example of financial analysis in business plan

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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

Reach Your Goals with Accurate Planning

How to Write a Financial Analysis Report for Your Business

In this Article

Is your business worth investing in? For most of you, the answer is a definitive 'Yes.' But in the business world, talk is cheap. So if you want to attract investors, you'll need to be able to walk the talk, i.e., put your money where your mouth is. 

There's no better way to do that than with a financial analysis report. After all, numbers don't lie. They're the smoking gun investors need before investing in your business. 

Want to learn how to write a financial analysis report that attracts investors? This article covers six simple steps to follow. But first:

What is a financial analysis report?

A financial analysis report shows the financial performance of your business over a specified period of time, usually on a quarterly or yearly basis. It's like a medical report but for your business's financial health. 

In several countries, financial reporting is a requirement. The Securities and Exchange Commission requires companies to disseminate these digital reports to their shareholders in the United States. In addition, these financial reports are usually made available to the public if they're publicly-listed companies

A financial analysis report is invaluable to both you and your stakeholders. Let's discuss why you need it in the next section.

How does a financial analysis report help?

To make the right financial decisions for your business, you need data. This helps you lay a solid foundation for future performance and economic growth opportunities. 

However, you need to be able to keep track of and make sense of all your financial data. That's where a financial analysis report comes in. It helps you organize, analyze, and paint a clearer picture of your business's cash flow and allows for seamless management of business expenses too.

Aside from those, here are a couple of more reasons why you need a financial analysis report:              

Ensures transparency

A financial analysis report is easy on the eyes. It's a watered-down version of your finances that communicates essential data you need to make financial decisions. 

You ensure the transparency your stakeholders want, too. 

Tracks cash flow

Generally, financial reports help you understand cash inflows and outflows . For example, if you know your affiliate sales and operating expenses, the cost of getting links to increase website traffic , social media marketing campaign expenditure, and the money coming in, you can make better financial decisions. 

The information can help with debt ratios, budgeting, debt-to-asset financial ratio analysis, and calculating profit margins. 

Suggested Reads: 10 Ways to Improve Your Business's Finance Position

Allows for data-driven forecasting

Historical and real-time financial data help create financial models to predict future financial performance. These reports help you identify trends, patterns, and problems. As a result, you can plan for them early enough. 

Simplifies taxation

To create a financial analysis report, you must have all your data in a single document. It becomes easier for you to do your taxes, saves you time, and reduces the chances of making errors. Moreover, it's an official document that the Internal Revenue Service can use to calculate your taxes.

At the end of the day, the goal of a financial report is to provide insight into your organization's finances. Then, using both historical and current data, you can set SMART business goals to make better decisions for future performance. 

Finally, it's essential to consider the ongoing nature of financial analysis and the need for periodic reviews. Implementing a project review process allows you to regularly assess the financial health of your business, identify any emerging trends or issues, and make informed adjustments to your financial strategies. This continuous evaluation ensures that your financial analysis remains up-to-date and relevant, providing you and your stakeholders with accurate insights into your business's performance.

Suggested Reads: 2022 Business Expense Categories Cheat Sheet: Top 15 Tax-Deductible Categories

Benefits of a periodic financial analysis

Financial analysis makes it easy for you to identify the strengths and weaknesses of your business. Using that information will not only help your business grow but also thrive. What's more, doing financial analysis over specific periods helps you stay on top of your game by:

Helping manage debts

A periodic financial analysis includes a financial ratio analysis; specifically, a Liquidity Ratio called the Current Ratio Analysis. The Current Ratio is the sum of all your current assets divided by the sum of your current liabilities. It shows if you're liquid enough to meet your upcoming debts. So, if you aren't, you can adjust your financial strategy the soonest.

Determining profitability

When you perform a periodic financial analysis, you can determine your company's profitability and make regular adjustments. A profitability ratio is a financial metric that can help you cut production costs and boost your bottom line. 

You can use a profitability ratio (featured below) to determine your profit margin on sales, i.e., your gross profit margin. Here's the formula. 

It's your sales revenue minus the total cost of goods sold (COGS) divided by revenue. 

Managing inventory

Another perk of doing financial analysis over a specific period is that it helps you better manage inventory . This way, you ensure it's always enough to meet projected sales. You do this using a financial management ratio called the Inventory Turnover Ratio. 

Calculate the Turnover Ratio by dividing your total sale by your inventory.  

Checking stability and revenue growth 

The results of a periodic financial analysis yield your debt-to-equity ratio, too. It's a financial metric that shows how you've raised capital for your business. You want to check your stability and revenue growth every step of the way to determine whether your business is viable in the long run.

The debt-equity ratio is calculated by dividing your total liabilities by your shareholder's equity. It's usually included when you write a financial analysis report. 

Generally speaking, the higher your debt-equity ratio, the higher the risk, and vice versa. Investors use this financial metric to check your company's stability and ability to raise money to grow. 

Optimizing for growth

Financial analysis over specific periods helps you identify opportunities to optimize operational efficiency for revenue growth. That is, regular annual reports help you spot patterns and trends. This allows you to nip problematic areas in the bud and prepare in advance. 

For instance, you can adjust seasonal sales fluctuations, variable costs, etc. 

How to write a financial analysis report

Now that you understand a financial analysis report's 'what' and 'why,' it's time to look at the 'how.' 

Here's how to write a financial analysis report:          

1. Give an overview of the company

The first section of your financial analysis report is the company overview. Here, you want to highlight the potential of your business. It's pretty much what you do in a business plan . Investors rely on your company overview to understand your competitive edge. 

The question you want to answer here is - is your business worth the investment you're asking for? Think of the introductions in business plans or on Shark Tank to give you a better idea. As a general rule of thumb, you want to use plain language when writing your description.

You want to share, in brief, your history, business model, type of organization, description, etc. You can share what sector you're in as well as the size and scale of your business. 

Featured below is an excellent example of a fictional company's overview.        

Start by reviewing your quarterly or yearly financing activities, financial data, and statements. Then go through published business studies and industry-specific trade journals. 

You should consider adding a snippet about how you compare to the industry average among your competitors. Like a business plan, you want to show potential investors why they should choose you. You can use Porter's Five Forces model to analyze your competition. 

2. Write sales forecast and other vital sections

It pays to be as precise and comprehensive as possible when writing the main content. So, you’ll need to organize your data and, sometimes, make some calculations yourself. For instance, when writing your sales forecast , you need your sales data for the past three years before you organize it in financial reporting software or spreadsheets. Tally the data on a yearly, monthly (for the 1st year), and quarterly (for the last two years) basis. 

You can write this part using a spreadsheet. But feel free to use financial reporting software if spreadsheets aren’t your cup of tea. 

There are other sections you should create for your report’s main body. 

Let’s look at them one by one:

• Expense budget

With your sales forecast in place, it's time to figure out how much it'll cost. When setting up your expense budget , ensure it includes variable costs like your marketing budget and fixed costs like rent. In addition, you'll need to create an estimate for items like interest and taxes. 

• Cash flow statement

A cash flow statement summarizes all the money or its equal coming in (cash inflow) or leaving (cash outflow) a business. To create one, you need historical financial data or project it one year ahead if you're starting. Don't forget your cash flow statement is connected to your invoice.

• Estimate for net profit

Tally your net profit using your sales forecast, expense budget, and cash flow statement data. Your net profit margin is your gross margin less taxes, interest, and expenses. Try and be as precise as possible since this can stand in as your profit and loss (P&L) statement . 

• Estimate for assets and liabilities

Your next step is to calculate your company's net worth. How? By managing your assets and liabilities, i.e., those items that don't appear in your P&L statement. 

To do that, ballpark your monthly cash on hand. That is, equipment, inventory, land, and accounts receivable. Then sum up your liabilities, i.e., outstanding loan debts and accounts payable. 

• Break-even point

The last step in writing a company financial analysis report is calculating your break-even point. That's where your business expenses match your sales volume. Use the formula below to find your three-year sales forecast; this will help you find your break-even point.

Needless to say, if you're operating a profitable business model, then your company's revenue should be higher than your operating expenses. Again, this information helps reassure potential investors of your business' stability and revenue growth potential.  

Refrain from assuming that people know the concepts you'll discuss in your report. Instead, define them in general terms first before you start talking about specifics.

3. Determine the company's valuation

The company valuation part is one of the most critical sections of your financial analysis report. Why? Because it helps potential investors see the value of investing in your company. 

To determine your business' valuation is to find your company's value. You do this by analyzing your company data, including all the data you have discussed. There are three main ways to do it, i.e., using the following: 

• Discounted Cash Flow (DCF) Analysis
• Book Value Analysis
• Relative Value Method

The goal here is to outline your current assets and liabilities. Moreover, the above techniques help you determine your business' stocks and current value. To do this, most accountants or financial officers use insights from and final average accounts of your balance sheet. 

4. Perform risk analysis

Risk analysis helps potential investors see your company's investment potential. That includes both current and future risks. You can start risk analysis by running a SWOT analysis . 

But remember that your SWOT analysis is microscopic. So for the best results in your valuation, combine it with other techniques. For example, doing a PESTLE analysis . Here's a template you can use for that:

A PESTLE analysis gives you more details and offers two main benefits. First, it helps you understand your marketing environment and other macro factors that affect your company's financials. 

5. Include summaries of financial statements

When writing the financial analysis report of a company, you need to include a brief overview of your company's financial statements. To do this, summarize each component of the 3-statement model:

Let's discuss each of them:

Cash flow statement. Potential investors look at your cash flow statement summary for two reasons. One, it lets them see if you make enough money to settle your debts. Two, it helps them decide whether your company is worth investing in.

Income statement . A summary of this does two things. First, it shows you gaps in increasing operating profit by allowing you to boost sales revenue , reduce cost, or both. It's also an income statement showing how effective your strategies are at the start of your financial year.

Balance sheet. The balance sheet shows your debt coverage and asset liquidity in real time. The difference between assets and liabilities gives you the 'owner's equity.' Here's an example of a balance sheet:

Note that summarizing each of these three components doesn't mean just including tables in your report. Instead, explain what the data means in paragraph form, too.  

6. Summarize the entire report 

The last section of the financial analysis report of a company is a summary. You want to share your final views about the company and your opinion on whether it's a profit or loss. That said, be sure to substantiate all your claims. 

That means having evidence containing factual data, financial accounts, and proven financial theories. You can also include the outlook of the company. That is the type of organization, industry trends, economic growth strategies, and how they'll affect the company. 

In conclusion

By now, you should understand the value of a company financial analysis report and how to write one. Not only does it show you the financial health status of a company, but it's also the smoking gun investors look for before investing in any business. 

To any organization, a financial analysis report is a compass to optimize operational efficiency for growth. It is also a crucial part in portfolio management especially when you need to open your business up to other stakeholders.

Summarising, to write a financial analysis report, you need to: 

Write your company overview , sales forecast, and other essential sections. Once those are out of the way, you can perform company valuation and risk analysis. Then, all that's left is to summarize what was discussed. 

Daryl Bush is the Business Development Manager at Authority.Builders . The company helps businesses acquire more customers through improved online search rankings. He has extensive knowledge of SEO and business development.

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• How to Write a Great Business Plan: Financial Analysis

The last article in a comprehensive series to help you craft the perfect business plan for your startup.

This article is part of a series on  how to write a great business plan .

Numbers tell the story. Bottom line results indicate the success or failure of any business.

Financial projections and estimates help entrepreneurs, lenders, and investors or lenders objectively evaluate a company's potential for success. If a business seeks outside funding, providing comprehensive financial reports and analysis is critical.

But most importantly, financial projections tell you whether your business has a chance of being viable--and if not let you know you have more work to do.

Most business plans include at least five basic reports or projections:

• Balance Sheet: Describes the company cash position including assets, liabilities, shareholders, and earnings retained to fund future operations or to serve as funding for expansion and growth. It indicates the financial health of a business.
• Income Statement: Also called a Profit and Loss statement, this report lists projected revenue and expenses. It shows whether a company will be profitable during a given time period.
• Cash Flow Statement: A projection of cash receipts and expense payments. It shows how and when cash will flow through the business; without cash, payments (including salaries) cannot be made.
• Operating Budget: A detailed breakdown of income and expenses; provides a guide for how the company will operate from a "dollars" point of view.
• Break-Even Analysis: A projection of the revenue required to cover all fixed and variable expenses. Shows when, under specific conditions, a business can expect to become profitable.

It's easy to find examples of all of the above. Even the most basic accounting software packages include templates and samples. You can also find templates in Excel and Google Docs. (A quick search like "google docs profit and loss statement" yields plenty of examples.)

Or you can work with an accountant to create the necessary financial projections and documents. Certainly feel free to do so... but I'd first recommend playing around with the reports yourself. While you don't need to be an accountant to run a business, you do need to understand your numbers... and the best way to understand your numbers is usually to actually work with your numbers.

But ultimately the tools you use to develop your numbers are not as important as whether those numbers are as accurate as possible--and whether those numbers help you decide whether to take the next step and put your business plan into action.

Then Financial Analysis can help you answer the most important business question: "Can we make a profit?"

Some business plans include less essential but potentially important information in an Appendix section. You may decide to include, as backup or additional information:

• Resumes of key leaders
• Additional descriptions of products and services
• Legal agreements
• Organizational charts
• Examples of marketing and advertising collateral
• Photographs of potential facilities, products, etc
• Backup for market research or competitive analysis
• Additional financial documents or projections

Keep in mind creating an Appendix is usually only necessary if you're seeking financing or hoping to bring in partners or investors. Initially the people reading your business plan don't wish to plow through reams and reams of charts, numbers, and backup information. If one does want to dig deeper, fine--he or she can check out the documents in the Appendix.

That way your business plan can share your story clearly and concisely.

Otherwise, since you created your business plan... you should already have the backup.

And one last thing: always remember the goal of your business plan is to convince you that your idea makes sense--because it's your time, your money, and your effort on the line.

More in this series:

• How to Write a Great Business Plan: Key Concepts
• How to Write a Great Business Plan: the Executive Summary
• How to Write a Great Business Plan: Overview and Objectives
• How to Write a Great Business Plan: Products and Services
• How to Write a Great Business Plan: Market Opportunities
• How to Write a Great Business Plan: Sales and Marketing
• How to Write a Great Business Plan: Competitive Analysis
• How to Write a Great Business Plan: Operations
• How to Write a Great Business Plan: Management Team

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How to Write a Financial Plan for a Business Plan

Noah Parsons

4 min. read

Updated July 11, 2024

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

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

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

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

• Key components of a financial plan in business plans

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

Sales forecast

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

Subscription sales forecast

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

Expense budget

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

How to forecast personnel costs

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

Profit and loss forecast

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

Cash flow forecast

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

Balance sheet

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

What to include if you plan to pursue funding

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

Highlight any risks and assumptions

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

Plan your exit strategy

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

• Financial ratios and metrics

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

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

Key financial terms you should know

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

Common business ratios

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

Break-even analysis

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

How to calculate ROI

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

• How to improve your financial plan

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

Common mistakes with business forecasts

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

How to improve your financial projections

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

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• Financial plan templates and tools

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

Sales forecast template

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

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

Table of Contents

• What to include for funding

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Business Financial Plan Example: Strategies and Best Practices

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

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

Understanding a Business Financial Plan

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

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

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

Essential Elements of a Business Financial Plan

A comprehensive financial plan contains several crucial elements, including:

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

Crafting a Business Financial Plan: The Steps

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

Step 1: Set Clear Financial Goals

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

Step 2: Create a Sales Forecast

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

Step 3: Prepare an Expense Budget

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

Step 4: Develop a Cash Flow Statement

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

Step 5: Prepare Income Statements and Balance Sheets

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

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

Step 6: Revise Your Plan Regularly

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

Business Financial Plan Example: Joe’s Coffee Shop

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

Sales Forecast

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

Expenses Budget

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

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

Cash Flow Statement

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

Income Statement and Balance Sheet

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

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

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

Best Practices in Business Financial Planning

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

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

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

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

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

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How to Write the Financial Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

Taking Stock of Expenses

The income statement, the cash flow projection, the balance sheet.

The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:

• Business registration fees
• Business licensing and permits
• Starting inventory
• Rent deposits
• Down payments on a property
• Down payments on equipment
• Utility setup fees

Your own list will expand as soon as you start to itemize them.

Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:

• Salaries (including your own)
• Rent or mortgage payments
• Telecommunication expenses
• Raw materials
• Distribution
• Loan payments
• Office supplies
• Maintenance

Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business plan starting with the income statement.

The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.

While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.

Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.

If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.

The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how  much capital investment  your business idea needs.

For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a  short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.

Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.

There are three parts to the cash flow projection:

• Cash revenues: Enter your estimated sales figures for each month. Only enter the sales that are collectible in cash during each month you are detailing.
• Cash disbursements: Take the various expense categories from your ledger and list the cash expenditures you actually expect to pay for each month.
• Reconciliation of cash revenues to cash disbursements: This section shows an opening balance, which is the carryover from the previous month's operations. The current month's revenues are added to this balance, the current month's disbursements are subtracted, and the adjusted cash flow balance is carried over to the next month.

The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:

• Assets :  Tangible objects of financial value that are owned by the company.
• Liabilities: Debt owed to a creditor of the company.
• Equity: The net difference when the  total liabilities  are subtracted from the total assets.

The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .

For your  business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.

Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.

How To Conduct Financial Analysis for Your Company

Updated: July 22, 2024

Published: July 07, 2023

If someone were to ask you about your company’s financial strengths and weaknesses, could you give them a detailed answer?

As a founder, you need to know this type of information about your business. Understanding your financial performance is key to making better decisions about growth and investment plans. 

The key to painting that picture lies in a process known as financial analysis.

What is financial analysis?

Financial analysis is the process of going over a company’s financial data to evaluate its performance in order to make informed business decisions. Founders and executives use financial analysis to assess performance and make strategic decisions, such as where to invest money to improve growth. 

Externally, investors use financial analysis to make decisions about which companies are good investments. Potential lenders, such as banks, may also use financial analysis when they review loan applicants to assess your ability to pay back the money they lend.

Financial analysis is typically done by an external finance professional who reviews documents like the income statement, cash flow statement, and balance sheet.

How to do a financial analysis

1. collect your company’s financial statements.

Financial analysis helps you identify trends in your business’s performance. To get the best insights, compare your business performance over time.

Gather your recent financial statements, including your balance sheets, income statements, and cash flow statements. Look at the last three to five years’ worth of data, which is enough to establish a trend while still focusing on your most recent (and relevant) performance.

Once you have all your documents, arrange them in chronological order.

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2. Analyze balance sheets

Your balance sheets give you a snapshot of your company’s finances at a given point in time, such as the end of a fiscal year. On this sheet, you’ll see the value of your short- and long-term assets, debts, and owner’s equity. 

Look at your balance sheets and consider the following questions: 

• How much debt do you have compared to equity?
• Has your debt been increasing or decreasing over time?
• How liquid is the business? (i.e., how much of the business’s assets are short term?)
• How has the liquidity of the business changed over time?

3. Analyze income statements

Also known as a profit and loss (P&L) statement , the income statement provides insight into your company’s revenue , expenses, and profits. 

Evaluate your income statements and look for trends in your:

• Gross revenue: Total amount of income generated by sales.
• Operating income: Revenue minus the cost of goods sold (COGS). This tells you how much of your revenue remains after you account for operating expenses.
• Net profit (or loss): Revenue minus all expenses. This tells you how much money your company earned (or lost) after paying interest and taxes.

Startups can often take two to three years to become profitable . That’s why it’s helpful to track several financial metrics. 

For example, you can have a net loss while still generating an operating profit. This means your core business is profitable, but you may still be paying off interest on the loans it took to get the business off the ground.

4. Analyze cash flow statements

Your cash flow statements give you insight into how money flows in and out of your business by looking at your expenses and which activities generate income.

Here are some steps to take in your cash flow analysis :

• Review cash flow for each activity (operating, investing, financing). Note whether cash flow is positive (the activity generates income) or negative (the activity loses money). 
• Compare cash flow from each activity to see which generates the most income for your business. 
• Review cash inflow and outflow over time to identify trends. Are they increasing or decreasing?
• Review total cash to see if it is increasing or decreasing over time.

5. Calculate relevant financial ratios

Calculate financial ratios to get a more detailed picture of your company’s profitability, liquidity, and overall operational efficiency. Here are some of the most common metrics to consider in a ratio analysis.

6. Summarize your findings

Put together all your findings. You can use the following prompts to help organize your analysis:

• What are my company’s financial strengths? 
• What are my company’s financial weaknesses?
• How well did the company perform compared to previous financial projections?
• What are the possible explanations for my company’s strengths and weaknesses?
• What financial improvements do I want to make?

After you conduct your analysis, you’ll know where your business stands in terms of its finances and be able to have educated discussions with stakeholders and potential investors.

Furthermore, you’ll be able to use this knowledge to make more informed decisions about your business’s strategy.

Gaurav Nagani, CEO of help desk software company Desku.io, recommends conducting an analysis “before investing, at regular intervals, before making strategic decisions, and during difficult times.” This way, when you have to make impactful decisions, you’re doing so with a full picture of your company’s financial health. 

Common types of financial analysis

There are several different types of financial analysis that you, or a financial professional, can use, depending on what you hope to glean. 

Horizontal analysis

Horizontal analysis looks at a company’s performance over time by comparing financial statements over different periods, such as months, quarters, or years. 

You can use it to identify growth trends and support financial forecasting , which is the process of using historical data to predict your company’s performance in the future.

Vertical analysis

Vertical analysis looks at a company’s financial performance relative to one metric, such as your total assets. In this case, all line items on the financial statements are expressed as a percentage of total assets. For example, you can use the debt-to-asset ratio, which looks at your total debt as a percentage of total assets.

Say your total debt is $4m and you have $10m in total assets. A vertical analysis would show your debts as 40% of total assets, which is what you get when you divide $4m by $10m.

Using vertical analysis makes it easy to see relationships between the metrics on different financial statements. It’s also helpful for comparing companies with one another for benchmarking.

Valuation is the process of using a company’s financial information to estimate the value of the business . 

Investors often compare a company’s estimated value to its stock price to see if they want to buy shares. For startups, valuations are a necessary step to take before starting a priced fundraising round.

Growth Rates

Growth rates represent the percent change in a given metric over time, such as the percent change in net sales over four quarters. Analyzing growth rates can help forecast future performance for specific metrics.

Profitability

Analysts may use profitability ratios , which provide insight into how efficiently your company turns revenue into profit. The higher your profitability ratios, the more resources you’ll have to reinvest into the company’s growth or distribute to your shareholders.

Jeff Schmidt, vice president of financial modeling at Corporate Finance Institute, reminds entrepreneurs, “The point of analysis is to not focus on one method or another but consider the analysis in total and make the proper investment decision.” 

Financial analysis example

One example of a financial analysis would be if a financial analyst calculated your company’s profitability ratios , which assess your company’s ability to make money, and leverage ratios , which measure your company’s ability to pay off its debts. Based on the results of the analysis, the analyst will decide if they want to recommend your company as a good investment. 

Knowing how to do a financial analysis is a key skill for entrepreneurs because it helps you understand your company’s performance. You can use the insights you gain from financial analysis to make more informed decisions about your overall strategy. 

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Financial Statement Analysis: How It’s Done, by Statement Type

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

What Is Financial Statement Analysis?

Financial statement analysis is the process of analyzing a company’s financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization and to evaluate financial performance and business value. Internal constituents use it as a monitoring tool for managing the finances.

Key Takeaways

• Financial statement analysis is used by internal and external stakeholders to evaluate business performance and value.
• Financial accounting calls for all companies to create a balance sheet, income statement, and cash flow statement, which form the basis for financial statement analysis.
• Horizontal, vertical, and ratio analysis are three techniques that analysts use when analyzing financial statements.

Jiaqi Zhou / Investopedia

How to Analyze Financial Statements

The financial statements of a company record important financial data on every aspect of a business’s activities. As such, they can be evaluated on the basis of past, current, and projected performance.

In general, financial statements are centered around generally accepted accounting principles (GAAP) in the United States. These principles require a company to create and maintain three main financial statements: the balance sheet, the income statement, and the cash flow statement. Public companies have stricter standards for financial statement reporting. Public companies must follow GAAP, which requires accrual accounting. Private companies have greater flexibility in their financial statement preparation and have the option to use either accrual or cash accounting.

Several techniques are commonly used as part of financial statement analysis. Three of the most important techniques are horizontal analysis , vertical analysis , and ratio analysis . Horizontal analysis compares data horizontally, by analyzing values of line items across two or more years. Vertical analysis looks at the vertical effects that line items have on other parts of the business and the business’s proportions. Ratio analysis uses important ratio metrics to calculate statistical relationships.

Companies use the balance sheet, income statement, and cash flow statement to manage the operations of their business and to provide transparency to their stakeholders. All three statements are interconnected and create different views of a company’s activities and performance.

Balance Sheet

The balance sheet is a report of a company’s financial worth in terms of book value. It is broken into three parts to include a company’s assets ,  liabilities , and  shareholder equity . Short-term assets such as cash and accounts receivable can tell a lot about a company’s operational efficiency; liabilities include the company’s expense arrangements and the debt capital it is paying off; and shareholder equity includes details on equity capital investments and retained earnings from periodic net income. The balance sheet must balance assets and liabilities to equal shareholder equity. This figure is considered a company’s book value and serves as an important performance metric that increases or decreases with the financial activities of a company.

Income Statement

The income statement breaks down the revenue that a company earns against the expenses involved in its business to provide a bottom line, meaning the net profit or loss. The income statement is broken into three parts that help to analyze business efficiency at three different points. It begins with revenue and the direct costs associated with revenue to identify gross profit . It then moves to operating profit , which subtracts indirect expenses like marketing costs, general costs, and depreciation. Finally, after deducting interest and taxes, the net income is reached.

Basic analysis of the income statement usually involves the calculation of gross profit margin, operating profit margin, and net profit margin, which each divide profit by revenue. Profit margin helps to show where company costs are low or high at different points of the operations.

Cash Flow Statement

The cash flow statement provides an overview of the company’s cash flows from operating activities, investing activities, and financing activities. Net income is carried over to the cash flow statement, where it is included as the top line item for operating activities. Like its title, investing activities include cash flows involved with firm-wide investments. The financing activities section includes cash flow from both debt and equity financing. The bottom line shows how much cash a company has available.

Free Cash Flow and Other Valuation Statements

Companies and analysts also use free cash flow statements and other valuation statements to analyze the value of a company . Free cash flow statements arrive at a net present value by discounting the free cash flow that a company is estimated to generate over time. Private companies may keep a valuation statement as they progress toward potentially going public.

Financial statements are maintained by companies daily and used internally for business management. In general, both internal and external stakeholders use the same corporate finance methodologies for maintaining business activities and evaluating overall financial performance .

When doing comprehensive financial statement analysis, analysts typically use multiple years of data to facilitate horizontal analysis. Each financial statement is also analyzed with vertical analysis to understand how different categories of the statement are influencing results. Finally, ratio analysis can be used to isolate some performance metrics in each statement and bring together data points across statements collectively.

Below is a breakdown of some of the most common ratio metrics:

• Balance sheet : This includes asset turnover, quick ratio, receivables turnover, days to sales, debt to assets, and debt to equity.
• Income statement : This includes gross profit margin, operating profit margin, net profit margin, tax ratio efficiency, and interest coverage.
• Cash flow : This includes cash and earnings before interest, taxes, depreciation, and amortization (EBITDA) . These metrics may be shown on a per-share basis.
• Comprehensive : This includes return on assets (ROA) and return on equity (ROE) , along with DuPont analysis .

What are the advantages of financial statement analysis?

The main point of financial statement analysis is to evaluate a company’s performance or value through a company’s balance sheet, income statement, or statement of cash flows. By using a number of techniques, such as horizontal, vertical, or ratio analysis, investors may develop a more nuanced picture of a company’s financial profile.

What are the different types of financial statement analysis?

Most often, analysts will use three main techniques for analyzing a company’s financial statements.

First, horizontal analysis involves comparing historical data. Usually, the purpose of horizontal analysis is to detect growth trends across different time periods.

Second, vertical analysis compares items on a financial statement in relation to each other. For instance, an expense item could be expressed as a percentage of company sales.

Finally, ratio analysis, a central part of fundamental equity analysis, compares line-item data. Price-to-earnings (P/E) ratios, earnings per share, or dividend yield are examples of ratio analysis.

What is an example of financial statement analysis?

An analyst may first look at a number of ratios on a company’s income statement to determine how efficiently it generates profits and shareholder value. For instance, gross profit margin will show the difference between revenues and the cost of goods sold. If the company has a higher gross profit margin than its competitors, this may indicate a positive sign for the company. At the same time, the analyst may observe that the gross profit margin has been increasing over nine fiscal periods, applying a horizontal analysis to the company’s operating trends.

Congressional Research Service. “ Cash Versus Accrual Basis of Accounting: An Introduction ,” Page 3 (Page 7 of PDF).

Internal Revenue Service. “ Publication 538 (01/2022), Accounting Periods and Methods: Methods You Can Use. ”

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Example of Financial Analysis for Business Plan: Basic Guide

Table of Contents

Financial analysis is a key component of any successful business plan. An example of financial analysis for business plan can benefit any entrepreneur looking to get their startup off the ground.  Knowing how much money you need to start or run your business and what resources are available to help you succeed is essential. With this in mind, companies must conduct thorough financial analyses as part of their planning process.  This blog article focuses on business plan financial analysis, discusses its importance, and provides a template to guide you. Let’s get started from the basics.

What Is Financial Analysis

Financial analysis is an integral part of business planning. It helps business owners set short- and long-term financial goals, analyze business performance , and make strategic resource allocation decisions. The financial analysis also provides a way to monitor progress towards those goals and identifies any potential risks or opportunities that may arise. 

Importance of Financial Analysis in Business Planning

Financial analysis can help identify opportunities for diversification or expansion and assess the impact of changes in taxes, regulations, or other factors.  It is critical to ensure that any business plan is realistic and achievable. It ensures that resources are being used efficiently and that financial goals are attainable.  The financial analysis allows for flexibility in strategy development should unexpected opportunities or risks arise. It is essential to ensure the business is on track toward reaching its financial goals.  Overall, financial analysis is an essential step in creating a successful business plan. By conducting a thorough financial analysis, businesses can ensure their plans are realistic and achievable. It can also identify potential risks and opportunities and adjust strategies for maximum success.

What to Include in a Financial Analysis for Business Plans

Once the financial analysis is complete, a business plan should be developed to include the findings of that analysis. A typical financial analysis for a business plan includes the following: 

Budget and Forecasting

This includes creating an accurate and comprehensive budget that reflects historical performance and planned income and expenses over the coming years. 

Cash Flow Analysis

This includes examining cash inflows and outflows to identify any potential shortfalls or risks that could impact the business’s future stability.

Performance Analysis

This includes analyzing sales trends, identifying new opportunities for increasing revenue, and examining expenses and costs associated with running the business. 

Debt Obligations

This includes evaluating any debt obligations and creating strategies to reduce liability.

Cost-Benefit Analysis/Financial Modeling

This includes assessing the impact of potential investments or changes in taxes, regulations, or other factors on future performance.  By conducting a thorough financial analysis, businesses can ensure their plans are realistic and achievable. This will provide the insight needed to develop strategies that lead to success. 

Example of Financial Analysis for Business Plan

Creating a financial analysis for business plan is an easy process with the proper tools and resources. A typical financial analysis includes budgeting, cash flow analysis, performance evaluation, debt obligations, cost-benefit analyses, and financial modeling.  To help make this process simpler, here is a template that businesses can use to conduct a financial analysis:

Step 1: Budget and Forecasting

• Create an accurate and comprehensive budget 
• Review historical performance 
• Plan income and expenses for the coming years 
• Analyze data for any potential trends or patterns 

Step 2: Cash Flow Analysis

• Examine cash inflows and outflows 
• Identify potential shortfalls or risks 

Step 3: Performance Analysis

• Analyze sales trends 
• Identify new opportunities for increasing revenue 
• Examine expenses and costs associated with running the business 

Step 4: Debt Obligations

• Evaluate any debt obligations 
• Create strategies to reduce liability 

Step 5: Cost-Benefit Analysis/Financial Modeling

• Assess the impact of potential investments or changes in taxes, regulations, or other factors on future performance 
• Identify any potential risks as well as opportunities for growth and expansion. 

This template provides the insight needed to develop strategies that lead to success.

Financial analysis is an essential step in creating a successful business plan . Using our financial analysis for business planning example, you’ll know what aspects to focus on and what to include and ignore. With the proper tools and resources, businesses can make financial analysis a beneficial learning experience.

Abir Ghenaiet

Abir is a data analyst and researcher. Among her interests are artificial intelligence, machine learning, and natural language processing. As a humanitarian and educator, she actively supports women in tech and promotes diversity.

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Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

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Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

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How to Conduct a Strategic Financial Analysis for Your Business

Posted may 25, 2021 by noah parsons.

How often do you review your business numbers? If you look at the financial performance of your business at least once a month or perhaps even more frequently , you’re in good shape—and better off than most businesses.

Unfortunately, too many businesses review their books only every few months, and frankly, that’s not a great strategy. It gives those businesses fewer opportunities to see if things are going well or not. The more frequently you review your business finances, the more chances you have to find opportunities for growth .

But how do you approach reviewing your financials? What documents should you analyze? What exactly should you be looking for? Let’s try to answer those questions by introducing you to a process known as a strategic financial analysis.

What is a strategic financial analysis?

A strategic financial analysis is a review framework where you analyze performance, assess your goals, and make adjustments to your forecasts and strategy based on actual results. In short, this is where you connect the dots between your numbers and the actions that you’re taking. The intention is to identify any potential problems or opportunities within your financials and turn them into strategic steps for growth.

In some cases, this analysis may also include a deeper look at your business model, comparisons against your competitors , and even different forecast scenarios. 

What financial statements should I review when conducting a strategic financial analysis?

When you’re reviewing your business financials, you’ll want to check these three key reports:

• Profit and loss (also known as an income statement)
• Balance sheet

Each report will tell you different things about your business. Put together, they’ll provide you with nearly everything you’ll want to know about your business performance. By the end, you should be able to bring your forecasts for these statements up to speed based on your actual results . 

How to conduct a strategic financial analysis

Here are the five steps you’ll want to take when conducting a strategic analysis of your financial statements.

1. Compare your forecast to your actuals monthly

So, if you’re reviewing your business financials regularly, you’re off to a good start.

But to get even more value out of that financial review, you need to start comparing your actuals —how your business performed—to your forecast.

Ideally, compare your plan to what actually happens in a monthly meeting with your key staff. You’ll want to have your forecast handy as well as reports from your accounting software so you can compare the two and see if you’re on track. 

If you’re using LivePlan, the software will do all of the number-crunching and comparison work for you—no spreadsheets required—and you’ll be able to compare everything in a simple financial dashboard . 

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2. Identify where you’re off track or exceeding projections

When you’re forecasting, you’re making educated guesses. This means that your actual financial performance in a given month will vary. 

You’ll typically either be off track and performing worse than expected. On track and sitting fairly close to expectations. Or, outperforming your forecasts and exceeding expectations. 

What does comparing my plan to my actual results do for me?

If you just review what happened in the past, you’ll get a good idea of what happened during the past month of your business. But, it’s difficult to know if your performance is good or bad if you’re not comparing your actual results against your plan. 

• How do you know if you’re meeting your sales goals? 
• Can you tell that you’re keeping your spending within your budget? 
• Are you keeping as much cash in the bank as you need to?

Even more importantly, if you have plans to grow your business or make significant investments, you’ll want to know if it makes financial sense to spend the money. Should you invest now or should you wait for a better time? Should you open a second location or hold off?

By reviewing your plan and comparing it to your actual results, you’ll get a better sense of when you should look to expand, and when you should be reining things in. Make a mistake and invest in your business at the wrong time and you could create a cash flow crunch that could sink your business.

3. Review your Income statement (profit and loss or P&L)

Your income statement (also called profit and loss or P&L) documents your income and your expenses. When you compare this statement to your forecast, you’ll see if your sales are meeting your goals and if you’re keeping your expenses in line with your budget.

If you’re not sure what’s included in an income statement or what types of information you’ll find there, start with this guide to reading a profit and loss or income statement that will help orient you to each line item. 

You can also download an income statement example to help you better visualize the information. For a more dynamic solution that displays actual results for completed periods right into your forecasted Profit and Loss statement, check out LivePlan’s LiveForecast feature . No more hours spent inputting accounting information. Just you spending more time digging into what is and isn’t working for your business.

When you’re ready to dive deeper and start your income statement analysis, use this income statement analysis guide for your monthly financial review. It walks you through typical questions that might come up as you’re doing your review. That way, you can use your findings to make better strategic decisions for the health and growth of your business. 

4. Analyze your cash flow statement

Your cash flow statement will tell you exactly how cash moved into and out of your business. Comparing this statement to your cash flow forecast will tell you if you’re on track to grow your bank balance the way you had planned, and why you might be off track if things aren’t going the way you had hoped.

Check out this article on how to read a cash flow statement for a line-by-line explanation of how it works. And download our cash flow statement example PDF and Excel spreadsheet if you’re looking for a sample to work from as you review your own.

When you’re ready to start comparing your actual cash flow to your forecast, this guide to cash flow analysis will help you get started. 

5. Review your balance sheet

Your balance sheet will give you a complete overview of your financial position. How much money are you owed and how much money do you owe? What assets does your business have? Your balance sheet analysis will help you understand if you’re collecting money from your customers at the right rate, and if you’re taking on more debt than planned. 

If you’re new to balance sheet review, this article offers more insight on how a balance sheet is set up, and what you need to know about each line. You can also download a balance sheet example to help you visualize it better. 

When you’re ready to do your monthly review, this balance sheet analysis guide will help you get started. 

Look beyond your financials for more insights

Doing a monthly financial statement analysis—comparing your actuals to your plan or forecast—helps you keep a finger on the pulse of your business finances. 

Additionally, it’s wise to look at industry benchmarks , financial shifts in your industry, and any other external factors that may be affecting your financial performance. Use your initial comparison to actual performance to jumpstart this market analysis and help you define the next steps. 

When you identify a gap or variance between what you forecast and what actually happened, use that information to help you make strategic shifts in your business so you can quickly address challenges and take advantage of opportunities.

Editors’ note: This article was originally published in 2019 and updated for 2021.

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How to Write the Financial Section of a Business Plan

When you are starting a small business or a startup, you will need to make financial projections for your business.

What is Financial Plan in Business Plan?

How to write a business plan financial section, profit and loss statement.

• Cash Flow Statement
• Balance Sheet
• Sales Forecast
• Personnel Plan

Breakeven Analysis and Business Ratios

Use financial plan as a tool for business management, frequently asked questions (faqs).

Financial plan in business plan helps understand the chances of your business becoming a financial success. Investors want to see a financial plan to know how much money they’ll invest and what the expected return over investment is for them.

We have briefly discussed the process of writing a financial plan in business plan. One thing that can make or break your financial plan in business plan is your honesty about numbers.

Try not to be over-optimistic. See the growth pattern of similar businesses and project closely to them. Don’t overestimate the effects of your competitive advantage.

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A financial plan in business plan is an overview of your business financial projections.

Business plan financial projections include financial reports including Profit & Loss, cash flow statement, and balance sheet.

A financial plan will also discuss sales forecast, employees’ salaries and other expenses forecast, business breakeven analysis, and important business rations that help measure growth.

A business plan financial section is about making simple forecasts and creating a few financial reports. You don’t need to know accounting, nor is it necessary for creating financial projections.

We have outlined and simplified the process of creating a financial plan for business plan. Simply follow the process and take help from our examples and templates to write an excellent financial plan section of a business plan.

Review your Business Goals and Strategic Plan

You have set business goals in your business plan. A strategic plan is how you will navigate to financial success. 

Everything in a business plan that contributes toward your business goals. Before writing financial projections, consider these goals and milestones:

• Expansion plans 
• Adding more people to your team 
• Resources required to meet your business goals 
• Cash flow needs of your business in the short and long term
• Financing needs to meet business goals 

Create Financial Projections

 Financial projections in a business plan will include the following:

• Profit and loss statement

Cash Flow Statement 

Sales forecast .

• Business Ratios and Breakeven Analysis 

We will explore each in detail in the following section. By the end of the article, you will fully understand how to create financial plan in business plan. 

A profit and loss statement is the first financial report you will create when writing financial plan in business plan.

A profit and loss statement reports your business income or loss over a certain period of time.

Profit and loss statement is also known by other names including its short form i.e., P & L statement, income statement, and pro forma income statement.

A profit and loss statement includes total revenues, expenses, and costs. A P&L statement is made for different time intervals like quarterly, bi-annual and annual. It shows net income after the cost of goods sold, expenses, taxes, depreciation, and amortization.

Before creating a P&L statement for your business, you may need to look for the right format for your business structure. For example, you will need a different format for a profit and loss statement for a sole proprietorship and a different one for an LLC.

Check income statement examples to understand and create one yourself. 

Profit and Loss Statement Template

Download our free profit and loss statement templates &  examples, and make a professional income statement for financial plan in business plan. 

Parts of a Profit and Loss Statement 

Every profit and loss statement includes the following elements:

• Total Revenues 
• Cost of Sales or Cost of Goods Sold 
• Gross Margin 

Depending on the business type, a P&L statement may include insurance, taxes, depreciation, and amortization. Make sure to include a forecast for all heads in financial plan in business plan.

Calculate Operating Income 

Start your profit and loss statement by calculating operating income; use this formula. 

Gross Margin – Operating Expenses = Operating Income

Typically, operating income is equal to EBITDA (earnings before interest, taxes, depreciation, and amortization). 

Operating income is also called the gross profit and it does not deduce taxes or other accounting adjustments from the income.

Calculate Net Income 

Use this formula to calculate net income. 

Operating Income – (Interest + Taxes + Depreciation + Amortization Expenses) = Net Income

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A cash flow statement is typically prepared every month. You can create monthly and quarterly cash flow statement in financial plan in business plan.

A cash flow statement informs about the cash your business brought income, the cash it paid out, and how much is still available with the bank.

A cash flow statement gives an understanding of your income sources and expenses. When you forecast your financial reports, a cash flow statement will show your expected income sources and expenses.

A cash flow statement will help potential lenders and investors understand how you plan to make money. It provides reliable data about cash in and cash out. Keep it realistic and in line with the industry number for the most part. An exception may be an innovation or a breakthrough you bring to the market.

Your profit and cash flow are not the same. It is possible to have a cashless, profitable business or a business in loss with plenty of cash. A good cash flow helps you keep your business open and turn things around.

A cash flow statement also reflects your behavior with money. It shows if you spend on spur of the moment or think strategically. When creating a cash flow statement in a business plan, you will need to understand two basic concepts of accounting; cash accounting and accrual accounting.

Professional Business Templates for Small Businesses

Check our extensive library of business templates for small businesses and make use of the templates and examples in writing your business plan.

Difference between Cash and Accrual Accounting 

The difference between cash and accrual accounting is Accrual accounting records revenues/income and expenses when they occur while cash accounting records income/revenue and expenses when the money actually changes hands. 

You will need to decide if you will use cash accounting or accrual accounting. However, the final choice will depend on your business type and product. 

For example, you are selling tickets to a show or you are taking preorders for your new product. Under cash accounting, you will record all income now and expenses when you have actually shipped the product or organized the show. 

However, with accrual accounting, you will record both income and expenses when you have shipped the product or held the show. 

Here, cash accounting will show the months with cash abundance as profitable and the months of spending, like shipping of the products of event organization, as a loss. It is hard to see a pattern and get actionable insight with cash accounting. 

It is a good time to decide about the accounting method you will use when you are writing a financial plan in business plan. 

Check with your accounting consultant and discuss accrual and cash accounting to select the one most suitable for your business.

Balance Sheet 

A balance sheet is a summary of the financial position of your business. 

A balance sheet includes assets, liabilities, and equity. A balance sheet is based on this formula and it is always equal on both sides of the equation. 

Assets = Liabilities + Equity

Here, Assets include your inventory, cash at hand and bank, property, vehicles, accounts receivables, etc. Liabilities are debts, loans and account payables. Equity includes shares proceeds, retained earnings, and owner’s money. 

Download Balance Sheet Template from WiseBusinessPlan and make a balance sheet easy. 

A sales forecast is your projection about the sales you will make in a certain time. Investors and lenders will be interested in seeing your sales forecast. They will estimate your chances of meeting the forecast and projections. 

Keep your sales forecast consistent with the financial reports like the cash flow statement and profit & loss statement.

How To Make A Sales Forecast For A Business Plan?

First, decide the period for the sales forecast, like one month or a quarter. Then, do the following steps to make a sales forecast for that period. 

• List goods or services your business sells
• Forecast sales for each product or service 
• Set per unit price for your goods or services 
• Find sales volume by multiplying units sold with unit price 
• Calculate the cost of goods sold 
• Multiply the cost of goods sold by the number of units sold, this is your total cost 
• Take the total cost amount from the total sales amount

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Personnel Plan 

A personnel plan shows the costs and value of the employees you will hire. 

Very small businesses, startups, or solopreneurs may not need a personnel plan but any business with employees, or plans to hire employees, will need this. 

Forecast the cost of each employee and the value they will provide. You don’t need to discuss everything about employees, just do a short cost-benefit analysis for each position or employee.

Breakeven analysis tells you the number of sales you need to bring in to cover all of your business expenses. 

Use this formula to calculate the breakeven point for your business. 

Break-Even Point (units) = Fixed Costs /  (Sales price per unit – Variable costs per unit) 

Business ratios are like signals for your business. You can quickly spot a growth or fall with a ratio. Some business ratios also help you see business health. 

You are not required to include business ratio forecasts however, it is good to know about them when writing a business plan. 

Here are some of the most used business ratios.

• Gross margin
• Return on sales
• Return on assets
• Return on investment
• Debt-to-equity
• Current ratio
• Working capital
• gross margin
•  return on investment (ROI)
• Debt-to-equity.

One mistake that most people make is thinking that building a business plan is a one time thing. 

Your business plan and your financial projections can help you measure your business growth. You can use these numbers as a yard stick to see if you are meeting your projections or not. 

Here is how you can your business plan as a management tool for your business. 

Schedule monthly and quarterly business review meetings. Compare your actual data for that period with your forecast data and see how you are moving towards your business goals. Adjust your forecast or projections with the help of actual data to keep your growth trajectory in the right direction.

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The financial section of a business plan should include key financial statements such as the income statement, balance sheet, and cash flow statement. It should also provide details on projected sales, expenses, and profitability, along with any assumptions or financial ratios used.

Forecasting sales and revenue involves analyzing market research, understanding your target audience, and considering factors such as pricing, competition, and marketing strategies. Utilize historical data, industry benchmarks, and realistic growth assumptions to estimate future sales figures.

In addition to sales and revenue projections, the financial section should include projected expenses, such as operational costs, marketing expenses, and overheads. It should also outline anticipated profits, cash flow projections, and return on investment (ROI) calculations.

Yes, including a break-even analysis is important as it helps determine the point at which your business will start generating profits. It identifies the sales volume needed to cover all expenses and provides insights into the viability of your business.

Supporting documents may include historical financial statements, tax returns, cash flow statements, balance sheets, and any other relevant financial records. Additionally, include details about any loans, investments, or funding sources that contribute to the financial projections.

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Use a Financial Plan Sample

In your business finance analysis.

Use a financial plan sample from a business within your industry to help you build a stronger financial plan. Small business finance software can also help you conduct an effective business finance analysis and strengthen your operation.

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Business Finance Analysis:

You can use sample financial plans to calculate ratio comparisons (liquidity, profitability, solvency, and efficiency ratios).

You can also use the data from the sample (or samples if you can access other businesses' annual reports in your industry) and run the information through small business finance software; then compare to your data.

These comparisons help you conduct a comprehensive business finance analysis and assess whether or not you are tracking, or out-performing, your competitors.

If the only comparisons or samples you can access are of different sized companies (much larger or much smaller), use weighted averages to help you compare.

Once you've completed the analysis of your data, complete your own business financial plan . You've now got a reality check in the form of the plan sample that you've analyzed.

To finish writing your business financial plan, ensure that you add assumptions and summary or discussion notes to your plan.

Financial Plan Sample: Summary or Discussion Notes

For instance, if you are a small business owner for a marketing services firm, your summary or discussion notes might look like:

Sample Summary on Projected Net Income: Our revenue projections for the 5 year plan include increases of 4% per year, with the exception of year 1 where we project an increase of 8%, based on a recent service contract we have signed with XYZ Corporation. It is a one year contract, with an option to renew in year 2 at the same price, plus inflation.

Our cost of sales is 58% of gross revenues in year 1, falling back to 54% of gross revenues in years 2 to 5. Marketing and Sales expenses, which include advertising, promotions, client entertainment, and travel, are 10% on average of net sales.

Add comments on all projected large expenses (property, computers, etc.).

Net income is projected to increase by about 27 percent in year 1: from $32,150 to $41,000; from $41,000 to $58,000 in year 2; and so on.

Sample Summary on Cash Flow Projection: The assumption is that the planned growth in year 1 will require additional cash to hire more staff or contract workers to support the sales growth.

In this summary statement, explain how you will support your cash needs (bank line of credit, shareholder's loan, prepaid contract, etc.).

From year 2 on, your cash needs should decline since you now have the additional income from the large sales contract in year 1. Year end cash from years 2 onward should have a positive cash balance in your projections.

And continue your comments on each section of your plan.

Your Business Financial Plan needs to include:

• Cash flow projections by month; and by year;
• Pro forma Balance Sheet, by year;
• Business Financial Ratios, by year (calculate ratios; like liquidity, profitability, efficiency and solvency);
• Pro Forma Income Statement, by year;
• Include a capital expenditures plan if your business has significant capital expenditures in its near-term horizon.

In your financial plan you must include your assumptions.

Some Financial Plan Sample Assumptions include:

• data from your forecast or sales plan;
• cost of goods and/or services;
• inflation rates (actual and/or projected);
• impact of foreign currency;
• impact of any major economic factor - e.g. national elections;
• impact of large contract/new business;
• impact of worker shortage;
• impact of property or tax increases or end of lease during period;
• bank interest rates;
• staffing and/or operations impacts (e.g. new hires; employee compensation plans - i.e growth, increases or decreases, new equipment; new software);
• and so much more.

Typically these assumptions are listed at the end of your business financial plan.

When building your own business plan, you must include a realistic financial plan (it's easy to be overly optimistic, especially when starting out). To help you build realism into your plan, your business financial analysis needs to include a review of a financial plan sample (or samples), preferably within your industry.

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Implement Your Plan: for Results

Once you've built your plan, you need to implement it.

Developing your strategy (in the plan) is the first, necessary, step. You need to know the direction you want to go, and you need the strategy and the plan to help you get there.

But once you've built the plan, you must execute it.

There is no value in building a plan that just gathers dust.

When building your business plan, make sure that you include an action plan for the strategies, techniques and tactics.

The actions need to include who's responsible for doing what; measurements for success (such as deadlines and timelines, targets and goals, costs, etc.); and why you need to take the action (in some cases, one action needs to be accomplished before subsequent ones can be launched).

As you work through the plan, make sure that you build reporting periods into the implementation: you need to know what's going on and why something is working, or not.

Make sure to communicate progress, or lack of it, throughout the organization. And re-visit the plan when and where necessary.

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Focus on Your Plan

Plan for the future: lots of business owners want to get, or keep, moving forward. Planning seems to be more of a passive activity.

However, to ensure that your business goes in the right direction and that it optimizes all its opportunities, and manages its challenges, it is important to plan.

Balance your activities against the plan: make sure that you are investing your time, and money, on the elements of your business that will help you succeed.

Measure what works, and what doesn't work, and keep your focus: use your business plan as a map to guide you in the direction you want to go.

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Business Financial Analysis

Ai generator.

Business financial analysis is an invaluable factor that allows the business to further improve, grow, and develop as a corporate entity. Having insights about the corporate value, current and potential profitability, cash flow, and financial condition of the business can make it more effective and efficient for businesses to find ways on how to maintain and even better their sustainability and sales. Financial analysis examples differ from one company to another company.

• What You Should Know about Financial Analysis for Small Business Plans
• Define Financial Ration Analysis

There are some specifications, conditions, and financial scope that may apply to the nature and operational range of your business but is not applicable to that of others.

Hence, you have to make sure that your business financial analysis is made to perfectly fit the financial information that you would like to be knowledgeable of with regards your company or business establishment. If you want to be aware of the basics of business financial analysis creation, then you can refer to the document examples that are available for download in this post. You may also see statement analysis examples & samples .

Financial Statement Analysis Example

Size: 451 KB

Small Business Financial Health Analysis Example

Size: 720 KB

Corporate Financial Ratio Analysis Example

Size: 92 KB

How Can Business Financial Analysis Help Your Company?

Examining financial statements is advantageous to businesses. Through comprehensive and detailed business financial analysis, there can be a more solid background and foundation that the company can rely on when making financial-related decisions. Here are some ways on how business financial analysis help companies and their stakeholders:

1. Business financial analysis will not just allow you to know  how to prepare a financial statement analysis . This document can also give you more information about the trends that are happening in the financial aspect of the business. With this, you can use your previous financial analysis as a reference if you want to improve the financial projections of the business, which in turn can potentially help you achieve corporate financial goals .

2. Business financial analysis can be used to properly analyze and evaluate financial data. This is very important if you want to be strict when it comes to the identification on whether the business is truly earning or not.

One of the processes that is involved in business financial analysis is the ratio analysis. If you can incorporate this in the document that you are creating, then you can have an idea about the relationships of the details that are presented in the financial statements of the business. You may also see  business analysis examples & samples .

Since we are talking about ratio analysis, this process actually presents the strengths and weaknesses of the business in terms of financial matters when compared to its previous operations and the standards set by the industry where the business is a part of. To further understand, know the basics first on  what an analysis is .

3. Business financial analysis can make it faster for business owners and the management to look into financial data closer. There are certain information like sales figures that can be deceiving. It may look impressive at first when viewed as a single data.

However, if compared or aligned to the profit and expenses of the business, do the sales figures that present more revenues really impact the company greatly? This is the reason why business financial analysis is necessary as it keenly presents the minute details of the business’s financial condition. You may also check out process analysis examples & samples .

Company Analysis and Financial Due Diligence Example

Size: 774 KB

Ratio Analysis, Financial Planning, and Financial Analysis Example

Size: 96 KB

Business Financial Analysis and Interpretation Example

Size: 65 KB

Business Financial Performance Review and Analysis Example

What Is in a Business Financial Analysis?

Aside from  gap analysis  and customer analysis , business financial analysis is one of the most important corporate documents that a business should have. If you want to truly take care of your finances and other resources, you first have to know what you are working on and in what condition you are currently in. The information in your business financial analysis must be complete, organized, and well-presented so you can ensure its maximum effectiveness.

A business financial analysis is composed of key areas. These areas, when studied and interpreted accordingly, can further develop the financial literacy of the business and its stakeholders.

Listed below are some of the essential elements that should be included in your business financial analysis.

• operational efficiency
• capital efficiency and solvency

Within these key areas are rations and data points that must be computed accordingly and accurately to ensure that they can present appropriate financial results and records. A few of these items include the following:

• Debt to equity
• Return on equity
• Interest coverage
• Revenue growth and concentration
• Revenue per employee
• Gross, operation, and net profit margin
• Inventory turnover
• Accounts receivables turnover
• Current ration

If you can identify these items precisely and use them properly within the business financial analysis, then you are already on your way in creating a document that can comprehensively present the current financial condition of your business. You may also see requirements analysis examples & samples .

Financial Statement Analysis Paper Example

Size: 199 KB

Financial Analysis and Business Valuation Example

Useful Tips When Making Business Financial Analysis

Making a business financial analysis is not an easy task. There are a lot of financial records and reports that you need to browse through and there are also a lot of elements within financial statements that you have to carefully review, evaluate, and interpret. If you want to know more ways on how you can improve your business financial analysis or if it is your first time to make this document, here are some useful tips that can help you make a thorough and functional business financial analysis:

1. Ensure that you are aware on how to properly analyze financial statements. This can greatly affect the development of the business financial analysis. With this, you have to make sure that you are knowledgeable on how to understand and interpret financial statement structures and the strategies that are used to develop them which can set the business apart from its competition. You may also see literary analysis examples & samples .

2. Make sure that you will first identify the current economic characteristics that define the industry where the business is at. This can actually impact the results that you need to analyze from financial statements.

3. Assess the quality of the  financial report examples  and financial statements of the business. There is a big chance that business financial analysis might fail because of incomplete information, irrelevant details, and improper structure and data presentation. Hence, you first have to know the quality of your sources so you can also take note of how you will work on the quality of the analysis.

4. Use templates and examples if you find it hard to come up with a well-formatted business financial analysis. Always keep your guards up when using references as you have to make sure that you will truly benefit from them. Know whether the reference that you are using is the same with the kind of business financial analysis that you would like to develop. You may also like company analysis examples & samples .

Financial Statement Analysis for Small Businesses Example

Size: 487 KB

Business Financial Analysis Using Financial Ratio Example

Prepared to Make a Business Financial Analysis Now?

Just like an  industry analysis  and  root cause analysis , a business financial analysis must be detailed, well-formulated, and professionally presented. These characteristics are very important as the target audience of these analyses are professionals and business stakeholders that need to be aware of the financial condition, issues, and concerns of the business so that impacts of risks and threats can be eliminated or removed. Make sure to always remember these items when trying to write a business financial analysis:

1. Gather all relevant sources first so you can properly analyze them. Have a format or a template that you can use to properly present the business financial analysis.

2. Make sure to review the business financial analysis draft so you can look for lapses and errors. Be reminded that it is not only in the content of the document where you can find errors as there are also formatting mistakes that can affect how data is presented. You may also see needs analysis examples .

3. Ensure that you will have an organized and arranged presentation of financial information. You need to let your target audience know that your business financial analysis is based from reliable and credible data that you have either gathered or has been given to you by the financial and other concerned departments of the company. You may also like project analysis examples .

With a business financial analysis, a basis for objective, measurable, and realistic comparison can be made. This document can help companies know whether their current financial condition and performance is at par with set benchmarks. Download one or more of our business financial analysis examples and start preparing the development of your own business financial analysis’ draft.

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Financial Plan Assumptions

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on July 11, 2023

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Table of contents, what are financial plan assumptions.

Financial plan assumptions are the key variables, estimates, and predictions used to develop a company's financial projections and strategy. They serve as the foundation for forecasting revenues , costs, investments, and taxes , among other elements.

Assumptions are critical in financial planning because they help businesses set realistic goals, allocate resources efficiently, and identify potential risks and opportunities. They also enable management to make informed decisions based on the best available data and industry insights.

Financial plan assumptions aim to create a comprehensive picture of a company's future financial performance by incorporating a range of factors.

These assumptions are designed to be flexible and adaptable, allowing for adjustments as new information becomes available or market conditions change.

Key Financial Plan Assumptions

Revenue assumptions, sales growth rate.

The sales growth rate is a crucial revenue assumption that estimates the percentage increase in a company's sales over a specific period. This rate takes into account factors such as historical sales data, market trends, and promotional efforts.

Pricing Strategies

Pricing strategies help determine the prices of a company's products or services. Assumptions related to pricing may include competitor pricing, price elasticity of demand, and the company's overall pricing objectives.

Market Share

Market share assumptions predict a company's percentage of total sales within a specific market. Estimations consider factors such as target customer segments, marketing strategies, and product or service differentiation.

Customer Acquisition and Retention

Customer acquisition and retention assumptions estimate the number of new customers acquired and existing customers retained. These assumptions depend on factors such as marketing efforts, customer service quality, and competitive positioning.

Cost Assumptions

Fixed and variable costs.

Fixed and variable costs are essential components of a company's financial plan . Fixed costs include expenses that remain constant, regardless of production levels or sales, such as rent and salaries. Variable costs vary with production or sales, including raw materials and shipping costs.

Cost of Goods Sold (COGS)

COGS is the total cost of producing goods or services sold by a company. Key assumptions for COGS may include production costs , labor costs, and manufacturing overheads.

Operating Expenses

Operating expenses are the costs associated with running a business, excluding COGS. Assumptions for operating expenses may include marketing costs, administrative expenses, and research and development expenditures .

Inflation Rate

The inflation rate assumption estimates the increase in the general price level over time. This assumption affects various cost projections, such as wages, raw materials, and utilities.

Investment Assumptions

Capital expenditures.

Capital expenditures represent the funds a company invests in long-term assets, such as property, plant, and equipment. Assumptions for capital expenditures may include the anticipated level of investment , the useful life of assets , and depreciation methods.

Working Capital Requirements

Working capital assumptions estimate the funds needed to cover short-term operating expenses and maintain sufficient liquidity . These assumptions may include projections for inventory levels, accounts receivable , and accounts payable .

Financing Sources and Costs

Financing assumptions help determine how a company will fund its operations and investments. These assumptions include the mix of debt and equity financing, interest rates , and repayment terms.

Tax Assumptions

Corporate tax rates.

Corporate tax rate assumptions estimate the percentage of a company's profits subject to taxation. These assumptions take into account federal, state, and local tax rates, as well as any changes to tax laws.

Tax Credits and Incentives

Tax credits and incentives are reductions in tax liability offered by governments to encourage specific business activities. Assumptions related to tax credits may include eligibility criteria, application deadlines, and the expected amount of tax savings.

Tax Planning Strategies

Tax planning strategies are methods used by companies to minimize their tax liabilities. Assumptions related to tax planning may include the use of tax-efficient structures, deductions, and loss carryforwards.

Economic and Industry Assumptions

Macroeconomic factors.

Gross domestic product (GDP) growth rate assumptions estimate the overall economic growth of a country or region. These assumptions impact a company's revenue projections, as they help gauge the general health of the economy and consumer spending.

Interest Rates

Interest rate assumptions estimate the cost of borrowing or lending money. These rates affect a company's financing costs, investment decisions, and overall financial performance.

Unemployment Rates

Unemployment rate assumptions predict the percentage of the labor force without jobs. High unemployment rates can impact consumer spending and may indicate a sluggish economy, affecting a company's sales projections.

Industry Trends and Competition

Market size and growth.

Market size and growth assumptions help estimate the overall potential of an industry and the opportunities it presents for a company. Factors considered may include historical data, demographic trends, and technological advancements.

Technological Advancements

Technological advancements can disrupt industries and create new markets. Assumptions related to technology may include the adoption of new technologies, the impact of innovations on the market, and the potential for competitive advantage.

Regulatory Changes

Regulatory changes can significantly impact a company's operations and financial performance. Assumptions related to regulation may include potential changes in laws, compliance requirements, and the effects on the industry landscape.

Competitive Landscape

Competitive landscape assumptions evaluate a company's position within its industry and the level of competition it faces. These assumptions may consider factors such as market share, competitor strategies, and barriers to entry.

Sensitivity Analysis and Scenario Planning

Identifying key variables and uncertainties.

Sensitivity analysis and scenario planning involve identifying key variables and uncertainties in a company's financial plan. These variables may include economic factors, industry trends, or company-specific factors.

Developing Scenarios and Assumptions

Scenario planning involves creating alternative future scenarios based on varying assumptions. Companies develop multiple scenarios to explore the potential impact of different events, trends, and risks on their financial performance.

Analyzing the Impact on Financial Performance

Companies analyze the impact of different scenarios on their financial performance to identify potential risks and opportunities. This analysis helps management make informed decisions and adapt their strategies as needed.

Risk Mitigation and Contingency Planning

Based on the results of sensitivity analysis and scenario planning, companies develop risk mitigation and contingency plans. These plans help companies prepare for potential challenges and capitalize on emerging opportunities.

Regular Review and Update of Assumptions

Importance of ongoing monitoring.

Regularly reviewing and updating financial plan assumptions is essential to ensure their continued relevance and accuracy. Ongoing monitoring helps companies stay informed of market changes and adapt their strategies accordingly.

Frequency of Assumption Updates

The frequency of assumption updates depends on the nature of the company and its industry. Companies operating in rapidly changing environments may need to update their assumptions more frequently than those in more stable industries.

Incorporating New Information and Data

As new information and data become available, companies should incorporate them into their financial plan assumptions. This ensures that the assumptions remain relevant and provide an accurate basis for decision-making.

Adjusting Financial Plans as Needed

Based on updated assumptions, companies may need to adjust their financial plans to reflect changes in market conditions, industry trends, or company-specific factors. Regular adjustments help maintain the accuracy and relevance of financial projections.

Financial plan assumptions play a crucial role in the development of a company's financial strategy and projections. By incorporating a wide range of factors and estimates, assumptions help create a comprehensive picture of a company's future financial performance.

Regularly reviewing and updating financial plan assumptions is essential for ensuring their continued relevance and accuracy. As new information becomes available or market conditions change, companies must adapt their assumptions and adjust their financial plans accordingly.

Sensitivity analysis and scenario planning are valuable tools for managing risks and identifying potential opportunities.

By analyzing the impact of different scenarios on a company's financial performance, management can make informed decisions and develop risk mitigation and contingency plans.

In conclusion, financial plan assumptions are critical components of a company's financial planning process.

By incorporating a wide range of factors and regularly reviewing and updating these assumptions, companies can create accurate financial projections, identify potential risks and opportunities, and make informed decisions that drive their long-term success.

Financial Plan Assumptions FAQs

What are financial plan assumptions, and why are they important.

Financial plan assumptions are the underlying estimates and predictions that a financial plan is based upon. They are essential because they provide the framework for determining how much money you need to save, how much you can expect to earn on your investments, and how long your money will last in retirement.

How do I choose the right financial plan assumptions for my personal financial plan?

The right financial plan assumptions will depend on your personal circumstances, financial goals, and risk tolerance. You should consider your current income, expenses, debts, and assets when selecting your assumptions. Additionally, you should consider factors such as inflation, investment returns, and life expectancy.

What are some common financial plan assumptions used by financial planners?

Common financial plan assumptions used by financial planners include assumptions about inflation rates, investment returns, life expectancy, and tax rates. Other assumptions may include future expenses such as college tuition or medical costs, changes in income or employment, and changes in interest rates.

How often should I review and update my financial plan assumptions?

You should review and update your financial plan assumptions regularly, at least annually, and whenever there are significant changes in your life circumstances, such as a new job, a significant change in income or expenses, or a change in your investment portfolio.

What are the potential risks of relying on incorrect financial plan assumptions?

Relying on incorrect financial plan assumptions can lead to a variety of risks, including not saving enough for retirement, running out of money in retirement, or being unable to meet other financial goals. Additionally, incorrect assumptions can lead to poor investment decisions, resulting in lower investment returns and higher taxes. It is essential to ensure that your financial plan assumptions are as accurate as possible to help you achieve your financial goals.

About the Author

True Tamplin, BSc, CEPF®

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

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

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

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What Is Financial Planning and Analysis?

FP&A teams play a crucial role in companies by piloting the budgeting, forecasting, and analysis that support major corporate decisions.

Financial planning and analysis (FP&A) is the umbrella term for the planning, forecasting, budgeting, and analytical activities that support a company’s major business decisions and overall financial health. Organizations rely on FP&A to achieve operational, financial, and strategic goals.

Forward-thinking FP&A teams are adopting modern planning solutions that allow them to quickly alter plans, reforecast, or modify budgets in real time. They’re also on a mission to integrate planning across business units to speed up decision-making.

The pandemic has underscored the importance of cloud planning systems and their ability to help businesses quickly course-correct in the face of disruption. FP&A teams that had put off making necessary changes to their planning systems and processes—or felt satisfied with a business-as-usual approach to budgeting and forecasting—quickly discovered that their status quo had turned into a status no .

But after navigating complexity and uncertainty in the age of COVID-19, a sense of optimism appears to be emerging. Many CFOs see a future filled with opportunity, and they plan to harness technology to take advantage of it. That’s where adopting a modern planning model comes in.

Building Your Blueprint for Business Agility

Historically, businesses have relied on traditional planning models. These models often use familiar but outdated systems, annual planning cycles, and spreadsheets—resulting in siloed data and decision-making, slow-moving processes, and stakeholders with visibility into only fragments of the bigger picture. This static way of budgeting, forecasting, and financial modeling can be laborious, time-consuming, and inaccurate. It leaves budgets and forecasts dead on arrival—calcified with outdated information and unable to incorporate new realities without a heavy lift. And worst of all, it tethers the role of finance to the day-to-day minutia of managing spreadsheet versions and chasing down the latest numbers, instead of elevating finance to the role of strategic business leader.

So, what’s the solution? It’s called dynamic planning, and it’s essentially the photographic negative of static planning. A dynamic, modern planning model incorporates real-time data from every business-critical source within the enterprise stack and beyond, promotes cross-departmental collaboration, and allows for a panoramic, comprehensive view of the company, including both financial and operational data. With capabilities such as automated data integration and faster financial modeling, active planning frees up time for higher-value activities such as analyzing trends, identifying key drivers, mapping correlations, gathering insights, and making data-driven recommendations.

Building this blueprint for agility would be extraordinarily difficult if you were to rely solely on spreadsheets or outdated systems. But many finance leaders plan to make technology investments that will help them achieve more agility in the future.

What to Look for When Comparing FP&A Software

As you begin to evaluate your options, it’s a good practice to focus on getting everyone in the selection process aligned and engaged. Before you start your planning platform search, outline your key must-haves and those of all stakeholders. Identify the capabilities you require now, but also consider what you will need in the future—your needs will absolutely change as your business evolves.

You don’t necessarily have to completely abandon spreadsheets or overhaul your entire tech stack to get everyone working together (and doing so may make more enemies than friends). But you do need a centralized planning platform where everyone can collaborate easily, with real-time data integration from multiple sources. That integration will provide a single source of truth (rather than dozens of Excel spreadsheets creating endless version-control headaches). And it’s critical for automation—a foundational element of active planning.

FP&A teams that had put off making necessary changes to their planning systems and processes quickly discovered that their status quo had turned into a status no .

One useful resource is our “Financial Planning Solutions: A Buyer’s Guide,” which walks through this process. But in addition to that, be sure to review this checklist of seven characteristics you should insist on from any modern FP&A tool.

1. Scalable . As you grow—and just as importantly, as technology evolves—you need scalable software to meet needed demands and capabilities. Consider the future of artificial intelligence, machine learning, predictive algorithms, and dynamic financial modeling, and look for a provider that’s already investing in these innovations.

2. Powerful . The volume, variety, and velocity of data will continue to accelerate. According to Seed Scientific , by 2025 the amount of data generated each day is expected to reach 463 exabytes globally. Ensure your FP&A solution is built on a cloud architecture capable of ingesting and analyzing exceedingly larger and larger amounts of data.

3. Easy to use . This is such a simple and obvious need, but a rare reality. Neither finance nor its partners in the business need another tool to struggle with. Your ideal scenario is an intuitive FP&A solution free of bottlenecks.

4. Easy to manage . Look for simple deployment and low, IT-free maintenance.

5. Affordable . Aim for a planning tool that won’t break the bank. This is important not just for this year’s budget, but as adoption of your active planning model grows, you’ll want to invite new users easily without worrying that added seats will decimate your budget.

6. Configurable . Every business and tech environment has different needs—including yours. Find a solution that can be configured so you can plan in the same way you run your business.

7. Secure . As attackers become more and more sophisticated, you need to trust that your data is safe . Look for Service Organization Controls (SOC) 1 Type II reports, SOC 2 Type II compliance, SOC 3 attestations, ISO 27001 certification, and other trust and privacy certifications.

Make Your Technology Work for Your Business

With an integration framework capable of ingesting data from multiple sources—and with democratized access to that data—you’ll be in a position to harness modern planning technology that positions you for agility and resilience.

By selecting the right FP&A platform, you can establish a centralized hub for all the business-critical data and reporting you need and make operational leaders and stakeholders part of a culture of collaborative planning. Start the conversation now. Ask your stakeholders what their ideal FP&A platform of the future would include.

After a challenging few years, you’ve likely gained valuable insights that are helping you establish smarter business goals for the future. Most finance leaders plan to take advantage of this unique moment to do what’s necessary to achieve business agility. Perhaps for them, the next wake-up call won’t be nearly as alarming.

One estimate finds that by 2025, about 70% of the workforce will work remotely at least one business week each month—meaning that decades-old planning processes need rethinking.

A year of uncertainty has emphasized that agility must be at the center of business planning. Leaders from Microsoft and G6 Hospitality talk about how they’re embracing continuous planning in times of disruption.

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• What is financial planning? 

6 steps to create a financial plan

Benefits of financial planning.

• The bottom line

Financial planning basics: How to create a financial plan

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• Financial planning is a practice that helps you track and manage your money with the purpose of reaching your financial goals.
• Create a strong financial plan by setting goals, tracking cash flow, budgeting, investing, and paying down debt. 
• A CFA or CFP can assist you in creating a personalized financial plan.

Life may be full of twists and turns, but a strong financial plan can help you stay on track toward reaching your goals. From paying off your student loans to buying a house, a comprehensive individualized plan is the best way to go. 

Financial planning is a broad and encompassing practice that aids you and your family in better managing your money and preparing for potential risks. No matter what your current financial situation is, a solid financial plan offers guidance and insight beneficial to all households.

Read about our picks for the best financial advisors here.

What is financial planning? 

Financial planning is essential to achieving long-term and short-term financial goals, while also preparing you for potential future risks and obligations. No two financial plans are the same. Your plan should accurately reflect your own financial needs, goals, and best course of action. 

"The purpose of a financial plan is to help clients — whether it be an individual, family, or business — achieve their financial goals and objectives by creating a structured roadmap for managing their finances effectively," says Chloe Wohlforth, CFP, Partner at Angeles Wealth Management . "A well-crafted financial plan considers a person's current financial situation, future financial goals, and risk tolerance."

Financial plans often address retirement savings, wealth-building strategies, emergency savings plans, tax optimization strategies, college funds, and debt consolidation .

To create a comprehensive plan, you'll need to thoroughly evaluate your current financial situation, such as household income and debt (including car payments, loans, and credit card debt). Most plans tend to involve budgeting, saving, and routine investing. 

You can craft a financial plan yourself or enlist professional assistance. Search for the best online financial advisors or planners, or look for in-person advisors.

"Financial advisors can help you create a financial plan by understanding your goals, values and risk tolerance, and then building a customized path that they can guide you along to enrich your life to its fullest potential," says Jordan Gilberti, CFP and senior lead planner at Facet.

Financial planning isn't as hard as you might think. Here are six steps you can take to create your own financial plan. 

1. Set financial goals

The first step in creating a strong financial plan is identifying your goals. Whether by yourself or with a partner, you should know what you're aiming for. 

"Set your goals and priorities by envisioning a future for yourself over the short, medium, and long term, and what you would like to achieve financially," says Gilberti. "Get yourself organized by gathering all relevant financial documents, including your investment accounts, insurance policies, debts, and other assets."

You can start by asking yourself: What do you want to achieve in five years? How about in 10 or 20 years? Are you looking to buy a house? Have kids? Plan a huge trip? 

Financial planning should feel intentional, and you can more easily draw motivation from clear, obtainable objectives. Consider at least three goals with the following information: 

• How much will it cost? If you're looking to save for a house or pay off student debt, for example, you should have a number you're aiming for. For instance, how much will it cost to buy a house and how much are you needing to save to make it happen?
• What is my deadline? Once you know how much you need to save, you'll need to set a realistic timeline. For example, how long do you think it will take to save up for a down payment on a house? 
• Where should I store the funds? While you can store all your funds in the same bank account, you may want to separate your funds into different savings accounts or brokerage accounts. 

2. Track your finances

What's coming in and what's going out? Before you can start responsibly budgeting, review your cash flow to reveal more ways to save. While some expenses — like rent or gas — are mandatory expenses, you may uncover nonessential charges that are draining your funds.

"The best way to budget is to ask for help. Often clients don't budget because they don't know where to begin. An advisor can help you think about your expenses in different categories. What is discretionary, what is non-discretionary? What is an expense that might be costly now, but only for a fixed amount of time?" says Wohlforth.

Once you have a grasp on your spending habits, you can budget. A beginner-friendly method of budgeting is the 50/30/20 rule , which is suitable for both consistent and irregular-income households. Basically, this plan is a rule of thumb that designates 50% of your income to mandatory expenses, 30% to wants, and 20% to debt or savings.

But keep in mind that everyone's financial situation is unique and the 50/30/20 budget plan won't be suitable for everyone. 

3. Create an emergency fund

Part of establishing a realistic budget is setting aside cash in case of emergencies.

"An emergency fund is typically a savings account that serves as a safety net from unforeseen financial difficulties that you may face throughout your life," Gilberti says. "Examples may include a job loss, disability, home appliance breaking, and more."

Emergencies are unexpected, so having the extra funds on hand can help you pay for medical emergencies and other sudden bills. An emergency budget may also protect you against racking up credit card debt and interest. 

Check out Insider's picks for the best budgeting apps

4. Reduce and manage debt

Reducing and managing debt is a crucial step in financial planning. Even if you're storing a good chunk of cash in a savings or brokerage account, high-interest debt will weigh you down. The longer your debt accumulates interest, the more money you'll lose in the long run. 

You may want to pay down expenses like credit card balances, student loans , and car payments sooner rather than later. You may want to include regular debt payments in your budget plan. 

5. Diversify your investment portfolio

One of the best ways to save for future financial goals and build wealth is through investing. While investing can be risky, a diverse portfolio of stocks, bonds, ETFs, and alternative investments can significantly lower the risk. There are plenty of beginner-friendly online brokerages, robo-advisors, and investing platforms.

The best investing apps for beginners and the best online brokerages for beginners are low-cost and best for passive traders. These sites also allow you to customize your investing portfolio based on your financial goals, risk tolerance, and time horizon.

Automatic investing platforms like SoFi Invest , Fidelity Go , and Wealthfront are also ideal for new investors. Robo-advisors are a flexible and accessible way for hands-off traders to buy and sell assets. 

6. Plan for retirement

A retirement account is one type of investing account. Early retirement may even be one of your long-term financial goals. The best retirement plan for you depends on your individual situation. 

One of the easiest ways to start savings for retirement is through an employee-sponsored retirement plan like a 401(k) , 403(b) , or SEP IRA . These are tax-advantaged accounts that collect a portion of your salary. Some plans, like most 401(k)s, may offer to match an employee's contributions up to a certain percentage. 

In order to grow your account faster, find out how much your employer matches and contribute enough to reach the maximum contribution amount.  In 2023, you can contribute up to $22,500 if you're under 50 years old (people age 50 or older can add an additional $7,500), but keep in mind that you can't withdraw funds until you're 59 1/2. 

Another option is an individual retirement account (IRA), which functions similarly to a 401(k) but it is not sponsored by an employer. IRAs are also tax-advantaged accounts and are often more flexible. In 2023, you can contribute up to $6,500 if you're under 50 (up to $7,500 if you're 50 or older). You also can't withdraw until you're at least 59 1/2. 

A well-thought-out plan not only helps you meet your financial goals but will also map out an accessible course of action based on your individual circumstances. Not only can you better your understanding of your own finances, but you can also focus on reaching important steps. Plus, you're more likely to reach your goals faster. 

While it may be stressful in the beginning, having a clear insight into your income and spending can reduce future stress and financial worry. The more you understand your own financial needs, the more realistic your expectations about the future.

You may also be better prepared for emergencies, like disability or financial trouble. Routinely contributing to an emergency fund is a great way to reduce financial stress and prevent your savings from being drained if trouble arises. 

Financial planning frequently asked questions (FAQs)

Financial planning means that an individual(s) tracks cash flow, budgets expenses, saves for retirement, pays down/manages debt, and invests funds in order to reach long and short-term financial goals. It's a personalized plan based on individual values, risk tolerances, and time horizons.

An example of financial planning may look like a young couple with dual income devising a plan to buy a home in five years based on their current cash flow. In order to reach this goal, the couple establishes a reasonable budget based on necessary monthly expenses (including debt payments), consistent monthly income, and what's left over to save. They develop a plan to pay down their high-interest credit card debt first. Then they open a high-yield savings account and put savings for their down payment into this account, while also contributing to an emergency fund in case any unexpected expenses come up in the next five years.

You can start financial planning by determining your financial goals and tracking your cash flow. If you're struggling to start, you can reach out to a financial planner, financial advisor, or financial consultant for help. 

How to start financial planning

Everyone can benefit from financial planning, no matter what your current financial situation is. A plan can lay out the steps you need to take to reach your long and short-term goals. Whether it's early retirement, buying a house, savings up for a wedding or creating a college fund , a personalized financial plan can help you get there. 

You can start planning by setting goals, tracking your cash flow, budgeting, paying down debt , investing in a diversified investment portfolio, and saving for retirement.

But remember that financial plans aren't static. You'll need to consistently reevaluate your plan in order to make sure it reflects your current situation and goals. 

"While you should be constantly monitoring and adjusting your plan as your life changes, some typical triggers for an update in your financial plan may include a change in income/employment, change in marital status, birth of a child, receiving an inheritance, and much more," says Gilberti. 

If you're having trouble getting started, a certified financial advisor or financial planner can guide you through the process. You can find a financial advisor through online reviews or by talking with friends and family. 

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