s Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances. FCAC issued its Guideline on Existing Consumer Mortgage Loans in Exceptional Circumstances in July 2023. The Guideline outlines the Agency’s expectations related to the measures that should be taken by federally regulated financial institutions to assist mortgage-holders who are at risk of default on their principal residences because of exceptional circumstances. In 2024–2025, FCAC will monitor and report on industry compliance with FCAC’s Guideline through regular reporting requirements.
Update Supervisory Guidance. FCAC issues guidance to communicate its expectations to the industry. In 2024–2025, FCAC will continue to issue guidance, to further enable the compliance of federally regulated financial entities with their market conduct obligations.
Enhance the Risk Assessment Framework. Data analytics enhance FCAC’s ability to leverage data to identify compliance risk and inform supervisory priorities. In 2024–2025, FCAC will implement an enhanced risk-assessment framework and continue to invest in its data analytics capabilities.

Enabling initiative: Advance the rights and interests of financial consumers

Innovation in the financial sector continues to drive the emergence of new business models, applications, processes and products. FCAC advances the rights and interests of financial consumers by conducting research, developing timely and evidence-based analysis and advice on emerging financial protection issues, and contributing to the development of Government of Canada financial, regulatory and consumer protection-oriented policies.

FCAC also leverages its international engagements to both reflect and help further inform its leadership on consumer protection issues, including its core principle of focusing on good consumer outcomes through principles-based regulation. The Agency’s efforts will continue to be guided by the updated G20/Organization for Economic Co-operation and Development (OECD) High-Level Principles on Financial Consumer Protection , endorsed by Canada and other G20 leaders in 2022.

the Financial Sector Legislative Review. In 2023, the Department of Finance launched consultations on the federally regulated financial institutions statutes as part of the financial sector legislative review announced in Budget 2022. In 2024–2025, FCAC will contribute to the development of legislative changes to further strengthen financial consumer protections for Canadians.
the development of Canada’s Open Banking framework (also known as Consumer-Driven Banking), and Phase II of the Retail Payment Activities Act . The Government of Canada announced plans to introduce legislation to establish an open banking framework, and continue initiatives to support the modernization of Canada’s retail payments system. FCAC will advocate for shaping these policy frameworks to ensure consumers benefit from consistent protections and market conduct standards.
conducting research and analysis on consumer vulnerabilities, to improve Canadians’ financial resilience and increase financial inclusion. FCAC will conduct research on consumer vulnerabilities related to over-indebtedness, high-cost lending, digital capability and fraud. FCAC will also identify systemic barriers related to access to banking services, and will provide recommendations on how to address them to increase financial inclusion.
enhancing international and domestic engagement to support financial consumer protection. The Agency does this through research, information-sharing and identification of best practices in consumer protection, while working proactively with provincial, federal and international organizations and committees to advance consistent financial consumer protection in Canada.

Strategic goal 2: Strengthen the financial literacy of Canadians for an increasingly digital world

Open banking, digital financial assets and the use of artificial intelligence in the financial sector all introduce new risks, such as fraud, privacy breaches and cyber-attacks. Increasingly, enhancing digital literacy is an essential component of improving financial literacy, and is a requirement to navigate the new financial landscape.

Enabling initiative: Mobilize the financial ecosystem to advance the implementation of the National Financial Literacy Strategy

The National Strategy is a framework for a more accessible, inclusive and effective financial ecosystem for all Canadians. Last year, FCAC published the National Strategy Measurement Plan and Dashboard . The Measurement Plan provides a common methodology to assess progress against the National Strategy’s target outcomes, and provides reliable information on gaps in knowledge and opportunities for improvement in the Canadian financial ecosystem. The Dashboard allows interested parties to explore initiatives led by the ecosystem that are aligned with the National Strategy, and to survey the findings associated with those initiatives. This information allows FCAC to focus its resources where they have the most impact, on the interventions that are likely to be most effective at increasing financial resilience and achieving good financial outcomes.

At the mid-way point of the National Strategy, the Agency is satisfied by the progress to date and will continue its implementation through collaboration and support for the financial ecosystem to identify, conduct and measure innovative activities aimed at advancing positive financial outcomes for consumers.

Invest in initiatives that support consumer organizations, and advance a program to support the financial ecosystem in delivering financial literacy services to Canadians and in further amplifying the National Strategy’s call to action.
Conduct ongoing outreach to mobilize stakeholders to adopt the National Strategy Measurement Plan , to support measurement efforts aligned with the National Strategy’s priorities target outcomes, and to contribute to effective reporting.
Form expanded partnerships, including through proactive engagement with other international, federal and provincial bodies, to share knowledge and identify collaboration opportunities to support financial literacy and contribute to better outcomes for financial consumers in Canada.
Continue to enhance the Agency’s research, data and collaboration platform , created to facilitate knowledge sharing and collaboration in support of the advancement of the National Strategy, including developing collaboration-specific functionalities and optimizing the existing data-visualization capabilities.

Strategic goal 3: Be the authoritative source of Canadian financial consumer protection information

FCAC is recognized by its partners, stakeholders and the Canadian public as a trusted source of unbiased and evidence-based information. Insights that come from the Agency’s research and behavioural science experiments are key to providing trustworthy, practical, clear information for financial consumers, about managing money and about their rights when dealing with federally regulated financial institutions.

Enabling initiative: Leverage data and research to impact consumer' financial outcomes

Evidence-based research on consumer outcomes can lead to tangible improvements in the design and delivery of financial literacy interventions that can increase Canadians’ financial resilience. FCAC leverages insights from data and behavioural science research to offer direct-to-consumer tools and interventions that support financial consumers in Canada, with a particular focus on vulnerable populations.

launch FCAC's innovative new Measure of Financial Resilience , an evidence-based index of Canadians’ financial resilience. This measure represents a holistic approach that goes beyond existing measures by including environmental factors.
analyze and report on data collected through nationally representative surveys , including the FCAC's Monthly Financial Well-being Monitor , that enable the Agency to monitor emerging trends, respond to a changing digital environment and share findings on the financial well-being of Canadians.
Leverage data from the financial ecosystem , to enhance understanding of current and emerging consumer challenges, to explore innovative solutions, and to scale up tested approaches that have proven effective.

Enabling initiative: Promote timely, relevant and effective tools and resources

FCAC provides timely and relevant information and resources to support the needs of financial consumers in today’s changing and challenging economic environment. To increase awareness of FCAC’s consumer protection actions and its tools and resources, the Agency will continue to extend its reach through marketing, advertising and digital communications.

Equip consumers with timely and effective resources. With insights from FCAC’s research studies, the Agency will continue to expand the scope of its consumer resources, to provide timely and authoritative educational information.
Enhance the impact of tools, resources and Financial Literacy Month. FCAC will leverage its digital channels and engage in strategic collaborations to extend the reach of its consumer tools and resources, to help Canadians make informed financial decisions. The Agency will also work closely within the financial ecosystem to further heighten the impact of Financial Literacy Month.
Enhance the Agency’s capability to provide support directly to financial consumers. FCAC’s Consumer Services Centre responds to inquiries and provides unbiased information directly to financial consumers, merchants and stakeholders. Consumers also submit complaints that provide important insights into trends and issues, potential regulatory gaps, and areas that would benefit from additional consumer education or research. In 2024–2025, the Agency will implement an action plan to enhance FCAC’s ability to provide information and support directly to financial consumers.

Strategic goal 4: Enable the future of work

FCAC fosters a culture of collaboration, innovation and excellence, and reaffirms its commitment to public service values by strengthening its people-management practices, modernizing its internal processes, and leveraging new technologies.

Enabling initiative: Strengthen and support the workforce

The Agency will continue to strengthen its people-management programs and initiatives, to attract and retain the talent it needs to achieve its vision and mission.

Continue to prioritize equity, diversity and inclusion (EDI) and employee well-being. FCAC invests in its people and management practices, recognizing that the value of a diverse and resilient workforce enables the Agency’s role as regulator, educator and employer. FCAC will continue to implement its multi-year EDI, official languages, and mental health and wellness action plans.
Fully implement the hybrid model of work. FCAC has developed a purpose-driven hybrid work model that serves to address Agency requirements while maintaining flexibility in work arrangements and geographic location within Canada. The organization will implement Agency, Branch and Team Charters, which provide clarity for in-office expectations while continuing to foster FCAC’s culture of collaboration, innovation, and excellence.

Enabling initiative: Use data to support decision-making

Data collection and analysis enable FCAC to identify ongoing and emerging issues in the financial ecosystem. Investments in tools, skills and capabilities are expanding, as more data sources are obtained and more uses identified. Insights derived from effective data analysis support the development of research projects, supervisory decision-making, and policy advice.

Leverage data and analytics. The Agency creates and receives data through its research activities, its partnerships and its supervisory activities. Results from effective data analysis can be used to inform research projects, to support policy recommendations or to determine appropriate supervisory actions. FCAC will continue to bolster the value of its data by enhancing its analytic capabilities, automating processes, and utilizing available data to assist in decision-making.
Enhance and maintain data security and integrity. The Agency will continue to proactively manage the safety and security of its data sets and sensitive information. A focus on cyber resilience and data management best practices is fundamental to FCAC’s mandate to protect Canadian consumers.

Spending and human resources

This section provides a holistic view of the Agency’s planned spending and human resources for the next 3 fiscal years and compares planned spending for the upcoming years with the current year’s forecast and previous years’ actual spending. The Agency uses the full accrual method of accounting to prepare and present its annual expenses.

This year's plan continues to follow the reductions in spending required by the Government of Canada’s Budget 2023, in line with the goal of reducing 3% of planned discretionary spending by 2026–2027, with specific reductions to planned travel and professional services. FCAC remains committed to demonstrating financial discipline and prudent financial management practices.

Planned spending

FCAC is a federal government agency that recovers its costs mainly through assessments against the regulated entities it supervises. In addition to revenues from these assessments, FCAC receives an annual statutory authority of a maximum of $5 million to support the financial literacy of Canadians.

The following table shows actual, forecasted and planned spending for each of FCAC’s programs and Internal Services. FCAC’s programs are supported by a solid foundation of expert advice and services provided by its marketing, communications, stakeholder relations, legal, human resources, information technology, finance and administration teams (Internal Services) required to support the programs and other corporate obligations.

Note: Totals may not add up due to rounding. Expenses are presented on an accrual basis.

The following table is used to calculate the Agency’s funding requirements, by reconciling planned expenses calculated on an accrual basis with its funding requirements on a cash basis.

The requested funding line represents the Agency’s costs of operation, including both operating and capital expenditures, which may be requested as advance amounts out of the Government of Canada’s Consolidated Revenue Fund.

Note: Totals may not add up due to rounding.

Planned human resources

Note 1: Totals may not add up due to rounding.

Note 2: In addition, FCAC has created a dedicated student employment program funded at the equivalent of 10 full-time students commencing in 2024–2025.

Future-oriented condensed statement of operations

The future-oriented condensed statement of operations provides an overview of FCAC’s operations for fiscal year 2023–2024 to fiscal year 2024–2025.

The forecast for financial information related to expenses and revenues is prepared on an accrual accounting basis, to strengthen accountability and to improve transparency and financial management.

A more detailed future-oriented statement of operations and associated notes, including a reconciliation of the net cost of operations to the requested authorities, is available on the FCAC website .

Website: Canada.ca

Telephone (Consumer Services Centre):

Toll-free: 1-866-461-3222 ln Ottawa or outside Canada: 613-960-4666

TTY (for persons with hearing impairment):

Toll-free: 1-866-914-6097 ln Ottawa or outside Canada: 613-947-7771

Email: Contact us

Facebook : FB.com/FCACan

LinkedIn: fcac_can

Instagram: fcac_can

X (formerly Twitter): @FCACan

YouTube: FCACan

Postal address:

Financial Consumer Agency of Canada 427 Laurier Ave. West Ottawa, Ontario K1R 7Y2

Annex A: Departmental Results Framework

As per the Treasury Board of Canada’s Policy on Results , Government of Canada entities are expected to identify core responsibilities and describe at a high level what the organization does, what it is trying to achieve, and how it will assess its progress.

FCAC’s core responsibility is to protect financial consumers. It achieves this by implementing 2 programs: "Supervision and Enforcement" and "Research, Policy and Education." The Agency’s budgetary resources, employees and activities are organized around this core responsibility and these 2 enabling programs.

FCAC’s program inventory and associated performance indicators were updated in 2023–2024 to represent the key outcomes the Agency wishes to achieve.

Core responsibility: Protection of financial consumers

Departmental results framework.

Departmental result: Regulated entities comply with consumer protection measures

Indicator: Percentage of FCAC’s supervisory actions in response to non-compliance that are completed on time
Indicator: Percentage of FCAC’s supervisory actions that have resulted in the correction of non-compliance

Program: Supervision and Enforcement

Departmental result: Canadians’ financial resilience is improved

Indicator: Percentage of Canadians demonstrating positive financial knowledge, attitudes, and behaviours
Indicator: Percentage of Canadians demonstrating financial well-being

Program: Research, Policy and Education

FCAC protects financial consumers in Canada by overseeing the market conduct of federally regulated financial institutions—including Canada’s banks, federally regulated trust and loan companies, insurance companies, credit unions, as well as external complaints bodies and payment card network operators—to ensure consumers’ rights are protected. The Agency also monitors developments and trends in the financial sector, promotes public awareness of all matters related to protecting consumers of financial products and services, and makes recommendations, including policy recommendations, to the Government of Canada on issues relevant to financial consumers and industry. The Agency also conducts research and creates and deploys educational material related to protecting and improving the well-being of financial consumers.

Program 1: Supervision and Enforcement

This program promotes, monitors and enforces compliance on the part of federally regulated financial entities subject to market conduct obligations established by legislation, codes of conduct and public commitments.

Program 2: Research, Policy and Education

This program strengthens the financial literacy and resilience of Canadians. Working with stakeholders (that is, through mobilizing the financial ecosystem), it relies on evidence-based research and collaboration to propose policies, educate consumers, and encourage them to take beneficial financial actions. The scope of this program is covered comprehensively by the National Financial Literacy Strategy (that is, measuring indicators related to the National Financial Literacy Strategy captures the target outcomes for the program).

Internal services

FCAC’s programs are supported by a solid foundation of expert advice and services provided by its marketing, communications, stakeholder relations, legal services, human resources, information technology, finance and administration teams.

More information can also be found in the GC InfoBase .

Annex B: Evaluation plan

Information management.

Evaluate the effectiveness and efficiency of the Agency’s information management processes

Core control self-assessment Footnote 1

Assess compliance with federal financial management policies related to pay administration, travel, and financial management governance

Enforcement program

Evaluate the application and effectiveness of an element of the enforcement program

Consumer information

Evaluate the relevance and effectiveness of core online consumer information

Assess compliance with federal financial management policies related to hospitality and accountable advances

Thematic reviews

Evaluate the effectiveness of the process to conduct thematic reviews

Assess compliance with federal financial management policies related to acquisition cards and employee leave

National Financial Literacy Strategy

Evaluate the effectiveness of Make Change that Counts: National Financial Literacy Strategy 2021–2026

Performance management

Evaluate the effectiveness of FCAC’s performance management program

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Falls Township Focused On Long-Range Financial Planning

F ALLS TOWNSHIP, PA — To project long-term budgeting for years following the loss of landfill host community fees, Falls Township Supervisors have contracted with a company to provide a long-range financial plan.

During a recent supervisors meeting, the board unanimously approved an agreement with PFM

Group Consulting, LLC for financial management and budget consulting services.

Township Manager Matthew Takita said PFM began interviewing department heads and various

boards in March to better understand finances and the best courses of action.

“No one knows township government as well as you do,” PFM wrote in its agreement. “So our first step is to listen and learn from you.”

Takita said PFM anticipates completing a preliminary report this month detailing financial strategies.

Part of that plan could include productivity enhancements, and improved cost recovery through

adjusting fees, licenses, and permits, according to the agreement.

Falls Township receives about $18 million per year in host community fees from Waste Management.

As the landfill nears capacity in the next decade or so, officials have begun considering ways to help make up for the loss in annual revenue.

The township earlier this month authorized a study to determine the viability —from a revenue standpoint —of a 24-hour freight village support facility in Falls Township.

In other township business:

Supervisors unanimously granted preliminary and final land development approval to UGN Logistics, Inc. to construct a 4,800-square-foot garage building with a parking lot and associated site improvements, including stormwater management facilities, at 745 Philadelphia Ave. (Bristol Pike).

The article Falls Township Focused On Long-Range Financial Planning appeared first on Levittown Patch .

Falls Township has hired a firm to focus on long-range financial planning.

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Rachel Brougham, wearing a jacket, stands in brush on the shore of a placid lake.

Widowed Before 40 and Coping With the Financial Consequences

People who suddenly lose a spouse while young can feel unprepared for what their future looks like.

When Rachel Brougham’s husband died in a cycling accident, she said, “my future as I imagined was stolen.” Credit... Nate Ryan for The New York Times

Supported by

By Caitlin Kelly

April 27, 2024

It was April 10, 2018, and Colin Brougham hadn’t sent his usual text to his wife that he was biking home. Instead, he lay dead a few blocks away after a commuter train struck him.

“I knew he was dead before I knew he was dead,” recalled Rachel Brougham, his widow. “My son and I went to the scene, and when I was told it was him, I screamed so loud I think all of Minneapolis heard me.”

Mr. Brougham was only 39.

“My life as I knew it changed in an instant,” Ms. Brougham, now 46, said. “My future as I imagined was stolen. Grief changes your brain chemistry. It changes how you think, how you interact with others, how you work. It literally changes every single thing about your life.”

Those widowed in their 20s and 30s, few of whom may even have a will, can feel even more stunned and unprepared — who expects to die that young?

Ms. Brougham, like anyone whose spouse dies unexpectedly, suddenly faced a variety of complex financial decisions: how to handle mortgage payments, car and student loans, leases, and credit card debts. Blinded by grief, exhausted and overwhelmed, the bereaved must also plan and pay for cremation or funeral costs.

Social Security’s one-time death benefit is only $255 , while the median American funeral in 2021 cost $6,971 (with cremation) or $7,848 (with a viewing and burial), according to the National Funeral Directors Association . Social Security survivor benefits are also available for children. Ms. Brougham’s 15-year-old son, Thomas, receives $2,149 a month until he turns 18 or graduates from high school, whichever is later.

Ms. Brougham sits on a couch with a mug in her hand. She looks toward a window next to her as sunlight falls across that side of her face.

“As a certified financial planner, and someone who specializes in supporting young widows and widowers, I’ve seen firsthand the raw heartache of this unique community,” said Brian K. Seymour II, the founder and chief executive of Prosperitage Wealth in Atlanta. “Losing your partner at a young age, whether to illness or a sudden accident, throws you into a storm of grief and financial upheaval.”

Even if it feels overwhelming, Mr. Seymour recommends getting control of your financial situation immediately.

“Gather all your financial documents — bank statements, investment accounts, life insurance policies, wills — and get yourself organized,” he said. “If you feel lost, seek professional help from a fee-only fiduciary financial adviser who specializes in young widows and widowers. We understand your unique challenges and can tailor a plan that considers your income, debt, benefits and goals.”

Those who have more time to prepare — the spouse is dying of a terminal disease, for example — also face making difficult decisions amid emotional distress.

Sarah Seib, 39, whose husband, Jason Markle, died in 2022 of amyotrophic lateral sclerosis, commonly known as A.L.S. or Lou Gehrig’s disease, had a steady job with a local technology company. Mr. Markle worked for many years at Syracuse University as an undergraduate administrator, but the demands of his disease quickly turned Ms. Seib into his full-time caregiver, costing her that income even as she owed $50,000 in student debt.

As her husband’s health deteriorated, he kept working to the very end because the couple desperately needed his income and health insurance. He communicated through a Tobii Dynavox tablet, which he used by blinking. A GoFundMe campaign provided $20,000 to help with growing costs.

Mr. Markle had a 401(k) plan, but tapping into it early would have meant paying a penalty and taxes. The day he died, Ms. Seib lost access to his health insurance. Her mother, who had moved in to help Ms. Seib financially and emotionally as her husband’s health declined, still lives in Syracuse, N.Y., with her and now pays half the mortgage.

“You need help from all sides,” Ms. Seib said. “A widow’s head is not right and won’t be right for a long time.”

Francisco Rosado, a barber and D.J. who goes by Frank Rose in Orlando, Fla., lost his wife, Rebekkah Rosado, when he was 34 and she was 33. He had been her caretaker for three years as she fought a form of Hodgkin’s lymphoma, a form of blood cancer. Ms. Rosado had run a thriving wedding planning business and kept working as much as she could, but the couple sold their house to cut expenses and pay medical bills. They also received $10,000 from a GoFundMe campaign that allowed Mr. Rosado to stop working and spend time with his wife before she died.

For many people whose spouse is from another country, communicating with family abroad can add complications or welcome support — or both, as it did for Robin Truiett-Theodorson, who, in 2008, became a widow at 36 after five and a half years of marriage to Mark Theodorson, a British man.

Her father assumed her late husband’s car payments, and her family “helped me quite a bit,” she said. Her mother-in-law in Britain sent some money, and Ms. Truiett-Theodorson was grateful their home in Baltimore had no mortgage. She deferred her student debt for 18 months and consolidated her credit card debt.

Many young widows and widowers will also have to face their spouse’s debts, which can add an enormous burden if they are not discharged by creditors.

Jeanette Koncikowski was separated from her husband, Mark, when he died two years after completing chiropractic school. Both were 36, with children 5 and 9 years old. He died of a rare condition, sudden unexplained death in epilepsy, owing about $150,000 on student loans.

“In order to finance that amount, we did a mix of private and federal loans, and he was the sole signatory, later consolidated,” said Ms. Koncikowski, now 45 and living in Eden, N.Y. “At the time of his death, I was originally told by the lender that I would have to pay them back even though I did not co-sign. They said since we were married when the debt was accrued, I was responsible for the debt.”

But once she shared her separation agreement and her husband’s death certificate with the lender, the entire debt was forgiven. “It was a small saving grace in an otherwise horrific experience,” Ms. Koncikowski said.

Daniel Kopp, a certified financial planner in Sarasota, Fla., who lost a spouse when he was 31, said it mattered when the debt was taken on.

“If it was before the marriage and the couple does not live in a community property state — there are nine — then the surviving spouse would generally not be responsible for the student loans,” he said. “Community property states can make the surviving spouse be held liable for paying the private loans if they were taken on after the marriage even if the spouse did not co-sign. It’s the classic financial planning answer: It depends.”

“Student loan borrowers who die will have their federal student loans discharged by providing documentation like a death certificate,” Mr. Kopp added. “However, when it comes to private student loans, it will depend on if there was a co-signer and terms of the loan. Some private lenders will also discharge the debt, but others may attempt to get the surviving spouse to pay.”

Personal, unsecured debts like those from credit cards are generally written off by the issuing companies, Mr. Kopp said.

“I even had a widowed client that tried to pay off the $5,000 balance, and Chase sent her back the check,” he said. “Auto loans typically stay with the vehicle, so if the spouse receives the vehicle through the will, the loan would then go to the spouse.”

Everyone who has received life insurance funds after a spouse’s death knows the mixed emotions they bring.

“It was a great sense of relief — and guilt,” Ms. Brougham said. “I thought, ‘Oh, my God, my husband’s dead and now I have one million dollars.’” In fact, she received $1.575 million from both term and whole life policies, which she invested for future needs.

Mr. Rosado received $250,000 in an insurance payout, and Mr. Kopp said he had received about $300,000. This money helped free them from financial panic at the worst moment of their young lives. In addition, life insurance proceeds are not considered taxable income .

The Broughams had bought life insurance when they were 24 and 25 and Ms. Brougham was freelancing full time for a small newspaper, even though they felt the cost was unaffordable — $1,308 a year.

Being prepared, financially and emotionally, means having difficult conversations even if you feel you’re way too young to have them. The spouses of Ms. Brougham, Ms. Truiett-Theodorson, Ms. Seib and Ms. Koncikowski didn’t have a will or do advance estate planning. But Mr. Rosado’s did.

“I didn’t think death would come in my 30s,” he said. “Maybe in my 70s or 90s.”

A Guide to Making Better Financial Moves

Making sense of your finances can be complicated. the tips below can help..

The way advisers handle your retirement money is about to change: More investment professionals will be required to act in their customers’ best interest when providing advice about their retirement money.

The I.R.S. estimates that 940,000 people who didn’t file their tax returns in 2020 are due back money. The deadline for filing to get it is May 17.

Credit card debt is rising, and shopping for a card with a lower interest rate can help you save money. Here are some things to know .

Whether you’re looking to make your home more energy-efficient, install solar panels or buy an electric car, this guide can help you save money and fight climate change .

Starting this year, some of the money in 529 college savings accounts can be used for retirement if it’s not needed for education. Here is how it works .

Are you trying to improve your credit profile? You can now choose to have your on-time rent payments reported to the credit bureaus to enhance your score.

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The Latest In Financial #AdvisorTech (May 2024)

May 6, 2024 07:03 am 0 Comments CATEGORY: Technology & Advisor FinTech

Executive Summary

Welcome to the May 2024 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the news that self-directed retirement planning software provider NewRetirement has raised a $20M Series A round as the company demonstrates that its DIY tools really do turn a subset of consumers into bona fide prospects for financial advisors . Which positions the software as either a white-labeled solution for advisory firms that want a way to engage a high volume of prospects in their funnel, or simply a solution to convert its own 70,000+ active users into paying clients of NewRetirement's own financial advisors. Especially given that NewRetirement has already managed to get some sizable 401(k) providers and recordkeepers to offer the software on a paid basis to their own plan participants … which means NewRetirement is effectively getting paid to market its own advice services (a marketing funnel that pays for itself!?).

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

Betterment Premium raises fees for its human CFP service to 0.65%, putting it remarkably close to the 0.70% average revenue yield of the typical advisory firm, as the robo-advisor ends up emulating the human advisor service and pricing model it once sought to disrupt
Trust & Will announces a strategic partnership with LPL and its 22,000 advisors, as more and more advisory firms look to include estate document preparation as part of their suite of value-added services to clients (while outsourcing the actual legal work)

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

A pair of new research studies (one from Cerulli, another from Fidelity) highlight how "tech-savvy" firms with high technology adoption are outgrowing the rest… not by attracting more clients with a better digital experience for clients, but simply by finding more of their own operational back-office efficiencies to be able to scale faster
The SEC serves up a series of very sizable fines to make examples of financial services firms that didn't do enough to supervise their employees' use of texting and other messaging apps (e.g., WhatsApp ), in a reminder to all advisory firms that all business-related communication must be archived (and reviewed!)
As the buzz and hype continue around AI, a warning (coupled with a pair of enforcement actions) from the SEC not to engage in " AI-washing "… advisory firms that promote how they're using artificial intelligence in their practices need to be certain that they are actually doing so

And be certain to read to the end, where we have provided an update to our popular "Financial AdvisorTech Solutions Map" (and also added the changes to our AdvisorTech Directory) as well!

* And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected] !

Author: Michael Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth , which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners , a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network , AdvicePay , fpPathfinder , and New Planner Recruiting , the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com , dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here .

NewRetirement Raises $20M Series A Round With Self-Directed Planning Tools That Create A Pipeline Of Planning Prospects… For Itself?

For more than a decade since the first emergence of the so-called "robo-advisors ", there has been a broad debate in the financial advisor world about whether or how much clients should have – or would even want – access to their own financial planning software tools.

On the one hand, self-directed financial planning software creates a low-cost, highly-scalable path to bring financial planning advice to consumers who can't otherwise afford the full services of a financial advisor, especially with the rise of increasingly sophisticated recommendation engines (or perhaps soon, the outright use of AI) to determine the consumer's best course of action. And even for those consumers who still ultimately want to engage a financial advisor for the advice itself, self-directed tools can expedite the planning process as new clients load their own data into the tool (saving the advisor's time and cost of doing it on the client's behalf) and perhaps even create more buy-in to the planning process with better engagement.

On the other hand, consumers often hire financial advisors because they don't have the time, knowledge, or inclination to figure it all out themselves, and would rather either delegate to the financial advisor (due to lack of time or inclination) or be able to rely on the advisor's expertise (in areas where they don't have enough knowledge to even know what to ask and analyze) . Which implies that those who use self-directed planning software are, almost by definition, more "self-directed" and less likely to seek out and ever want to utilize a financial advisor at all !

Yet in practice, there is an in-between, where consumers may start out as more self-directed because their situation is simpler ( relying less time and knowledge), but over time rises in complexity with life, wealth accumulation, and changing circumstances, that eventually results in a shift where they decide to seek out a financial advisor. Which ultimately helps to explain why platforms like Personal Capital were so successful – by giving away a self-directed personal financial management dashboard tool that was largely used by self-directed consumers, but was so popular that when 'just' 1%–2% of those users decided that it was time to get more help from a human financial advisor… Personal Capital was vaulted to become a nearly $1B enterprise .

In a similar context, this month self-directed retirement software provider NewRetirement announced a whopping $20M Series A round of capital, to continue to expand its reach as it demonstrates that when self-directed software gets into the hands of enough consumers, a percentage of them really do 'upsell' into a human financial advice relationship. In practice, the company currently has 70,000 active users of its software, including 23,000 who are paying $10/month for premium financial planning features … and an unspecified number who are showing a willingness to move up to a $1,500 financial planning engagement with a human advisor, from a user base that's estimated to have $100B of potential assets to manage as well.

Notably, NewRetirement has generated its users both from direct-to-consumer marketing and outreach, and also by partnering with large retirement plan recordkeepers (e.g., 401(k) providers) who can themselves offer NewRetirement's premium planning tools as an 'upsell' for their financial wellness tools, allowing the firm to cost-efficiently reach a large base of consumers (akin to how Personal Capital itself was ultimately sold to 401(k) provider and recordkeeper Empower). At the same time, NewRetirement is also white-labeling its tools to advisory firms that themselves have a high volume of prospects (e.g., from the firm's existing content marketing or other marketing campaigns) and need a way to 'pre-engage' those prospects to determine which are ultimately 'just' self-directed and which might really want and need to work with a financial advisor now or in the future.

From the advisor perspective, the NewRetirement tools probably won't be helpful to most, simply because most advisory firms don't have the 'problem' of too many (hundreds or thousands of) leads coming in every year that they need to engage in a more initially-self-directed way to funnel down to the more qualified prospects. And even for those firms that do, if they're already using 'traditional' financial planning software (e.g., eMoney, RightCapital, or MoneyGuide ) there may be some resistance to starting clients in one planning tool (NewRetirement) and then doing the bulk of the planning itself in another (the firm's traditional software). In other words, NewRetirement is likely only relevant for a very small subset of advisory firms that have so scaled their inbound marketing that they really do have a "too many leads to handle" problem.

From the broader industry perspective, though, the reality is that NewRetirement appears to be well on its way to monetizing itself not as a SaaS solution for advisory firms, but by becoming the advisory firm itself and monetizing its own lead flow into planning engagements . Which is especially notable because most advisory firms struggle to scale up to a large volume of prospects due to the client acquisition costs to get the m…e xcept in the case of NewRetirement, which has a series of planning tools valuable enough that 401(k) providers and recordkeepers are paying NewRetirement to put their tools in front of the 401(k) providers' own plan participants … effectively creating a scenario where NewRetirement could actually have a negative client acquisition cost because it's being paid to market its planning services by selling the precursor planning tool for an enterprise fee!

All of which helps to highlight that the biggest blocking point to expanding access to financial advice is not the cost to service and deliver the advice, but the client acquisition costs to get to those clients efficiently in the first place. For which NewRetirement appears to have built a solution by not solving an advisor efficiency problem, per se, but fulfilling a (direct-to-)consumer need that allows them to attract enough consumers to find the small percentage who are ready to pay to engage a (NewRetirement) human financial advisor. Because when the software reaches enough consumers directly, a small pecentage wanting an advisor can be more than enough!

Humans Beating Robots As Betterment Raises Fees On 'Premium' Tier With Human CFPs To Move Near Parity With Traditional Financial Advisors

It was more than 10 years ago that the so-called 'robo-advisors' like Betterment and Wealthfront first arrived , proclaiming that they could automate what traditional human financial advisors do at a fraction of the cost , and intimating that financial advisors are 'greedy pigs' who charge consumers 'an arm and a leg' with a 1% AUM fee for what robo-advisors offered at just 0.25%.

In response, financial advisors pointed out that the offered of (comprehensive) financial advice goes far beyond 'just' allocating into and systematically rebalancing a diversified portfolio as robo-advisors were implementing. It also increasingly includes a holistic financial plan from a Certified Financial Planner professional, ongoing advice from an advisor with whom you have a relationship and who really understands your situation (without needing to explain it all over again every time there's a question ), and access to someone you can talk to when markets get scary. Such that it wasn't fair to compare an investments-only portfolio solution to a holistic advice relationship, because they fundamentally weren't the same service (portfolio management versus planning ), and weren't built for the same consumer need (self-directed consumers who want to pick their own investment manager, versus delegators who want an advisor to figure it out for them).

Sure enough, the subsequent years bore this out, as in 2017 even Betterment itself launched a new tier of "Betterment Premium" that, for 0.40% instead of 0.25% with a $100,000 minimum, would allow access to human CFPs for a once-per-year financial planning phone call plus unlimited email-based advice throughout the year. A tacit acknowledgment that the human CFP advice layer was in addition to and beyond what robo-advisors provided as a portfolio-management-only service. Which in turn was emulated by numerous other "robo" platforms that ultimately paired with human CFP professionals and charged more than 'just' the 0.25% robo-advisor fee, from Vanguard's Personal Advisor Services to Schwab's Intelligent Portfolios Premium .

And now this month, it was revealed that Betterment is substantively raising its fees on the Betterment Premium service, from 0.40% to 0.65% , effectively pricing the human CFP offering at 40bps above (and more than 1.5 times) the underlying 0.25% fee to 'just' have a Betterment-managed portfolio.

From the industry perspective, Betterment's change is a remarkable affirmation for the pricing of a "traditional" human financial advisor. As while the industry often talks about the proverbial benchmark of 1% AUM fees, in practice with breakpoints, householding families together (to reach those breakpoints), and discounts/concessions for individual client circumstances, the average revenue yield of an advisory firm is actually 0.70% according to the latest Investment News benchmarking study. Which means with its latest repricing, Betterment's flat 0.65% fee schedule is almost perfectly synced up to and emulated what "non-robo-advisors" charge for their own human CFP advisors!

In turn, Betterment's repricing and alignment to traditional advisor pricing also helps to highlight how in practice, most human advisory firms have largely adopted technology (from rebalancing/model management software to the use of model marketplaces) to be able to execute their own portfolio management processes in a remarkably 'robo-like' fashion (and thus able to implement at a similar cost for the base portfolio management service, on top of which the firm adds its 'human advisor' fee for financial planning services).

To be fair, it is worth recognizing that traditional advisory firms do tend to work with a somewhat more affluent clientele (where $250k to $500k+ asset minimums are more common, compared to Betterment's $100k minimum), which means in theory human advisory firms should have somewhat lower fees simply because of the superior economies of scale that come from generating more revenue per client from fewer clients. Though at the same time, more affluent clients also tend to have higher expectations – from more experienced (and thus more expensive) advisors, to a higher level of service with more meetings and touchpoints – which implies that traditional advisory firms may simply remain slightly more expensive than Betterment Premium because they're providing a slghtly deeper service to a slightly more affluent clientele who can and are willing to pay for it.

All of which collectively affirms that robo-advisors were never really a threat to real advisors , and instead were simply offering a different service to a different clientele … and ultimately found that there is still so much demand for the holistic relationship-based advice services that financial advisors offer , that robo-advisors became emulators of the traditional advisors they once sought to disrupt!

Research Shows Tech-Savvy Advisory Firms Have Better Growth… Due To Operational Efficiency, Not (Digital) Client Experience?

Over the past decade, the rise of direct-to-consumer platforms, from robo-advisors to Robinhood (or outside of financial services, the ubiquitous Amazon), has created a growing clamor amongst financial advisors that we, too, need a better 'Amazon-like' digital experience for clients. Some have suggested that advisors 'must' improve their digital experience to stay relevant (especially to more-digitally-native next-generation clients) , while others have stated that at the least advisory firms need to have mobile apps and (better) websites to support clients alongside their human advice services.

Yet in practice, advisory firms seem to have struggled with generating a positive ROI on many "digital experience" initiatives. Most notable was the rise of the "robo-advisor- for -advisors" platforms, from RobustWealth to Vanare to SigFig to Jemstep, that proclaimed advisors could accelerate their growth with Millennials by adding digital robo tools to their websites… only to find that in the end, Millennials weren't even going to their websites to engage with those tools anyway . Similarly, there have been numerous "financial planning lite" software tools that were designed for advisors to create a more digital (and more self-directed) experience for clients, which have also withered on the vine (with poor adoption or outright shutdowns).

Which isn't to say that technology for financial advisory firms doesn't matter. It's simply that the most repetitive tasks (that are most conducive to technology automation) aren't necessarily more advice- or relationship-oriented interactions with clients … they're the back-office tasks that are otherwise done by the advisor manually or delegated to a team member. In fact, the latest Kitces Research on Advisor Productivity finds that advisors themselves still spend more than 1/4th of their time on "back-office" activities like administrative tasks and client-servicing requests. Providing a significant amount of room for technology to impact behind-the-scenes tasks in advisory firms!

Accordingly, it's not surprising that 2 recent industry research studies highlighting the benefits of technology for financial advisors both find that the benefits of "tech-savvy" and "digitally empowered" advisors are showing up in back-office support technology, not necessarily client-facing tools. For instance, a Cerulli study shows that tech-savvy advisors are outgrowing their peers, garnering the greatest efficiencies from e-signature, CRM, and video conferencing tools . And a Fidelity study shows that more digitally-empowered advisors report the most significant improvements in process efficiency around money movement, trading and rebalancing, and other account maintenance tasks.

From the advisor perspective, this is a big deal, as it signals that advisory firms may want to focus less on how they improve their "digital client experience ", and instead focus more on how they digitize more of their own internal processes and workflows to free up the time to improve the client experience more directly (e.g., more meetings, more touchpoints, more [non-digital] services, etc.). Which might cover anything from replacing (or improving the utilization of existing) CRM systems with better workflows, to better leveraging their platform's digital onboarding (e-signature, account application) capablities and integrations, to perhaps testing out some of the emerging AI-driven Client Meeting Support tools that can automatically capture meeting notes and action step takeaways . Rather than trying to find (yet another) tech-savvy client portal.

From the broader industry perspective, the research also implies that technology platforms themselves may be better served by focusing on how to make it easier to train into and actually utilize their software to implement common advisor workflows, rather than 'just' trying to drive advisors (and their clients) to the latest portal enhancement as a form of digital experience. As the Cerulli study outright notes that beyond compliance constraints of certain platforms, the biggest inhibitors of technology adoption amongst financial advisors were not regarding its digital appeal to clients, but the lack of cross-tool integrations (to facilitate workflows ), and challenges with training and actual implementation.

Ultimately, though, the key point is simply that when consumers choose to engage a financial advisor (rather than using a self-directed technology platform), there is an implicit expression that the client is not just looking for a superior digital experience … they're looking for what a human advisor can uniquely do beyond what technology provides. In turn, that implies the best investments that advisory firms can make are not necessarily towards their digital experience for clients, but their own internal systems for greater efficiency and freeing up time in order to provide their relationship advice service to clients!

Advisory Firms Continue To Value-Expand Into Estate Document Preparation As LPL Inks Partnership With Trust & Will

For as long as there has been financial planning – since the early 1970s – "estate planning" has been a staple of the comprehensive financial plan. For the first several decades, this was driven by the fact that the Federal estate tax exemption was so low ( just $60,000 in the early 1970s, and rising 'only' from $120,000 to $600,000 from 1977–1997 ) . Which meant that even a young married couple with young children that had a "reasonable" amount of life insurance (e.g., $500k each) had an estate tax problem. As a result, financial planners – who commonly sold life insurance at the time – had to be knowledgeable about estate planning as a part of the financial plan, in order to be able to get the insurance sale (which typically involved setting up an Irrevocable Life Insurance Trust, or ILIT, to get the insurance out of the estate).

Over the past 25 years, though, the situation has changed dramatically. The estate tax exemption rose from $600,000 to $13.6M, and the introduction of portability between spouses effectively doubles the exemption to $27.2M for a married couple. Which not only removes "routine" family insurance coverage from being an estate tax problem, it has overall cut the number of annual estates subject to a Federal estate tax by approximately 95% ! As a result, even amongst financial planners (who generally work with above-average-affluence households), most clients simply don't have an estate tax problem.

Of course, this doesn't mean that "estate planning" is irrelevant. It simply means that estate planning – to ensure the timely and orderly handling and/or distribution of assets in the event of disability or death – isn't a matter of planning around estate taxes , it's simply a matter of having documentation by actually having the proper estate documents drafted in the first place (i.e., Wills, Powers of Attorney, Medical Directives, and perhaps Revocable Living Trusts).

Which itself is leading to a bifurcation of what it means to "do estate planning" for clients – where for ultra-HNW clients, there remains a heavy focus on estate tax avoidance, but for the rest (literally, the other 99% ), it's mostly about estate document preparation . Resulting in 2 separate categories of "estate planning" solutions for financial advisors – estate (tax) planning tools like Vanilla , Yourefolio , Luminary , Estateview , and FP Alpha , and estate document preparation services like Trust & Will , EncorEstate , and Wealth.com . Where the latter actually have a far far wider reach and market opportunity than the former (simply because of the relative number of clients impacted).

In this context, it's notable that this month, LPL announced a strategic partnership with Trust & Will , bringing their estate document preparation service to LPL's 22,000 financial advisors across all 50 states.

From the advisor perspective, the appeal of estate document preparation services like Trust & Will is that they provide a means to ensure that clients actually implement their documents as a part of the financial plan, with a solution that is substantively more affordable than working with a local attorney for a typical "we just need reasonable documents in place" scenario. In some cases, firms may even highlight that they "offer" the service themselves and cover the document fee out of their own advisory fees… while still allowing the external provider to actually draft the documents (and avoid advisors getting into hot water for the Unauthorized Practice of Law). At the same time, the opportunity remains to work more collaboratively with local attorneys (for a higher level of service, and/or to establish cross-referral relationships) for the most affluent clients who may still have estate tax exposure and a need for a more sophisticated and complex estate plan.

From the industry perspective, the rising interest in providing clients with estate document preparation mirrors a similar growing interest in offering tax preparation services for clients … both because it helps to bolster the advisor's "holistic " positioning (and defend their traditional advisory fee with more value-adds), because it's hard to find reasonable-cost professionals to service the average advisor's mass-affluent clientele, and ultimately providing more services with more touch points tends to make clients "stickier " in the advisor's core model (because there are more service-providers they would have to replace if they leave). Which means this is a trend that's likely to continue for the foreseeable future.

The irony, though, is that while such services often position as "tech " solutions, ultimately they are still service providers – in the case of estate document preparation, literally fulfilling a legal service that would otherwise require hiring a local attorney instead. Which actually boosts their market opportunity further, as an advisor buying estate planning software (for their high-net-worth clients) might pay a few thousand dollars per year, but an advisor whose client needs estate documents may spend several hundred dollars per client for those documents, which across dozens of clients in an advisory firm means estate document preparation services (tech-enabled to be efficient and low cost) is actually the bigger market opportunity in serving advisors and their clients!

Personal+Work Device Challenges As SEC Cracks Down On Use Of Unarchived SMS Text And Other Messaging Platforms With Fines Up To $50M!

Making investment recommendations on someone else's life savings is a high-stakes proposition, and even more so in situations where the advisor has outright discretion (or full-on custody) of the client's investment assets. Beyond simply the responsibility to make and implement prudent recommendations, in the context of publicly traded markets, there are also risks that firms use their knowledge (or actual control) of clients' investment trades to profit on their own behalf (e.g., front-running client trades or trading against them). Not to mention the risks of outright fraud.

To mitigate these risks, advisory firms have substantive record-keeping requirements that all written business (including client) communication be saved and archived, which allows compliance departments to periodically review that communication in an attempt to spot the wrongdoing as it is happening (and allows for regulators to have more information available in an investigation if an allegation of wrongdoing comes in). In fact, advisory firms have an outright obligation to supervise their employees (i.e., to periodically review the archived written communication ) to ensure there is at least a reasonable likelihood that they can catch (and by the risk of being caught, further deter) problem behavior.

For much of the past 20 years, such communication archiving has been accomplished relatively efficiently through the centralized capture of email . Because the advisory firm itself typically controls the email domain, it's relatively straightforward to ensure that all messages are saved and archived. And it's only natural to use a work email address to communicate with both colleagues at work and clients being served (especially as technology has enabled smartphones and laptops to access that work email centrally).

However, over the past decade, the rise of smartphones has introduced a new wrinkle into the equation. As while smartphones have made it relatively easy to access email from anywhere, the popularity of SMS text messaging, and more recently messaging apps like WhatsApp, means that a lot of clients don't want to communicate via email. Yet at the same time, while advisors may have texting and other messaging apps on their phones, those are typically personal (not work) devices, which means many people don't want their employers to have access to their personal communication . Even as clients and advisors use those communication channels.

The end result: over the past 2 months, the SEC has levied a series of major fines, including $81M of penalties against a series of 16 broker-dealer and RIA platforms in February , and a $50M settlement with LPL alone in March , for failures to sufficiently archive "off-channel " communications of their employees (and an associated failure to supervise those communications, because they weren't being archived in the first place). Which the SEC noted wasn't 'just ' about a pedantic requirement to archive communication, but may have outright impacted SEC investigations of wrongdoing (e.g., where nefarious activity was intentionally being communicated via outside channels to avoid being caught by compliance).

From the advisor perspective, the message from the SEC is clear : all communication with or regarding work and clients needs to be handled via a work-approved communication channel that is being properly archived . Full stop. Employees need to be trained that all work communication must occur via work channels (i.e., if the firm doesn't have a way to properly archive text messages, don't text clients or co-workers from your phone, use email). Which may include explaining to clients why , unfortunately, your firm requires interactions to occur via email and not text messaging. Or alternatively, for those who do want to adopt text messaging (particularly with clients), consider solutions like MyRepChat or Redtail Speak .

From the industry perspective, though, the challenges of the SEC's recent actions highlight a current incongruency between emerging consumer preferences on how to communicate via our personal devices (where messaging of various forms is on the rise, and email is on the decline), versus how businesses typically manage communication (via work email and/or intranet or internal messaging platforms like Slack or Teams that are more readily archived). Where advisors get caught in the middle with their own personal devices where they may use such messaging platforms themselves personally … but find themselves unable to use the same platforms for work-related functions, even when the client asks them to.

Ultimately, many of the penalties that the SEC assessed was for supervisory gaps that occurred back in 2020 and 2021… a relative "eon " ago, since which most advisory firms have at least tried to clarify their policies and procedures when it comes to alternative communication channels (if not adopting new technology to help). But as capabilities like dual-SIM become more standard in smartphones, the question also arises as to whether a personal device could also increasingly be a "work device " as well (e.g., where compliance archives all texts and messaging apps tied to the work number, but not the personal number?). Or if alternative workarounds (to facilitate compliance archiving of "work " messages on a "personal " device) might be available. All of which means that there may be an opportunity emerging for a new generation of compliance archiving tools, built to solve the current era of work+personal communication on our smartphones?

SEC Fines 2 Firms For "AI-Washing" In Their Marketing But Is Promoting Artificial Intelligence Even A Benefit In AdvisorTech Solutions For Advisors?

About once a generation, there's a technology breakthrough that seems poised to change the world as we know it. From the first microchip in 1958 that kicked off the modern world of computers, to the Apple II in 1978 that ushered in the era of personal computers in the home and office, to the first arrival of the internet in the late 1990s, and the emergence of the smartphone when Apple launched the first iPhone in 2007. When technology takes a leap forward, there is an initial burst of enthusiasm and hype (that typically proves overblown), followed by a "trough of disillusionment " (according to the Gartner Hype Cycle )… and then the world actually changes.

From the regulatory perspective in the investment world, the difficulty when such breakthroughs occur is that in the hype phase, there is a high risk that consumers are taken advantage of. At best because they get caught up in the hype and buy/invest with companies whose price is disconnected from reality (e.g., in the late 1990s, when any company with ".com " in its name participated in the boom, as epitomized by Pets.com that generated $619k of revenue after spending $11.8M on advertising in its first year, yet still managed to raise $82.5M in an IPO… before being shut down and liquidated 268 days later! ). And at worst, companies that don't even fit the hype just appropriate the label-du-jour for marketing purposes.

The phenomenon is generally known as " whitewashing " (where cheap white paint is used to cover up and make something appear clean and smooth to hide the flaws or problems underneath). Over the years, the label has been re-used in alternative formats to connote particular whitewashing contexts such as " greenwashing " (making a product or company appear to be "green " and environmentally friendly to distract from potentially problematic environmental practices), which the SEC has recently been cracking down on as rising investor interest in ESG has been leading some funds to imply they're more ESG-oriented than they actually are .

And now with the latest transformative technology of Artificial Intelligence (AI) emerging, the SEC has issued its latest warning, against so-called "AI-washing " – where companies claim they're offering or utilizing AI because it's the hot thing, but are not actually doing so. Which the Commission coupled with a series of 2 firms that were fined a total of $400,000 for engaging in "false and misleading statements about their use of artificial intelligence " such as claiming to be the "first regulated AI financial advisor ".

From the financial advisor perspective, very few are likely to outright market themselves as "AI financial advisors " . But as more advisors adopt AI tools, some might get excited to share their use of cutting-edge technology with clients and prospects (e.g., "we leverage the latest AI technology to enhance your experience with our firm")… which can potentially raise regulatory scrutiny. Not that there's anything wrong with advertising AI and its use – but as the SEC's enforcement action highlights, if a firm is going to promote that they're using AI, it better be an accurate reflection of reality in how the firm really is serving their clients! (And if the advisory firm is using third-party tools, the advisor better make sure it's done vendor due diligence to affirm that the vendor really is using AI as they claim !)

From the industry perspective, the SEC's scrutiny also means vendors developing AI solutions should be mindful to ensure that their tools are actually doing (or in this case, using) what they actually say they are. As if the advisor promotes that they use the (AI-enhanced) technology solution in their practice with clients, there's a risk that a vendor's feature exaggeration could become the advisor's AI-washing enforcement action. And more generally, scrutiny from the SEC about whether those promoting AI are really actually using it will likely create an atmosphere of greater scrutiny and due diligence amongst all advisors . Particularly while we remain in the 'hype ' phase of AI.

Perhaps the greatest caveat to it all, though, is simply that with questions also arising about the privacy concerns of AI, and still-plentiful examples of "AI hallucinations " (providing answers/insights that are not factual) or outright inaccuracies, there is still a level of AI distrust coupled with AI enthusiasm. Such that in one recent informal poll of financial advisors on their AI views , promoting AI in an AdvisorTech solution was equally likely to make advisors more interested (yay efficiency!) as it was to make advisors less interested (privacy! accuracy!)… and a plurality of advisors didn't actually care about whether the AI was present or not at all, they just want to know what the software actually does!

In the meantime, we've rolled out a beta version of our new AdvisorTech Directory , along with making updates to the latest version of our Financial AdvisorTech Solutions Map (produced in collaboration with Craig Iskowitz of Ezra Group )!

So what do you think? Where does technology impact your firm the most … with client-facing tools, or back-office efficiencies? Are you thinking about using services like Trust & Will, EncorEstate, or Wealth.com to offer estate document preparation as a supporting service for your clients? Does a technology solution promoting AI make you more or less interested in the software (and would you want to promote AI to your prospective clients, too)? Let us know your thoughts by sharing in the comments below!

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The 2024 gartner® magic quadrant™ for supply chain planning solutions.

Anaplan recognized for the fourth year in a row, based on Completeness of Vision and Ability to Execute

Today's supply chain planning faces many challenges – complexities of globalization, disruptions from natural disasters, volatile demand patterns, limited visibility, inventory management dilemmas, and the integration of emerging technologies. Additionally, sustainability concerns, ethical considerations, and regulatory compliance requirements add layers of complexity. Maintaining strong supplier relationships and navigating geopolitical risks further compound these challenges.

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Read your complimentary copy of the 2024 Gartner® Magic Quadrant™ for Supply Chain Planning Solutions today. Discover why we believe, the Anaplan Connected Planning platform can support your supply chain planning functions. Anaplan can help you shape your customer experience and demand, bring the right people and data together, and respond to change in your supply network sooner.

Gartner, Magic Quadrant for Supply Chain Planning Solutions, Pia Orup Lund, Tim Payne, Joe Graham, Caleb Thomson, Jan Snoeckx, 23 April 2024

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