The document called the "financial plan of the organization" reflects long-term and short-term goals, as well as indicators against which the accuracy of their achievement is compared.
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There are three types of plans depending on the time period they cover:
The more detailed the plan is, the easier it is to manage processes. The document outlines specific steps, responsible parties, practical tools, and reporting, while also considering risks and their mitigation. |
The fixed and approved goals in the plan serve as indicators against which activities are monitored, and results are compared with actual indicators. When deviations are identified, the causes are analyzed, and prompt decisions are made for adjustments. Planning demonstrates where the company should concentrate its resources to strengthen marketing, develop new products, and ultimately achieve higher profits.
How to Develop a Financial Plan
The development of a plan is a process that involves several stages: analysis and calculation of indicators, determination of key target values, systematization of income and expenses, forecasts of inflows and outflows, evaluation of results and business profitability.
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1. Retrospective analysis and calculation: It is necessary to compare the company's financial indicators at the present moment with those of the previous period. Profitability, solvency, cost price, and income of the company are also calculated. |
2. Determination of indicators and setting their quantitative values: This can include revenue volume, production expenses, asset and capital profitability, asset turnover ranges, liquidity and stability indicators, and debt coverage period. |
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3. Income and expense plan: In this section, the volumes and means of revenue generation are assessed, as well as where funds will need to be allocated to sustain the company's operations. A profit and loss forecast is made, which represents the budget of expenses and revenues. It should be as specific and detailed as possible. The section on expenses and revenues helps to work towards the future. Key performance indicators that help create a plan for the company's next year of operation are included in the document. |
4. Forecasting inflows and outflows based on concluded contracts and transactions: Cash flows from operational, investment, and financial activities. A summary of inflows and payments is presented in the form of a calendar, which allows for process control, eliminates cash gaps, and provides visibility of balances at the end of the financial period. |
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5. Determining the company's performance based on the chosen plan of activities: Ratios determine the profitability of the enterprise, its financial stability, and its ability to adapt, optimize, and modernize. |
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By comparing actual indicators with the plan, the owner makes tactical or strategic decisions. For example, they may choose to restructure the business department, attract investments, or modify the range of services or products
Who in the company creates a financial plan
The financial plan is typically created by a team of individuals who are knowledgeable about the internal dynamics, external business environment, and market characteristics. It is important to gather a group of stakeholders who have a deep understanding of the organization and its operations. This team may include both internal members who are familiar with the strengths and weaknesses of the company, as well as external experts who can provide an unbiased analysis of the indicators, trends in the market, and offer an independent perspective on the potential development of the company.
Real financial success is achieved by companies that approach planning not just as a formality but as a document and a guide to action. Creating such a roadmap is a complex process that requires taking into account numerous changes that are sometimes difficult to anticipate from within the company. This is particularly true for fledgling projects that have not yet established their business behavior model and may not fully recognize the risks they face. In such cases, organizations should consider engaging a financial specialist to help navigate these challenges.
An expert not only formulates forecasts and tests scenarios but also educates employees so that the team can continue to act independently and utilize all the provided tools. The consultant implements programs and mechanisms within the company that help automate control processes, facilitate communication across all departments, and enable timely responses to both positive and negative changes.
