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How to Write the Financial Section of a Business Plan

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

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

Dig Deeper: Generating an Accurate Sales Forecast

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

Dig Deeper: What Angel Investors Look For

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

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

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

Dig Deeper: How to Price Business Services

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

Dig Deeper: How to Protect Your Margins in a Downturn

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

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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

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Business Plan Financial Summary - The Devil Is In The Detail

A business plan financial summary can be a key factor in the overall success of your business plan. Make your projections too grand and without justifiable data and you can lose the trust of your reader. The goal of a business plan financial summary is to provide a snapshot of the financial health, performance, and future projections of your enterprise. In this blog post, we will guide you through the process of creating a compelling financial summary. Whether you're a startup looking to secure funding or an established company planning to scale, this comprehensive guide will serve as an invaluable tool on your business journey.

Table of Contents

Understanding the Financial Summary

• Key Components
• Step By Step

Revenue/Sales Forecast

Expenses projection, cash flow statement, income statement, balance sheet, break-even analysis.

• Ratios & KPIs
• Putting It Altogether
• Tips & Best Practices

Wrapping It All Up

The financial summary, at its core, is a succinct and high-level overview of the financial data that shows your business's viability and potential profitability. Unlike the financial projections section, which delves into detailed predictions about future income, expenses, and cash flows, the financial summary provides a more digestible summary of these figures.  Its purpose is to communicate the key aspects of your financial strategy and give stakeholders - investors, banks, and even team members - an accessible snapshot of your business's financial health and plans. A well-crafted financial summary gives potential investors the assurance they need about your business's ability to generate profit, manage expenses, and, ultimately, provide a return on their investment. It guides decision-making processes and plays a significant role in securing funding.

Business Plan Financial Summary - Key Components

A financial summary is a composite of several key components, each contributing to a comprehensive picture of your business's financial trajectory.

• Revenue/Sales Forecast: This projects the amount of money your business anticipates to make from the sale of products or services over a certain period. It forms the basis of your profit expectations and is critical in strategising your business's growth.
• Expenses Projection: This includes your forecast of both fixed costs (rent, salaries, utilities) and variable costs (production materials, commissions, advertising). Getting a handle on projected expenses is essential in planning for profitability and cash flow management.
• Cash Flow Statement: This reflects how changes in balance sheet accounts and income affect your cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. It’s vital for understanding the liquidity and financial flexibility of your business.
• Income Statement: Also known as a profit and loss statement, it shows your revenues, costs, and expenses over a period. This statement is your business's report card, showing its profitability during a specific time frame.
• Balance Sheet: This gives a snapshot of your company's net worth at a specific point in time. It lists all your business's assets, liabilities, and shareholders' equity - the difference between assets and liabilities.
• Breakeven Analysis: This is the point when your total revenue equals total costs. Knowing your breakeven point is crucial for determining pricing, setting sales budgets, and planning for future growth.
• Financial Ratios and Key Performance Indicators (KPIs): These metrics help assess the financial health, performance, and growth potential of your business. They can highlight strengths, pinpoint weaknesses, and guide strategic decision-making.

In the coming sections, we will delve into each of these components in greater detail, illuminating how to create, analyze, and utilize them effectively in your financial summary.

Building a Financial Summary Step-by-Step

Creating a revenue forecast may seem daunting at first, especially for new businesses without historical sales data. But don't be discouraged; it is achievable through a blend of market research, a clear understanding of your target audience, and strategic sales goals. Begin by defining your potential market and then estimating the portion of this market that your business can reasonably capture (your market share). This market share, when multiplied by the price of your product or service, forms the basis of your revenue forecast. Here, it is crucial to base your estimates on practical figures rather than optimistic ones. Overestimating sales can lead to disappointments and financial missteps. It's also worth noting that your revenue forecast will likely change as your business grows and gathers more data. Remember, your sales forecast isn't set in stone. It's an evolving aspect of your business plan that should be reviewed and adjusted regularly based on the realities of your business operations. An effective revenue forecast is a balance between ambition and realism.

After outlining your revenue forecast, the next step is to estimate your business's expenses. A comprehensive and accurate expense projection is paramount in ensuring your business stays financially sustainable and on the path to profitability. Expenses typically fall into two categories: fixed and variable. Fixed costs are those that don't change with the level of goods or services you produce. They include rent, utilities, insurance, salaries, and any other costs that remain constant regardless of business activity. These costs are often easier to predict as they don't vary much over time. Variable costs, on the other hand, fluctuate based on your business volume. They include the costs of raw materials, shipping, sales commissions, and other expenses that rise and fall with your business activity. When projecting expenses, start by listing all potential costs—both fixed and variable—that your business is likely to incur. Then, estimate the amount of each cost based on historical data if available, or industry averages for new businesses. Consider the likely changes to your costs over time. For example, rent may increase due to inflation, or your raw material costs may fluctuate based on supplier prices or changes in demand. Accuracy in expense projection is vital; underestimating your expenses can lead to financial strain and cash flow issues down the line. Regularly revisiting and updating your expense projection will keep it in line with the realities of your business, helping you make informed decisions about pricing, budgeting, and growth. With a clear understanding of your expenses, you can create a more informed and accurate cash flow statement, which we will delve into in the next section.

A cash flow statement, one of the most critical components of a financial summary, provides a comprehensive picture of how money moves in and out of your business. This document gives stakeholders a clear view of your business's liquidity—its ability to cover short-term obligations. The cash flow statement breaks down into three main sections: Cash from Operating Activities : This section reveals how much cash your business generates from its core operations, such as sales of goods or services. It also includes cash spent, like operating expenses. A positive number here indicates that the company's operations are generating more cash than it is using, which is a good sign of financial health. Cash from Investing Activities : This part shows cash gained or spent through investing activities. These could include the purchase or sale of assets, like property or equipment, or investments in other businesses. A negative number here is typical for growing businesses making substantial investments. Cash from Financing Activities : This reveals the cash inflows from investors or banks and outflows to shareholders, such as dividends or share buybacks. Positive cash flow from financing activities means more money is flowing into the business than flowing out, indicating growth or expansion. The bottom line of the cash flow statement reveals the net increase or decrease in cash for the period. If this number is negative, it could be a warning sign that the company is not generating enough cash from its operations and may need to reevaluate its business model. In essence, the cash flow statement offers an in-depth look at your company's ability to generate cash to sustain its operations and finance its growth. It complements the income statement and balance sheet to give a holistic view of a business's financial health.

Another pivotal component of your financial summary is the Income Statement , also known as a Profit and Loss Statement (P&L). The income statement shows your business's profitability over a specific period, typically a quarter or a year. The income statement provides a structured summary of your revenues, costs, and expenses. Here's a general format for how to create it: Revenues : This includes all the income your business generates, primarily from selling goods or services. It is generally listed at the top of the income statement. Cost of Goods Sold (COGS) : This section includes the direct costs associated with producing the goods or services sold by the business. It typically includes material costs and direct labour costs. Gross Profit : This is calculated by subtracting the Cost of Goods Sold from the Revenues. It shows the profit made after deducting the costs directly related to the goods or services provided. Operating Expenses : These are costs not directly tied to a specific product or service. It includes items such as salaries, utilities, rent, marketing, and depreciation. Operating Income : This is calculated by subtracting Operating Expenses from the Gross Profit. It gives the profit made from a company's core business operations. Net Income : Finally, subtracting any other expenses (like taxes and interest) from the Operating Income gives the Net Income. This is the bottom line that shows the total earnings (or losses) of the business after all costs and expenses are accounted for. A well-structured income statement not only showcases your business's profitability but also offers valuable insights into operational efficiency, cost management, and the potential for future growth. After understanding your business's profitability, the next step is to get a holistic view of your financial health with the Balance Sheet, which we will discuss in the next section.

A Balance Sheet provides a snapshot of your business's financial health at a specific point in time. It lists all your business's assets, liabilities, and shareholders' equity, giving you a holistic picture of your financial standing. The balance sheet is based on the following fundamental accounting equation: Assets = Liabilities + Shareholders' Equity Here's what each term means: Assets: These are resources owned by the business that have economic value. Assets can be tangible (like cash, inventory, property, and equipment) or intangible (like patents, trademarks, and copyrights). Liabilities: These are obligations the business owes to others. Liabilities can be current (due within a year, like accounts payable, wages, and taxes) or long-term (due over a more extended period, like bank loans or mortgage payments). Shareholders' Equity: Also known as owner's equity, it represents the net value of the business. It's what's left over when you subtract liabilities from assets. It reflects the money that would be left if the company sold all its assets and paid off all its liabilities. A balance sheet offers a wealth of information for potential investors. It allows them to assess the company's liquidity (current assets vs. current liabilities), efficiency (inventory and receivable turnover), and financial structure (debt vs. equity). It's important to regularly review and update your balance sheet to reflect the dynamic nature of business transactions and to maintain a clear and accurate picture of your business's financial health.

A Break-even Analysis is an essential tool in your financial summary arsenal. It helps you determine the minimum amount of sales needed to cover all your costs—both fixed and variable. In other words, it’s the point at which total revenue equals total costs, and your business neither makes a profit nor suffers a loss. The formula for calculating the break-even point is straightforward: Break-Even Point (in units) = Total Fixed Costs / (Selling Price per Unit - Variable Cost per Unit) Here's what each term represents: Total Fixed Costs: These are the costs that do not change with the level of output, such as rent, salaries, and insurance. Selling Price per Unit: This is the price at which you sell your product or service to customers. Variable Cost per Unit: These are costs that vary with the level of production, like raw materials or direct labour costs. Understanding your break-even point is vital for several reasons: Pricing Strategy: It helps you determine how to price your products or services. If your selling price is too low, you might sell a lot, but you might also struggle to cover your costs. Sales Targets: It can guide you in setting realistic sales targets that ensure profitability. Growth Planning: It allows you to gauge the impact of increased production and whether scaling up would be financially beneficial. Investor Attraction: Investors may use your break-even analysis to understand the risk involved in your business. Remember that your break-even point is not static—it will shift as costs, prices, and other variables change. Make sure to recalculate it regularly to stay on top of your financial situation.

Financial Ratios and Key Performance Indicators (KPIs)

Financial Ratios and Key Performance Indicators (KPIs) are like the vital signs of your business, providing a quick snapshot of its health and performance. They allow you to analyze your business's financial situation, highlight areas of strength and weakness, and compare performance over time or against industry standards. Here are some of the most critical ratios and KPIs that you should consider including in your financial summary:

• Profit Margin : This measures profitability for each dollar of sales. It's calculated by dividing net profit by total revenue. A higher profit margin indicates a more profitable business.
• Current Ratio : This measures your ability to pay back short-term liabilities (debts and payables) with short-term assets (cash, inventory, receivables). The higher the ratio, the better your company's liquidity position.
• Quick Ratio : Similar to the current ratio but excludes inventory from assets. It provides a more stringent view of your company's ability to meet short-term obligations.
• Debt to Equity Ratio: This shows the proportion of equity and debt the company is using to finance its assets. A lower ratio generally implies a company has been less aggressive in financing its growth with debt, which in turn reduces the risk of default.
• Return on Equity: This shows how much profit a company generates with the money shareholders have invested. A higher ROE indicates more effective management.
• Inventory Turnover: This measures how quickly inventory is sold. A higher turnover rate can indicate strong sales or ineffective buying.

Your business may also have unique KPIs based on its industry or specific operational metrics. For example, a software-as-a-service (SaaS) company might focus on churn rate (the rate at which customers cancel their subscriptions), while a retail store might track same-store sales (comparing sales in the same store locations for two different periods). If you are looking for a guide on business plans for your specific industry, check out our business plan guides homepage.

Business Plan Financial Summary - Putting it All Together

The financial summary is where you bring together all the various elements discussed so far into a coherent and compelling narrative. This section provides an overview of the financial aspects of your business, giving readers an at-a-glance understanding of your company's financial position and future expectations. The bulk of the work will be done in preparing the various components of the business financial summary that have been outlined above. The key is taking the main parts of each section of giving the reader a full overview of the financial status and projections. Be sure to Include graphs and charts where possible to aid readability. As with any financial projections don't overstate or create numbers that you can't justify. If pitching to investors they will quickly lose confidence in your business plan if you use unrealistic projections or targets.

Tips and Best Practices for Creating a Financial Summary

Creating a comprehensive and compelling financial summary can seem daunting, but with the right approach, it can be a powerful tool to drive your business success. Here are some tips and best practices to help you on your way:

• 1. Keep it Simple: Your financial summary should be clear and easy to understand. Avoid excessive jargon or overly complex calculations. Use tables, charts, and graphs to visually represent data and highlight key points.
• Be Conservative in Your Estimates: It's better to underestimate your revenues and overestimate your expenses. This approach ensures that any surprises are more likely to be positive than negative.
•  Base Projections on Realistic Assumptions: Make sure your financial forecasts are grounded in reality. Use historical data, industry benchmarks, and realistic market assumptions. Always explain the basis of your assumptions.
• Regularly Update Your Projections: Your financial summary isn't a one-time document. It should be reviewed and updated regularly to reflect changes in your business or market conditions.
• Be Transparent: Don't hide or minimise potential financial issues. Transparency about risks and challenges shows that you understand them and have plans to address them.
• Seek Expert Advice: If you're not financially savvy, consider enlisting the help of an accountant or financial advisor. They can ensure your financial summary is accurate and complete.
• Use a Bottom-Up Approach for Sales Forecasting: Instead of starting with total market size and estimating your share, start by considering your capacity—how much you can realistically expect to sell based on your resources and capabilities.
• Factor in Seasonality if Relevant: If your business experiences regular sales fluctuations throughout the year, ensure this is reflected in your revenue forecast and cash flow statement.
• Tell a Story: While numbers are crucial, remember to weave them into a compelling narrative. Use your financial summary to tell the story of your business's path to profitability and financial stability

In the final section, we will provide a conclusion to wrap up the blog.

Crafting a detailed and convincing financial summary is an integral part of your business plan. It not only gives you a clear perspective of your business's financial health and viability but also demonstrates to potential investors that you have a firm grasp on the financial aspects of running a business. Remember, the aim is not to dazzle with complex financial jargon or overly optimistic forecasts. Instead, the goal is to provide a realistic, well-reasoned, and transparent account of your business's financial situation and outlook. Here at Action Planr we have a full suite of guides on all sections of the business plan, to help you on your way to business sucess.

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Business Plan 101: Financial History

The financial history is the last financial statement that needs to be in your business plan. It is an overall summary of the financial disposition of your company from start to finish. The financial history will vary depending upon if you have a new business or if you have an established business. The information that is included in this document will encompass all of the previous financial documentation that you put together for this business plan.

If your company is a new business then you will only have projections for your financial history. Because it is a new business, if you apply for a loan, a bank will ask for your personal financial history because it is an indication of how you handle your personal finances and presumably and indicator of how the finances of your business will also be managed. If it is an established business, you will be required to present a business financial history that will show how viable your business is. The information that you need to put together for your financial history is much of the same information that you needed to put together other financial documents.  You will need to show your assets, liabilities, and net worth. You will be asked for any contingent liabilities which are debts you may owe in the future. You will need a profit and loss statement, any real estate holdings the company may have, how the company is structured, any audit information, and detailed information of the insurance coverage for your company.

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The Importance of Understanding Financial History

By henry sheykin, introduction.

Making sound business decisions requires an understanding of the financial data of a company's historical performance. By analyzing this information, leaders can draw valuable insights about the direction a business is headed and the steps that need to be taken in order to ensure growth. This article examines the importance of utilising historical financial data to make projections when creating a business plan.

Having a clear understanding of past financial performance is vital when creating a business plan and making projections. Historical financial data ranges from past profits and losses to cash flow statements, balance sheets and more. Examining this data allows us to observe trends in the company, identify areas to improve upon, and discover new opportunities.

Reasons why understanding financial history is important:

• Helps to forecast future performance;
• Allows for better cash flow management;
• Provides insight into cost controls;
• Highlights potential unseen risks;
• Improves customer targeting.

History of Financial Data

Analyzing historical financial data is an essential tool for entrepreneurs looking to establish a business. Having access to past data points from different businesses can provide key insights that can help inform successful business plans moving forward. When undertaking this exercise, there are two primary aspects to consider: the types of financial records being reviewed and the tools used for analysis.

What types of financial records are reviewed

The types of financial data reviewed for an historical analysis are largely dependent on the business and the utilization of any related services. Generally, this includes consideration of records from income statements and balance sheets that review the performance of i.e.: sales, profits and expenses. Additional considerations can include customer and supplier data, as well as information regarding market trends, pricing and performance and inventory costs.

What tools are used to analyze the information

In order to accurately interpret the wealth of historical data, entrepreneurs can employ the use of powerful analytical tools. Many popular software solutions offer the ability to compare records across different producers and services, and can even provide customized marketing data. This can provide insights into trends from past financial and market conditions, which can help entrepreneurs better assess the viability of their business plans.

• Advanced statistics software
• Predictive analytics
• Big data analysis tools
• Data visualization platforms

In conclusion, entrepreneurs considering founding a business can use historical financial data to get an inside look into a variety of markets. By leveraging the right analytical tools, they can gain insight into trends, pricing and other parameters directly related to their business plan.

Identifying Trends

Historical financial data is a great resource for identifying trends in the business environment. With this data, business owners can examine fluctuations in the market and analyse changes in customer spending. A review of this data can help business owners develop more effective plans and projects that take into account a variety of market conditions.

Examining Fluctuations in the Market

By leveraging historical financial data, business owners can gain insight into the overall economic environment and how it has been changing over time. By examining fluctuations in the market, such as changes in supply and demand or an increase or decrease in certain industries, business owners can better identify risks and opportunities to capitalise on. Having an understanding of the economic climate can help inform decisions on how best to invest resources, as well as anticipate shifts in customer behaviour.

Analysing Changes in Customer Spending

In addition to examining changes in the overall economy, historical financial data can provide insight into patterns in customer spending. As the economy shifts, customers may adjust the way they purchase goods and services. Studying previous customer behaviour and spending patterns can provide business owners with a better understanding of current and potential markets, as well as help them adjust their plans and projects accordingly.

By analysing changes in customer spending, business owners can better understand the trends and volatility of the market. This information can help inform their forecasts, plans, and projects, while ensuring they remain agile in the changing economic landscape.

Utilizing Financial Data

Financial management is an essential part of any business. To ensure long-term success, business owners must understand the historical financial trends that influence their decisions. Utilizing financial data to develop thoughtful business plans and project growth is a skill that requires practice and knowledge of how to interpret financial information. Here are a few tips to help you get started:

Setting Business Goals

You cannot create an effective business plan without first outlining clear goals. Financial data can help you assess the feasibility of these goals and provide data points to help you create attainable objectives. When setting business goals, consider past performance, industry norms, and the resources you have available. Having a foundation of financial data to understand what is feasible and what would be impossible to accomplish is essential.

Understanding the Impact of Expansions

Expanding your business is a big decision and can have a large impact on the overall financial health. Using historical financial data can help you evaluate the potential profitability of a planned expansion. For example, if you are considering adding a new product or service, you can look at past performance to see what impact this has had on your organization. You can assess the dangers of entering new markets and determine if an expansion is the right move for your organization.

Determining the Effectiveness of Investments

Making investments is an essential part of running a business, and understanding the return on these investments is crucial to planning for the future. Utilizing financial data can help you measure the success and value of different investments. For example, if you invest in new products, you can look at the historical sales figures to evaluate whether the investment was worthwhile. Knowing which investments have given you the most return can help you make informed decisions going forward.

Making Projections

Projections are essential for businesses to measure if their plan will be successful. It helps forecast the likely outcome of the businesses' objectives, depending on various internal and external factors that can affect its success. With reliable historical financial data, business owners can make calculated predictions based on past events that may influence the future, and better plan out their business strategy.

Factors that influence projections

The external environment is unpredictable and constantly changing, however there are certain factors that business owners must consider when forecasting the future of their companies’ performance. By researching and analyzing current economic, industry, and market trends, business owners can predict how their plans may turn out by accounting for expectations and industry standards.

It is also important to consider any internal changes that may affect the business’s projections. Internal changes could include staffing, budgeting, output, product development and marketing strategies. Business owners must ensure that all plans are valid and feasible through conducting market analysis surveys and customer polls.

Utilizing data to make educated estimations

By using accurate historical financial data, business owners are able to make educated estimations on their future performance. This data could include market share, balance sheets, project timeframes, employee costs, and market returns. Historical data can give business owners a general idea of the direction their plans should take.

However, it is important to note that historical data is only a reference point when making estimations. Business owners should also take into account any recent changes in the market and industry that could affect future results. This could include the introduction of new competitors, changing customer preferences, or market disruption.

Acting on Findings

Once financial data has been analyzed and the resulting findings have been reviewed and understood, the next step is to act on these findings. Using the information to adjust goals and expectations allows for business owners and stakeholders to have a much better understanding of their current financial standing and allows for an appropriate plan of action going forward.

Use of Findings to Adjust Goals and Expectations

By using the findings from the historical financial data, business owners and stakeholders can better understand where their business is currently, and set expectations on the potential growth and decline of the business adjusted for external market forces. This allows for a better understanding of the financial health of the business in the short and long term, and what goals can reasonably be achieved.

Implementing Strategies to Increase Business Success

Understanding what can realistically be achieved based on financial data can help create strategies to increase business success. Through analyzing data such as profitability and amount of debt, business owners can craft plans and measures to improve the bottom line. This could include slowing, or increasing, production levels, restructuring debt obligations, or investing in updated technology.

• Adjusting production levels based on financial performance
• Restructuring debt obligations to best suit the financial position
• Investing in updated technology to improve manufacturing and productivity efficiencies

In conclusion, using historical financial data is an invaluable tool when making business plan projections. It is an effective way to make more accurate plans in areas such as budgeting, forecasting, cost-benefit analysis, gauging consumer demand, competitive edge, and strategic evaluation. With an accurate assessment of the past, businesses can make more reliable plans for the future.

Using financial data can also be helpful in spotting trends, making long-term investments, and deciding which industry to take part in. Many companies, especially startups, have had great success by utilizing this method to accurately hypothesize market trends and effectively capitalize on them.

In short, financial data is an invaluable resource that should not be underestimated. By taking the time to review and analyze past financial results, companies can create more reliable plans with the confidence of knowing what may or may not happen in their respective industry.

Summary of the Information Presented

This blog post covered how financial data is essential in making accurate business plan projections. It discussed how analyzing financial trends can enable a company to budget more effectively, forecast demand, and make better decisions when it comes to making long-term investments. The blog post further outlined the importance of gathering and utilizing data from the past to better inform decisions for the future.

Final Remarks on the Importance of Financial Data

Financial data is invaluable for businesses looking to make accurate projections and plans. Companies should take the time to review and analyze the data they have collected and make the most of it in order to maximize their business goals. This will enable them to create sound plans and make better decisions that will ultimately benefit their business in the long run.

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Home > Business Plan > Business Plan Financials Summary

Business Plan Financials Summary

… our financials show this …

Business Plan Financials Summary Presentation

The presentation of the business plan financials summary will depend on the nature of the business and the information selected from the detailed financial projections. In order to gain an understanding of the business, the investor will want to see the numbers for between three and five years ahead, and if available, two years back.

This is part of the financial projections and Contents of a Business Plan Guide , a series of posts on what each section of a simple business plan should include. The next post in this series sets out a summary of the existing investors in the business.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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Financial History & Analysis – Creating a Business Plan

by Scott Jones | September 14, 2023

We just looked at your personal financial statement . Now, in the next section of your plan, you need to include your financial history & analysis. Here you’ll show that your business is profitable, how you’re currently financed, and plans for future growth. Because this data might be complicated, it may be helpful to enlist a qualified financial professional to help you.

Many elements can be used to illustrate the overall financial health of your business. Here are the three financial statements that you should include:

Balance Sheet

This breaks down the net worth of your business. You should break this down by month with a final net worth at the end of the year. A balance sheet features three different components:

• Real estate
• Accounts receivable
• Accounts payable

The final component is your equity, which is the total amount of your assets minus your liabilities.

Income Statement

Also known as a profit/loss statement (or P&L), this is where you show the profitability of your business. Show the revenue, expenses, and the resulting profit or loss for a fiscal year for each month.

Cash Flow Statements

Here, you’ll show the reader how much money is flowing in and out of your business each month. As an already-operating business, you’ll need to provide examples of past months’ cash flow with actual numbers. To create a cash flow statement, start with the previous month’s balance, add your revenues, and subtract disbursements. This final number becomes the starting balance for the next month.

While not required, the following financial documents can further shore up this section of your business plan:

• Employee plan — Current number of staff and how much you’re paying them. Include any potential plans for hiring and how much that may cost, including any training you may need to provide.
• Financial history — A quick summary of your business’s finances from the start of operation until the present time.
• Sales forecast — Based on previous growth and your plans moving forward, considering market trends and predictions.

Once you have the foundation of this information in place, update it monthly. We recommend incorporating visuals, where possible, as this will make it easier and more interesting to read. There you have it, your financial history & analysis.

Next up: we’ll round out this series with a look at how to put together your executive summary

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Scott Jones is Vice President, Senior Relationship Manager at Regions | EnerBank. For over ten years, he's focused on helping home improvement contractors sell more projects and make more money. He's worked with hundreds of contractors of various sizes, from $500,000 to $150 million in annual revenue. Before joining EnerBank, Scott spent several years in management roles, including with Pella Windows.

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The CFO's Toolkit: Creating & Implementing a Successful Business Financial Plan

In today's fast-paced and ever-changing business landscape, the role of Chief Financial Officers (CFOs) has evolved significantly.   

No longer solely responsible for managing finances, CFOs now play a pivotal role in shaping and executing business strategies. One of the key responsibilities of a CFO is to develop and implement effective financial plans that align with the overall objectives of the organisation.  

A well-structured financial plan is the backbone of any successful business, as it provides a solid foundation for sustainable business growth and long-term success.   

It also serves as a roadmap that guides decision-making, resource allocation, and risk management .  

We'll be covering:

• The Anatomy of a Business Financial Plan
• The Process of Crafting a Business Financial Plan
• Benefits of Strategic Business Financial Planning
• Modern Tools & Technologies for Business Financial Planning
• Practical Steps to Implement the Financial Plan
• Final Thoughts: The Pivotal Role of Financial Planning in Business Success

The Anatomy of a Business Financial Plan  

Let's unpack the essentials:  

What is a Business Financial Plan?  

In simple terms, business financial plan is a detailed outline of a company's financial goals and the steps to achieve them. It's the foundation that ensures financial stability and growth.  

Core Components of a Business Financial Plan  

Financial goals : Clearly defined objectives that the organisation aims to achieve within a specific timeframe. These goals might include revenue targets, profitability ratios , or any other financial metrics that align with the business strategy.  

Budgeting : The process of estimating and allocating financial resources to various departments and activities within the organisation. A budgeting process ensures resources are used efficiently to achieve the desired financial outcomes.  

Forecasting : Predicting future financial performance based on historical data, market trends, and other relevant factors. Forecasting helps identify potential risks and opportunities, allowing the organisation to proactively plan and adapt.  

A successful financial plan is deeply intertwined with the overall financial strategy .   

It’s essential for CFOs to closely collaborate with other key stakeholders , such as the CEO and other executives, to align financial goals with the broader organisational objectives.   

The synergy between business strategy and financial planning ensures all financial decisions are driven by a clear understanding of the organisation's purpose and vision.  

The Process of Crafting a Business Financial Plan  

1. Dive Deep into Your Financial History  

Understanding your company's financial past is akin to reading its biography. Every balance sheet, every cash flow statement, and every income report tells a story. And just like any good story, there are highs, lows, challenges, and triumphs.  

Start by diving deep into your historical financial data . This isn't just about collecting old documents; it's about understanding them. Organise your financial statements chronologically and sift through them.   

Look for key metrics like revenue growth, profit margins , and expense trends . These numbers are more than just figures; they're indicators of your business's health and its journey.  

By understanding where you've been, you can chart a clearer course for where you're going.   

Recognising patterns, be they growth trends or financial challenges, allows you to shape smarter, more informed strategies for the future. It's about learning from the past to optimise the future.  

Pro Tip : Don't just rely on numbers. Visualise your financial journey. Tools like graphs, charts, and even heat maps can make trends pop, helping you quickly grasp the financial story they're telling. Consider using software or apps that specialise in business financial planning to streamline this process.  

2. Set Your Financial Goals with Precision  

Without clear goals, the financial journey can become aimless and meandering. But with precise, well-defined markers, you have a clear path to success.  

Start by setting your financial objectives .   

But don't just set any goal; make them SMART:   

Measurable  

Attainable  

Time-bound  

These aren't just numbers or targets; they're the milestones that will shape your business's financial journey. By setting clear and actionable goals, you're giving your business a roadmap to success.   

It's about knowing where you want to go and having the steps laid out to get there.  

Pro Tip : When setting your financial goals, involve key stakeholders in the discussion. Their insights and perspectives can provide a holistic view, ensuring that your objectives are not only ambitious but also grounded in reality. Collaboration can lead to more achievable and impactful goals.  

3. Plan for Every Financial Eventuality  

Let's face it: in business, surprises happen. A sudden market shift, a new competitor, or even global events can throw a wrench in the best-laid plans.   

But instead of being caught off-guard, what if you could prepare for these uncertainties?  

Here's how to do it:  

Start by imagining a few "what if" situations . What if a new competitor enters the market? What if there's a sudden economic downturn? Sketch out how these scenarios might impact your finances.  

Stay one step ahead . By mapping out these potential futures, you're not just waiting to react. You're proactively setting strategies in place, ensuring that no matter what comes, your business remains resilient and robust.  

Remember to keep it relevant . The key is to focus on scenarios that are most relevant to your industry and business model. If you're in tech, maybe it's rapid technological changes. If you're in retail, it could be shifting consumer behaviours.  

Pro Tip : Don't go it alone. Gather your team for a brainstorming session. Different perspectives can shed light on potential blind spots and offer diverse solutions. And remember, the goal isn't to predict the future perfectly but to be better prepared for whatever comes your way.  

4. Keep Your Plan Alive & Kicking  

In the fast-paced world of business, yesterday's strategies can quickly become outdated. That's why it's crucial to ensure your financial plan remains in step with the times.  

Begin with a commitment to regular reviews . Just as you wouldn't set a compass once and forget about it on a long journey, your financial plan requires periodic recalibration. This ensures it's always pointing your business in the right direction.  

But what does a review entail? It's more than just a cursory glance.   

Dive deep into the numbers. Compare your projections with actual performance. Identify areas where the business either fell short or surpassed expectations. This isn't about celebrating wins or lamenting losses; it's about understanding the 'why' behind them.  

Remember, a financial plan isn't a static document; it should evolve as your business does, reflecting new goals, challenges, and opportunities.   

By keeping it updated, you ensure it remains a valuable asset in decision-making, guiding your business towards financial success.  

Pro Tip : Don't wait for a surprise to prompt a review. Schedule them in. Whether it's monthly, quarterly, or annually, having regular check-ins ensures your financial plan remains aligned with your business's current realities and future aspirations.  

Benefits of Strategic Business Financial Planning  

Strategic business financial planning provides numerous advantages to companies. These include:  

Aligning Business Goals & Financial Resources  

Every business has aspirations, from expanding into new markets to launching innovative products.   

However, these aspirations need the backing of sound financial resources. A well-structured business financial plan ensures that your financial capabilities are in sync with your strategic objectives.  

This alignment eliminates financial inefficiencies, ensuring that resources are utilised where they're most impactful. It's like having a GPS for your funds, directing them precisely where they need to go to drive growth and profitability.  

Enhancing Investor & Stakeholder Confidence  

In today's competitive business environment, trust is a currency.   

Stakeholders and investors seek transparency and a clear indication that a company is financially disciplined and forward-thinking.  

A comprehensive financial plan serves as a testament to your company's financial acumen. It not only builds credibility but also positions your business as a promising prospect for investments, collaborations, and long-term partnerships.  

Proactive Risk Management & Crisis Aversion  

No business is immune to challenges, be it market fluctuations, new competitors, or global economic shifts. A robust financial plan, enriched with scenario planning, prepares you for these uncertainties.  

Instead of being reactive, your business becomes proactive. You're not just adapting to changes ; you're anticipating them.   

This foresight ensures resilience, allowing your business to navigate challenges and seize emerging opportunities.  

Facilitating Informed Decision-Making  

In the realm of business, decisions backed by data and insights have a higher success rate.   

A detailed financial plan offers a holistic view of your company's financial health, past trends, and future projections.  

With this wealth of information at your fingertips, every decision, from investments to expansions, is made with clarity. It ensures that choices align with the company's financial goals, fostering stability and consistent growth.  

Modern Tools & Technologies for Business Financial Planning  

In today's digital era, the landscape of business financial planning is enriched by innovative tools and technologies. These platforms not only streamline the planning process but also enhance its accuracy, offering businesses a competitive edge.   

Here's a closer look:  

Automated Financial Planning Platforms  

Automated financial planning platforms have become increasingly popular in the business world, offering a blend of efficiency and innovation.   

Here's what these platforms bring to the table:  

Centralised financial management : These platforms provide a one-stop solution for various financial tasks, from budgeting to financial forecasting . This centralisation can streamline operations, ensuring that all financial data is accessible from a single point.  

Efficiency gains : One of the primary benefits is the reduction in manual data entry, leading to significant time savings. While there's an initial learning curve, the long-term gains in efficiency can be substantial.  

Analytical tools : Many platforms come equipped with analytical tools, offering insights into trends and potential areas of concern. These tools complement, rather than replace, the expertise of financial professionals, providing an additional layer of analysis.  

Before diving into an automated financial planning platform, it's good practice to start with a trial or pilot phase. This can allow businesses to assess the platform's fit and understand its nuances without committing fully.  

ExpenseIn: Elevating Expense Management within Financial Planning  

This is where specialised tools like ExpenseIn come into play. As a dedicated expense management software , ExpenseIn ensures that every expenditure is not only tracked but also aligned with your broader financial strategy.  

Features offered by ExpenseIn, such as:  

Real-time receipt scanning & automatic mileage calculations simplify expense tracking, ensuring accurate financial records.  

Integration capabilities allow for seamless data flow, ensuring that expense data is integrated into the broader financial plan.  

Powerful reporting provides insights into employee spending patterns, aiding in business budgeting and forecasting.  

The Power of AI in Financial Forecasting  

Artificial Intelligence (AI) and machine learning are revolutionising financial forecasting. These technologies can sift through vast datasets, identifying patterns and trends that might escape human analysis.   

For CFOs, this means:  

Enhanced forecast accuracy : AI-driven insights can refine financial forecasts, making them more aligned with market realities.  

Proactive risk identification : By analysing data trends, AI can spotlight potential financial risks, allowing businesses to devise pre-emptive strategies.  

Real-time monitoring : AI technologies enable continuous financial monitoring, ensuring CFOs are always in tune with market dynamics and can adapt strategies on-the-fly.  

A comprehensive business financial plan, enriched with insights from modern tools, equips decision-makers with actionable data. This ensures that every financial move is grounded in solid data, aligning with the company's broader objectives and maximising ROI.  

Practical Steps to Implement the Financial Plan  

1. integrate the financial plan with business operations  .

A financial plan, no matter how meticulously crafted, loses its essence if not integrated into the daily operations. It's the roadmap that should guide every business decision.  

CFOs should work hand-in-hand with department heads to ensure that the financial objectives are embedded in every project, initiative, and task.   

This involves:  

Training sessions : Regular workshops to educate teams about the financial plan's nuances.  

Feedback mechanisms : Establish channels for teams to provide feedback on the plan's practicality and any challenges faced during implementation.  

Resource allocation : Ensure that financial resources are distributed in a manner that aligns with the plan's priorities.  

Pro Tip : Use collaborative tools that allow teams to see how their daily operations tie back to the broader financial objectives, fostering a sense of purpose and direction.  

2. Stay Agile with Real-Time Financial Data  

The business landscape is ever-evolving, and relying on outdated data can lead to missed opportunities or misinformed decisions.  

Harness the power of modern financial software to tap into real-time data.   

Continuous monitoring : Set up dashboards that provide a snapshot of the company's financial health at any given moment.  

Predictive analysis : Use tools that can forecast financial trends based on current data, allowing for proactive decision-making.  

Regular reviews : Weekly or bi-weekly reviews to assess the alignment between real-time data and the financial plan.  

Pro Tip : Ensure that your financial software integrates seamlessly with other operational tools in the company, providing a holistic view of both financial and operational data.  

3. Engage Every Team in the Financial Vision  

A shared vision is a powerful motivator.   

When every team member understands and believes in the financial plan, it drives collective effort towards its realisation.  

Make the financial vision a shared responsibility. This involves:  

Transparent communication : Regular updates on the company's financial status, challenges, and milestones achieved.  

Inclusive planning : Involve teams in the financial planning process, allowing them to provide insights and feedback.  

Recognition & rewards : Acknowledge and reward departments or teams that make significant contributions to achieving financial objectives.  

Pro Tip : Host quarterly ‘town-hall’ meetings where the financial vision is discussed, challenges are addressed, and team contributions are recognised. This not only keeps everyone informed but also fosters a sense of community and shared purpose.  

Final Thoughts: The Pivotal Role of Financial Planning in Business Success  

Building and executing effective business financial plans is an essential responsibility of CFOs. By investing time and effort into crafting a well-structured financial plan, CFOs can align financial goals with business strategies, enhance investor confidence, proactively manage risks, and practise more informed decision-making.  

To unlock success in today's dynamic business landscape, CFOs must leverage modern tools and technologies, integrate the financial plan with business operations, and engage teams and departments in the financial vision.   

Remember, constant adaptation and learning are key to staying ahead and driving business success.  

Looking for a comprehensive solution for expense management? Book a demo with ExpenseIn to support your business financial planning.  

Explore our faster, simpler and smarter approach to expense management.

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The 7 Best Business Plan Examples (2024)

As an aspiring entrepreneur gearing up to start your own business , you likely know the importance of drafting a business plan. However, you might not be entirely sure where to begin or what specific details to include. That’s where examining business plan examples can be beneficial. Sample business plans serve as real-world templates to help you craft your own plan with confidence. They also provide insight into the key sections that make up a business plan, as well as demonstrate how to structure and present your ideas effectively.

Example business plan

To understand how to write a business plan, let’s study an example structured using a seven-part template. Here’s a quick overview of those parts:

• Executive summary: A quick overview of your business and the contents of your business plan.
• Company description: More info about your company, its goals and mission, and why you started it in the first place.
• Market analysis: Research about the market and industry your business will operate in, including a competitive analysis about the companies you’ll be up against.
• Products and services: A detailed description of what you’ll be selling to your customers.
• Marketing plan: A strategic outline of how you plan to market and promote your business before, during, and after your company launches into the market.
• Logistics and operations plan: An explanation of the systems, processes, and tools that are needed to run your business in the background.
• Financial plan: A map of your short-term (and even long-term) financial goals and the costs to run the business. If you’re looking for funding, this is the place to discuss your request and needs.

7 business plan examples (section by section)

In this section, you’ll find hypothetical and real-world examples of each aspect of a business plan to show you how the whole thing comes together. 

• Executive summary

Your executive summary offers a high-level overview of the rest of your business plan. You’ll want to include a brief description of your company, market research, competitor analysis, and financial information. 

In this free business plan template, the executive summary is three paragraphs and occupies nearly half the page:

• Company description

You might go more in-depth with your company description and include the following sections:

• Nature of the business. Mention the general category of business you fall under. Are you a manufacturer, wholesaler, or retailer of your products?
• Background information. Talk about your past experiences and skills, and how you’ve combined them to fill in the market. 
• Business structure. This section outlines how you registered your company —as a corporation, sole proprietorship, LLC, or other business type.
• Industry. Which business sector do you operate in? The answer might be technology, merchandising, or another industry.
• Team. Whether you’re the sole full-time employee of your business or you have contractors to support your daily workflow, this is your chance to put them under the spotlight.

You can also repurpose your company description elsewhere, like on your About page, Instagram page, or other properties that ask for a boilerplate description of your business. Hair extensions brand Luxy Hair has a blurb on it’s About page that could easily be repurposed as a company description for its business plan. 

• Market analysis

Market analysis comprises research on product supply and demand, your target market, the competitive landscape, and industry trends. You might do a SWOT analysis to learn where you stand and identify market gaps that you could exploit to establish your footing. Here’s an example of a SWOT analysis for a hypothetical ecommerce business: 

You’ll also want to run a competitive analysis as part of the market analysis component of your business plan. This will show you who you’re up against and give you ideas on how to gain an edge over the competition. 

• Products and services

This part of your business plan describes your product or service, how it will be priced, and the ways it will compete against similar offerings in the market. Don’t go into too much detail here—a few lines are enough to introduce your item to the reader.

• Marketing plan

Potential investors will want to know how you’ll get the word out about your business. So it’s essential to build a marketing plan that highlights the promotion and customer acquisition strategies you’re planning to adopt. 

Most marketing plans focus on the four Ps: product, price, place, and promotion. However, it’s easier when you break it down by the different marketing channels . Mention how you intend to promote your business using blogs, email, social media, and word-of-mouth marketing. 

Here’s an example of a hypothetical marketing plan for a real estate website:

Logistics and operations

This section of your business plan provides information about your production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan (a.k.a. financial statement) offers a breakdown of your sales, revenue, expenses, profit, and other financial metrics. You’ll want to include all the numbers and concrete data to project your current and projected financial state.

In this business plan example, the financial statement for ecommerce brand Nature’s Candy includes forecasted revenue, expenses, and net profit in graphs.

It then goes deeper into the financials, citing:

• Funding needs
• Project cash-flow statement
• Project profit-and-loss statement
• Projected balance sheet

You can use Shopify’s financial plan template to create your own income statement, cash-flow statement, and balance sheet. 

Types of business plans (and what to write for each)

A one-page business plan is a pared down version of a standard business plan that’s easy for potential investors and partners to understand. You’ll want to include all of these sections, but make sure they’re abbreviated and summarized:

• Logistics and operations plan
• Financials 

A startup business plan is meant to secure outside funding for a new business. Typically, there’s a big focus on the financials, as well as other sections that help determine the viability of your business idea—market analysis, for example. Shopify has a great business plan template for startups that include all the below points:

• Market research: in depth
• Financials: in depth

Your internal business plan acts as the enforcer of your company’s vision. It reminds your team of the long-term objective and keeps them strategically aligned toward the same goal. Be sure to include:

• Market research

Feasibility 

A feasibility business plan is essentially a feasibility study that helps you evaluate whether your product or idea is worthy of a full business plan. Include the following sections:

A strategic (or growth) business plan lays out your long-term vision and goals. This means your predictions stretch further into the future, and you aim for greater growth and revenue. While crafting this document, you use all the parts of a usual business plan but add more to each one:

• Products and services: for launch and expansion
• Market analysis: detailed analysis
• Marketing plan: detailed strategy
• Logistics and operations plan: detailed plan
• Financials: detailed projections

Free business plan templates

Now that you’re familiar with what’s included and how to format a business plan, let’s go over a few templates you can fill out or draw inspiration from.

Bplans’ free business plan template

Bplans’ free business plan template focuses a lot on the financial side of running a business. It has many pages just for your financial plan and statements. Once you fill it out, you’ll see exactly where your business stands financially and what you need to do to keep it on track or make it better.

PandaDoc’s free business plan template

PandaDoc’s free business plan template is detailed and guides you through every section, so you don’t have to figure everything out on your own. Filling it out, you’ll grasp the ins and outs of your business and how each part fits together. It’s also handy because it connects to PandaDoc’s e-signature for easy signing, ideal for businesses with partners or a board.

Miro’s Business Model Canvas Template

Miro’s Business Model Canvas Template helps you map out the essentials of your business, like partnerships, core activities, and what makes you different. It’s a collaborative tool for you and your team to learn how everything in your business is linked.

Better business planning equals better business outcomes

Building a business plan is key to establishing a clear direction and strategy for your venture. With a solid plan in hand, you’ll know what steps to take for achieving each of your business goals. Kickstart your business planning and set yourself up for success with a defined roadmap—utilizing the sample business plans above to inform your approach.

Business plan FAQ

What are the 3 main points of a business plan.

• Concept. Explain what your business does and the main idea behind it. This is where you tell people what you plan to achieve with your business.
• Contents. Explain what you’re selling or offering. Point out who you’re selling to and who else is selling something similar. This part concerns your products or services, who will buy them, and who you’re up against.
• Cash flow. Explain how money will move in and out of your business. Discuss the money you need to start and keep the business going, the costs of running your business, and how much money you expect to make.

How do I write a simple business plan?

To create a simple business plan, start with an executive summary that details your business vision and objectives. Follow this with a concise description of your company’s structure, your market analysis, and information about your products or services. Conclude your plan with financial projections that outline your expected revenue, expenses, and profitability.

What is the best format to write a business plan?

The optimal format for a business plan arranges your plan in a clear and structured way, helping potential investors get a quick grasp of what your business is about and what you aim to achieve. Always start with a summary of your plan and finish with the financial details or any extra information at the end.

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Free Business Plan Template for Small Businesses (2024)

Use this free business plan template to write your business plan quickly and efficiently.

A good business plan is essential to successfully starting your business —  and the easiest way to simplify the work of writing a business plan is to start with a business plan template.

You’re already investing time and energy in refining your business model and planning your launch—there’s no need to reinvent the wheel when it comes to writing a business plan. Instead, to help build a complete and effective plan, lean on time-tested structures created by other  entrepreneurs and startups. 

Ahead, learn what it takes to create a solid business plan and download Shopify's free business plan template to get started on your dream today. 

What this free business plan template includes

• Executive summary
• Company overview
• Products or services offered
• Market analysis
• Marketing plan
• Logistics and operations plan
• Financial plan

This business plan outline is designed to ensure you’re thinking through all of the important facets of starting a new business. It’s intended to help new business owners and entrepreneurs consider the full scope of running a business and identify functional areas they may not have considered or where they may need to level up their skills as they grow.

That said, it may not include the specific details or structure preferred by a potential investor or lender. If your goal with a business plan is to secure funding , check with your target organizations—typically banks or investors—to see if they have business plan templates you can follow to maximize your chances of success.

Our free business plan template includes seven key elements typically found in the traditional business plan format:

1. Executive summary

This is a one-page summary of your whole plan, typically written after the rest of the plan is completed. The description section of your executive summary will also cover your management team, business objectives and strategy, and other background information about the brand. 

2. Company overview

This section of your business plan will answer two fundamental questions: “Who are you?” and “What do you plan to do?” Answering these questions clarifies why your company exists, what sets it apart from others, and why it’s a good investment opportunity. This section will detail the reasons for your business’s existence, its goals, and its guiding principles.

3. Products or services offered

What you sell and the most important features of your products or services. It also includes any plans for intellectual property, like patent filings or copyright. If you do market research for new product lines, it will show up in this section of your business plan.

4. Market analysis

This section includes everything from estimated market size to your target markets and competitive advantage. It’ll include a competitive analysis of your industry to address competitors’ strengths and weaknesses. Market research is an important part of ensuring you have a viable idea.

5. Marketing plan

How you intend to get the word out about your business, and what strategic decisions you’ve made about things like your pricing strategy. It also covers potential customers’ demographics, your sales plan, and your metrics and milestones for success.

6. Logistics and operations plan

Everything that needs to happen to turn your raw materials into products and get them into the hands of your customers.

7. Financial plan

It’s important to include a look at your financial projections, including both revenue and expense projections. This section includes templates for three key financial statements: an income statement, a balance sheet, and a cash-flow statement . You can also include whether or not you need a business loan and how much you’ll need.

Business plan examples

What do financial projections look like on paper? How do you write an executive summary? What should your company description include?  Business plan examples  can help answer some of these questions and transform your business idea into an actionable plan.

Professional business plan example

Inside our template, we’ve filled out a sample business plan featuring a fictional ecommerce business . 

The sample is set up to help you get a sense of each section and understand how they apply to the planning and evaluation stages of a business plan. If you’re looking for funding, this example won’t be a complete or formal look at business plans, but it will give you a great place to start and notes about where to expand.

Lean business plan example

A lean business plan format is a shortened version of your more detailed business plan. It’s helpful when modifying your plan for a specific audience, like investors or new hires. 

Also known as a one-page business plan, it includes only the most important, need-to-know information, such as:

• Company description
• Key members of your team
• Customer segments

💡 Tip: For a step-by-step guide to creating a lean business plan (including a sample business plan), read our guide on how to create a lean business plan .

Benefits of writing a solid business plan

It’s tempting to dive right into execution when you’re excited about a new business or side project, but taking the time to write a thorough business plan and get your thoughts on paper allows you to do a number of beneficial things:

• Test the viability of your business idea. Whether you’ve got one business idea or many, business plans can make an idea more tangible, helping you see if it’s truly viable and ensure you’ve found a target market. 
• Plan for your next phase. Whether your goal is to start a new business or scale an existing business to the next level, a business plan can help you understand what needs to happen and identify gaps to address.
• Clarify marketing strategy, goals, and tactics. Writing a business plan can show you the actionable next steps to take on a big, abstract idea. It can also help you narrow your strategy and identify clear-cut tactics that will support it.
• Scope the necessary work. Without a concrete plan, cost overruns and delays are all but certain. A business plan can help you see the full scope of work to be done and adjust your investment of time and money accordingly.
• Hire and build partnerships. When you need buy-in from potential employees and business partners, especially in the early stages of your business, a clearly written business plan is one of the best tools at your disposal. A business plan provides a refined look at your goals for the business, letting partners judge for themselves whether or not they agree with your vision.
• Secure funds. Seeking financing for your business—whether from venture capital, financial institutions, or Shopify Capital —is one of the most common reasons to create a business plan.

Why you should you use a template for a business plan

A business plan can be as informal or formal as your situation calls for, but even if you’re a fan of the back-of-the-napkin approach to planning, there are some key benefits to starting your plan from an existing outline or simple business plan template.

No blank-page paralysis

A blank page can be intimidating to even the most seasoned writers. Using an established business planning process and template can help you get past the inertia of starting your business plan, and it allows you to skip the work of building an outline from scratch. You can always adjust a template to suit your needs.

Guidance on what to include in each section

If you’ve never sat through a business class, you might never have created a SWOT analysis or financial projections. Templates that offer guidance—in plain language—about how to fill in each section can help you navigate sometimes-daunting business jargon and create a complete and effective plan.

Knowing you’ve considered every section

In some cases, you may not need to complete every section of a startup business plan template, but its initial structure shows you you’re choosing to omit a section as opposed to forgetting to include it in the first place.

Tips for creating a successful business plan

There are some high-level strategic guidelines beyond the advice included in this free business plan template that can help you write an effective, complete plan while minimizing busywork.

Understand the audience for your plan

If you’re writing a business plan for yourself in order to get clarity on your ideas and your industry as a whole, you may not need to include the same level of detail or polish you would with a business plan you want to send to potential investors. Knowing who will read your plan will help you decide how much time to spend on it.

Know your goals

Understanding the goals of your plan can help you set the right scope. If your goal is to use the plan as a roadmap for growth, you may invest more time in it than if your goal is to understand the competitive landscape of a new industry.

Take it step by step

Writing a 10- to 15-page document can feel daunting, so try to tackle one section at a time. Select a couple of sections you feel most confident writing and start there—you can start on the next few sections once those are complete. Jot down bullet-point notes in each section before you start writing to organize your thoughts and streamline the writing process.

Maximize your business planning efforts

Planning is key to the financial success of any type of business , whether you’re a startup, non-profit, or corporation.

To make sure your efforts are focused on the highest-value parts of your own business planning, like clarifying your goals, setting a strategy, and understanding the target market and competitive landscape, lean on a business plan outline to handle the structure and format for you. Even if you eventually omit sections, you’ll save yourself time and energy by starting with a framework already in place.

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Business plan template FAQ

What is the purpose of a business plan.

The purpose of your business plan is to describe a new business opportunity or an existing one. It clarifies the business strategy, marketing plan, financial forecasts, potential providers, and more information about the company.

How do I write a simple business plan?

• Choose a business plan format, such as a traditional or a one-page business plan. 
• Find a business plan template.
• Read through a business plan sample.
• Fill in the sections of your business plan.

What is the best business plan template?

If you need help writing a business plan, Shopify’s template is one of the most beginner-friendly options you’ll find. It’s comprehensive, well-written, and helps you fill out every section.

What are the 5 essential parts of a business plan?

The five essential parts of a traditional business plan include:

• Executive summary: This is a brief overview of the business plan, summarizing the key points and highlighting the main points of the plan.
• Business description: This section outlines the business concept and how it will be executed.
• Market analysis: This section provides an in-depth look at the target market and how the business will compete in the marketplace.
• Financial plan: This section details the financial projections for the business, including sales forecasts, capital requirements, and a break-even analysis.
• Management and organization: This section describes the management team and the organizational structure of the business.

Are there any free business plan templates?

There are several free templates for business plans for small business owners available online, including Shopify’s own version. Download a copy for your business.

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Original text

This guide walks you step-by-step through writing a business plan for an existing business. The template includes easy-to-follow instructions for completing each section of the business plan, questions to help you think through each aspect, and corresponding fillable worksheet/s for key sections.

The business plan sections covered in this template include:

Confidentiality Agreement

I. Instructions: Executive Summary

Executive Summary

II. Instructions: Company Description

Company Description Worksheet

III. Instructions: Products & Services

Product & Service Description Worksheet

IV. Instructions: Marketing Plan

SWOT Analysis Worksheet

Competitive Analysis Worksheet

Marketing Expenses Strategy Chart

Pricing Strategy Worksheet

Distribution Channel Assessment Worksheet

V. Instructions: Operational Plan

VI. Instructions: Management & Organization

Management Worksheet

Organization Chart

VII. Instructions: Personal Financial Statement

VIII. Instructions: Financial History & Analysis

1X. Instructions: Financial Plan

X. Instructions: Appendices

XI. Instructions: Refining the Plan

Now That You’re (Almost) Finished . . .

Download Template

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

How Much Does it Cost to Start a Business?

8 min. read

Updated April 25, 2024

What will it cost to start your business? This is a key question for anyone thinking about starting out on their own. You’ll want to spend some time figuring this out so you know how much money you need to raise and whether you can afford to get your business off the ground.

Most importantly, you’ll want to figure out how much cash you’re going to need in the bank to keep your business afloat as you grow your sales during the early days of your business. 

Typical startup costs can vary depending on whether you’re operating a  brick-and-mortar store, online store, or service operation . However, a common theme is that launching a successful business requires preparation.

And while you may not know exactly what those expenses will be, you can and should begin researching and estimating what it will cost to start your business.

• How to determine your startup costs

Like when developing your  business plan , or  forecasting  your initial sales, it’s a mixture of  market research ,  testing , and informed guessing. Looking at your competitors is a good starting point. Once you feel your initial estimates are in the ballpark, you can start to get more specific by making these three simple lists.

1. Startup expenses

These are expenses that happen before you launch and start bringing in any revenue. Here are some examples:

• Permits and Licenses: Every business needs a license to operate, just like a driver needs one to drive. Costs vary depending on industry and location.
• Legal Fees: Getting your business structure set up (sole proprietorship, LLC, etc.) might involve consulting a lawyer and at least will involve the basic business formation fees.
• Insurance: Accidents happen, and insurance protects your business from unforeseen bumps.
• Marketing and Branding: The ways to spread the word about your product or service. They could involve creating a website, creating business cards, or promoting social media.
• Office Supplies : Pens, paperclips, that all-important stapler – the essentials to keep your business humming.
• Rent/Lease: If you need to rent space for your business before you start selling, include those expenses in your list as well.

2. Startup assets

Next, calculate the total you need to spend on assets to get your business off the ground. Assets are larger purchases that have long-term value. They’re typically significant items that you could resell later if you needed or wanted to.

Here are a few examples:

• Equipment:  Think ovens for a bakery, cameras for a photography business, or computers for a tech startup.
• Inventory:  If you’re selling products, you’ll need to stock up before opening your doors (or your online store).
• Furniture and Decorations:  Desks, chairs, that comfy couch in the waiting room – creating a functional and inviting workspace might involve some upfront investment.
• Vehicles: If your business requires a vehicle to deliver your product or service, be sure to account for that purchase here.

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Why separate assets and expenses?

There’s a reason that you should separate costs into assets and expenses. Expenses are deductible against income, so they reduce taxable income. Assets, on the other hand, are not deductible against income.

By initially separating the two, you potentially save yourself money on taxes. Additionally, by accurately accounting for expenses, you can avoid overstating your assets on the balance sheet. While typically having more assets is a better look, having assets that are useless or unfounded only bloats your books and potentially makes them inaccurate. 

Listing these out separately is good practice when  starting a business  and leads into the final piece to consider when determining startup costs. 

3. Operating Expenses

Finally, figure out what it’s going to cost to keep your doors open until sales can cover expenses. Create a list that estimates monthly expenses, such as:

• Payroll (including your own salary)
• Marketing and advertising
• Loan payments
• Insurance premiums
• Office supplies
• Professional services
• Travel costs
• Shipping and distribution

Then, based on your revenue forecasts , calculate how many months it will take before your sales can cover all those monthly expenses. Multiply that number of months by your monthly operating expenses to determine how much you’re going to need to cover operating expenses as your business starts.

This number is often called “ cash runway ” and is a critical number – you need enough cash to fund those early red ink months. This number is how much cash you need to have in your checking account when you open your doors for business.

Calculating how much startup cash you need

To figure out how much money you need to start your business, add the asset purchases, startup expenses, and operating expenses over your cash runway period. This is your total startup costs, and it’s better to overestimate than underestimate these costs.

It often makes sense to invest the time to build a slightly more detailed starting costs calculation. Assuming you start making some sales and those sales grow over time, your revenue will be able to help pay for some of your operating expenses. Ideally, your sales contribute more and more over time until you become profitable.

To do a more detailed calculation, you’ll want to invest the time in a detailed financial forecast where you can experiment with different scenarios. If you do this, you’ll be able to see how much it will cost to start your business with different revenue growth rates. You’ll also be able to experiment with different funding scenarios and what your business would look like with different types of loans.

• Funding Starting Costs

You can cover starting costs on your own, or through a combination of loans and investments.

Many entrepreneurs decide they want to raise more cash than they need so they’ll have money left over for contingencies. While that makes good sense when you can do it, it is difficult to explain that to investors. Outside investors don’t want to give you more money than you need, because it’s their money.

You may see experts who recommend having anywhere from six months to a year’s worth of expenses covered, with your starting cash. That’s nice in concept and would be great for peace of mind, but it’s rarely practical. And it interferes with your estimates and dilutes their value.

Of course, startup financing isn’t technically part of the starting costs estimate. But in the real world, to get started, you need to estimate the starting costs and determine what startup financing will be necessary to cover them. The type of financing you pursue may alter your startup or ongoing costs in a given period, so it’s important to consider this upfront.

Here are common financing options to consider:

• Investment : What you or someone else puts into the company. It ends up as paid-in capital in the  balance sheet . This is the classic concept of business investment, taking ownership in a company, risking money in the hope of gaining money later.
• Accounts payable : Debts that are outstanding or need to be paid after a certain time according to your balance sheet. Generally, this means credit-card debt. This number becomes the starting balance of your balance sheet.
• Current borrowing : Standard debt, borrowing from banks,  Small Business Administration , or other current borrowing.
• Other current liabilities : Additional liabilities that don’t have interest charges. This is where you put loans from founders, family members, or friends. We aren’t recommending interest-free loans for financing, by the way, but when they happen, this is where they go.
• Long-term liabilities : Long-term debt or long-term loans.
• Other considerations for estimating startup costs

Pre-launch versus normal operations

With our definition of starting costs, the launch date is the defining point. Rent and payroll expenses before launch are considered startup expenses. The same expenses after launch are considered operating or ongoing expenses.

Many companies also incur some payroll expenses before launch because they need to hire people to train before launch, develop their website, stock shelves, and so forth.

Further Reading: How to calculate the hourly cost of an employee

The same defining point affects assets as well. For example, amounts in inventory purchased before launch and available at launch are included in starting assets. Inventory purchased after launch will affect  cash flow , and the balance sheet; but isn’t considered part of the starting costs.

So, be sure to accurately define the cutoff for startup costs and operating expenses. Again, by outlining everything within specific categories, this transition should be simple and easy to keep track of.

Your launch month will likely be the start of your business’s fiscal year

The establishment of a standard fiscal year plays a role in your analysis. U.S. tax code allows most businesses to manage taxes based on a fiscal year, which can be any series of 12 months, not necessarily January through December.

It can be convenient to establish the fiscal year as starting the same month that the business launches. In this case, the startup costs and startup funding match the fiscal year—and they happen in the time before the launch and beginning of the first operational fiscal year. The pre-launch transactions are reported as a separate tax year, even if they occur in just a few months, or even one month. So the last month of the pre-launch period is also the last month of the fiscal year.

• Aim for long-term success by estimating startup costs

Make sure you’ve considered every aspect of your business and included related costs. You’ll have a better chance at securing loans, attracting investors, estimating profits, and understanding the cash runway of your business.

The more accurately you layout startup costs and make adjustments as you incur them, the more accurate vision you’ll have for the immediate future of your business. 

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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Financial Advisor Business Plan Template

Written by Dave Lavinsky

Over the past 20+ years, we have helped over 9,000 entrepreneurs create business plans to start and grow their financial advisor and financial planning businesses. On this page, we will first give you some background information with regards to the importance of business planning. We will then go through a financial advisor business plan template step-by-step so you can create your plan today.

Download our Ultimate Financial Advisor Business Plan Template here >

What is a Financial Advisor Business Plan?

A business plan provides a snapshot of your financial advisor business as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategy for reaching them. It also includes market research to support your plans.

Why You Need a Business Plan for a Financial Advisory Firm

If you’re looking to start a financial advisor business or grow your existing financial advisor business you need a business plan. A business plan will help you raise funding, if needed, and plan out the growth of your financial planning business in order to improve your chances of success. Your financial advisor business plan is a living document that should be updated annually as your company grows and changes.

Source of Funding for Financial Planning Businesses

With regards to funding, the main sources of funding for a financial advisor are personal savings, credit cards, bank loans and angel investors. With regards to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to confirm that your financials are reasonable. But they will want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business.

Angel investors are wealthy individuals who will write you a check. They will either take equity in return for their funding, or, like a bank, they will give you a loan.

Finish Your Business Plan Today!

Your business plan should include 10 sections as follows:

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your Executive Summary is to quickly engage the reader. Explain to them the type of financial advisor business you are operating and the status; for example, are you a startup, do you have a financial advisor business that you would like to grow, or are you operating a chain of financial planning businesses.

Next, provide an overview of each of the subsequent sections of your plan. For example, give a brief overview of the financial advisor business industry. Discuss the type of financial planning business you are operating. Detail your direct competitors. Give an overview of your target customers. Provide a snapshot of your marketing plan. Identify the key members of your team. And offer an overview of your financial plan.

Company Analysis

In your company analysis, you will detail the type of financial advisor business you are operating.

For example, you might operate one of the following types:

• Financial Planning for Consumers : this type of financial advisor provides services such as retirement planning and investment management for individuals.
• Financial Management Consulting : this type of financial advisor business typically serves businesses and governments, providing portfolio management services.

In addition to explaining the type of financial advisor business you operate, the Company Analysis section of your financial planner business plan needs to provide background on the business.

Include answers to question such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include sales goals you’ve reached, new store openings, etc.
• Your legal structure. Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry analysis, you need to provide an overview of the financial advisor business.

While this may seem unnecessary, it serves multiple purposes.

First, researching the financial advisor business industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your strategy particularly if your research identifies market trends. For example, if there was a trend towards cryptocurrency investment, it would be helpful to ensure your plan calls for continuing education in alternative investments.

The third reason for market research is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your financial advisor business plan:

• How big is the financial advisor business (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential market for your financial advisor business. You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

Customer Analysis

The customer analysis section of your financial planning business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: families, high net worth individuals (HNWIs), baby boomers, businesses, etc.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of financial advisor business you operate. Clearly baby boomers would want different pricing and product options, and would respond to different marketing promotions than high net worth individuals.

Try to break out your target customers in terms of their demographic and psychographic profiles. With regards to demographics, include a discussion of the ages, genders, locations and income levels of the customers you seek to serve. Because most financial advisor businesses primarily serve customers living in their same city or town, such demographic information is easy to find on government websites.

Psychographic profiles explain the wants and needs of your target customers. The more you can understand and define these needs, the better you will do in attracting and retaining your customers.

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Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other financial advisor businesses.

Indirect competitors are other options that customers have to purchase from that aren’t direct competitors. This includes independent advisory firms, commercial banks, investment banks, insurance companies, broker-dealers, discount brokerages or self-managing one’s finances and investments. You need to mention such competition to show you understand that not everyone who seeks financial advice engages the services of a financial advisor.

With regards to direct competition, you want to detail the other financial advisor businesses with which you compete. Most likely, your direct competitors will be financial advisor businesses located very close to your location.

For each such competitor, provide an overview of their businesses and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as:

• What types of customers do they serve?
• What products and services do they offer?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you provide superior services?
• Will you provide products/services that your competitors don’t offer?
• Will you make it easier or faster for customers to engage your services?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. Your financial advisor marketing plan should include the following:

Product : in the product section you should reiterate the type of financial advisor business that you documented in your Company Analysis. Then, detail the specific products you will be offering. For example, in addition to financial advice, will you offer trust services or brokering and dealing?

Price : Document the prices you will offer and how they compare to your competitors. Essentially in the product and price sub-sections of your marketing plan, you are presenting the products and services you offer and their prices.

Place : Place refers to the location of your financial advisor business. Document your location and mention how the location will impact your success.

Promotions : the final part of your financial advisor business marketing plan is the promotions section. Here you will document how you will drive customers to your location(s). The following are some promotional methods you might consider:

• Advertising in local papers and magazines
• Pay per click advertising
• Reaching out to local bloggers and websites
• Social media advertising
• Local radio advertising
• Banner ads at local venues

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows.

Everyday short-term processes include all of the tasks involved in running your financial advisory such as serving customers, procuring supplies, keeping the office clean, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to serve your 100th customer, or when you hope to reach $X in sales. It could also be when you expect to hire your Xth employee or launch a new location.

Management Team

To demonstrate your financial advisor business’s ability to succeed as a business, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally you and/or your team members have direct experience in the financial advisor business. If so, highlight this experience and expertise. But also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who would act like mentors to your business. They would help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in financial advisor businesses and/or successfully running small businesses.

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet and cash flow statements.

Income Statement : an income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenues and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you serve 50 accounts at a time, or 100? And will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to root your assumptions in reality.

Balance Sheets : While balance sheets include much information, to simplify them to the key items you need to know about, balance sheets show your assets and liabilities. For instance, if you spend $100,000 on building out your financial advisor business, that will not give you immediate profits. Rather it is an asset that will hopefully help you generate profits for years to come. Likewise, if a bank writes you a check for $100.000, you don’t need to pay it back immediately. Rather, that is a liability you will pay back over time.

Cash Flow Statement : Your cash flow statement will help determine how much money you need to start or grow your business, and make sure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit but run out of money and go bankrupt.

In developing your Income Statement and Balance Sheets be sure to include several of the key costs needed in starting or growing a financial advisor business:

• Office location build-out including design fees, construction, etc.
• Cost of equipment like computer hardware and software, office equipment, etc.
• Cost of required licenses (e.g., FINRA fees)
• Payroll or salaries paid to staff
• Business insurance
• Taxes and permits
• Legal expenses

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your office design blueprint or location lease, etc.

Additional Financial Advisor Business Plan Tips

When writing a business plan for a financial advisor practice, take great pains to avoid these three mistakes which each give funders reason to set the plan aside or stop returning your calls.

Resting on Your Laurels

Your financial experience that prepares you to be an advisor is certainly important to explain in your business plan, but this isn’t enough. You have to go beyond explaining the experience you bring to the table to explain how you will market and operate a business with that experience serving as a cornerstone. Without a plan for how the business will run, readers cannot truly judge how you expect the business to succeed.

Ignoring Competition

Writing that there is no competition for the customers you want in the location you will operate is a huge mistake in a business plan. There are always competitors, even if the competition is Fortune magazine or the Motley Fool website. At a minimum, clients have the option of finding financial advice in these inexpensive sources rather than working with you. The competitive analysis section of your plan must recognize the challenge you face in proving your practice’s worth beyond these competitors, at the very least.

Not Connecting the Dots

The business plan is a type of logic puzzle. When put together, it connects opportunity to means to methods to results. Think through the logic of whether the means you present (your experience, team, location, etc.) are adequate to take advantage of the opportunity. Consider whether the operations and marketing methods you propose make sense for the means. Look at whether the results you project are reasonable given these methods. If you don’t think through these steps, your readers will find gaps in your logic and turn down funding for your plan, even if each component sounds perfectly fine on its own. The plan must work as a cohesive whole to be fundable.

Financial Advisor Business Plan Summary

Putting together a business plan for your financial advisor business is a worthwhile endeavor. If you follow the template above, by the time you are done, you will truly be an expert. You will really understand the financial advisor business, your competition and your customers. You will have developed a marketing plan and will really understand what it takes to launch and grow a successful financial advisor business.

Download Our Financial Advisor Business Plan PDF

You can download our financial advisor business plan PDF here . This is a business plan template you can use in PDF format.  

Financial Advisor Business Plan FAQs

What is the easiest way to complete my financial advisor business plan.

Growthink's Ultimate Financial Advisor Business Plan Template allows you to quickly and easily complete your Financial Advisor Business Plan.

Where Can I Download a Financial Advisor Business Plan PDF?

You can download our financial advisor business plan PDF template here . This is a business plan template you can use in PDF format.

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What is enterprise performance management?

The epm cycle.

• The business value of EPM software—critical in uncertain times

History of EPM—from paper to spreadsheets

Epm today—from on-premises to the cloud, evolution of epm, next-generation epm—analysis to action.

• Embracing EPM in the cloud

Enterprise Performance Management (EPM) software helps you analyze, understand, and report on your business. EPM refers to the processes designed to help organizations plan, budget, forecast, and report on business performance as well as consolidate and finalize financial results (often referred to as “closing the books”). EPM solutions are primarily used by CFOs and the office of finance, while other functional areas, such as HR, sales, marketing, and IT, use EPM for operational planning, budgeting, and reporting.

While often tied to enterprise resource planning (ERP) systems, EPM software complements ERP by providing management insights in addition to top of operational data. In other words, ERP is about operating the business—the day-to-day transactional activity—and EPM is about managing the business—analyzing, understanding, and reporting on the business.

Today, EPM software is considered to be critical for managing all types of organizations by linking financial and operational metrics to insights—and ultimately driving strategies, plans, and execution. With EPM software, managers can drive improved performance across the organization by monitoring financial and operational results against forecasts and goals and using analytics to recognize key trends and predict outcomes.

In an environment of constant change, new competitors, and economic uncertainty, EPM offers a tool for organizations to manage their agile businesses. With finance at the helm, EPM business processes (strategic modeling, plan, consolidate and close, report, and analyze performance) can help organizations understand their data and use it to make better business decisions.

Business value of EPM software—critical in uncertain times

The key to surviving disruption is flexibility. Whether the disruption comes from outside forces (such as new regulations or global weather events) or market realities (one product skyrockets to success while another flops), organizations that respond quickly are able to stay ahead of the curve. A modern EPM solution enables you to understand how, when, and where to adjust to disruptions.

• Optimize the financial close —In a changing regulatory environment, you need to adapt quickly to new requirements and deliver faster, more accurate insights to all stakeholders. EPM helps you streamline the financial close and report with confidence and insight.
• Streamline account reconciliation —Account reconciliation is the number one reason for non-data-related delays in the financial close. EPM enables you to efficiently manage and improve global account reconciliation by exploiting automation and comprehensively addressing the security and risk typically associated with this process.
• Drive accurate and agile integrated plans —The digital economy demands more than spreadsheets and department-oriented planning processes. Truly effective planning should seamlessly connect your entire organization for a better vision. With EPM you can align planning across the enterprise, so that you can develop agile forecasts for all lines of business and respond faster and more effectively to change.
• Manage and drive profitability —To survive in uncertain times, you must be able to manage and drive profitability. EPM helps you gain insight into dimensions of cost and profitability to determine where to invest limited resources.
• Align tax reporting with corporate financial reporting —Changing tax laws are causing global organizations to plan and manage their tax affairs very differently than they have to-date. EPM supports effective tax reporting by connecting the processes, data, and metadata that tax and finance share, such as financial planning, financial close, and regulatory reporting.
• Satisfy all your reporting requirements —No matter how many reporting standards you have to comply with, you want to be sure that the data you provide in your reports is accurate, complete, and the most current information available. EPM reduces the need for multiple reporting systems.
• Manage change with enterprise data management —Whether you're migrating applications to the cloud, managing applications in a hybrid environment, or spearheading major business and financial transformation, an enterprise data management platform provides data accuracy and integrity with the alignment of your data and master data.

The concept of EPM has been around for decades. Before computers, EPM processes and solutions were managed manually via meetings, phone calls, and discussions. In the 1970s, the first EPM software applications became available and accounting solutions began collecting budgeting and financial information for reporting purposes. Spreadsheets were introduced in the 1980s with software such as Lotus1-2-3 and VisiCalc. Spreadsheets allowed finance teams to automate budget and report creation and replace manual worksheets. The availability of email in the 1990s allowed people to share spreadsheets, which led to better collaboration and collection of budgeting and reporting data. Around the same time, the first EPM software packages began to automate the financial consolidation and reporting process. These products included: IMRS Micro Control (which later became Hyperion software), Hyperion Enterprise for financial consolidation and reporting, and Hyperion Pillar for planning processes.

Over the past couple of decades, EPM software platforms evolved from Windows-based client/server systems to internet-enabled, web browser-based applications. Today, there’s an increasing demand for cloud-based EPM software, also known as software as a service (SaaS). When EPM software is “in the cloud” it simply means that the application is housed on a network of remote servers, instead of at a company’s location.

The cloud offers a more affordable alternative for EPM that lowers both operational expenses (OpEx) and capital expenses (CapEx), because it eliminates the need for companies to purchase software and hardware or hire additional IT staff. With no costly infrastructure to support, resources can be invested in growth opportunities, while employees can focus on more value-added tasks instead of managing IT.

1970s Basic accounting software applications

1980s early spreadsheet solutions.

Lotus 1-2-3 and VisiCalc to automate budgeting.

1990s Email and spreadsheet sharing for collaboration and communication

Hyperion, one of the earliest successful EPM software companies.

2000s Desktop to browser

EPM software moves from Windows-based to web-browser-based.

2010s EPM in the cloud

Cloud-based EPM becomes the new standard.

Historically, EPM systems have focused on transitioning finance from spreadsheets to more robust solutions that let teams spend less time on low-value tasks such as data manipulation and reconciliations and more time on high-value tasks like analysis. But even after making the move from spreadsheets, there’s still too much time between analysis and action.

Enter the next generation of EPM, which has new capabilities that incorporate emerging technologies, such as artificial intelligence and machine learning. These technologies are powerful decision-making tools because they close the gap between analysis and action. They help improve the quality of decisions made by finance managers and executives by detecting hidden patterns and insights in historic data. The impact on decision-making is widespread, from tactical (which vendor to pay first) to operational (budget reallocations) to strategic (mergers and acquisitions).

Beyond decision-making, these technologies can automate routine tasks to eliminate manual labor and reduce the likelihood of errors. There are many tasks in the financial close and reconciliation process that fall into this category. This type of automation will free up valuable time for finance professionals to engage with operations and spend more time providing the forward-looking guidance that management needs to capitalize on the next opportunity.

Embracing EPM in the Cloud—the suite always wins over point solutions

A millennial who had a mini-retirement at 38 shares her strategies for achieving financial independence — and why she wants to return to the workforce

• Sabina Horrocks plans to re-enter the workforce after her mini-retirement in a lower-stress role.
• She and her husband achieved financial independence with a net worth near $2 million.
• Many financially independent millennials are rejecting early retirement, seeking fulfilling work.

Sabina Horrocks, 41, recently stepped away from her six-figure managerial position to care for her young daughter. But after three years of mini-retirement , she's itching to return to work.

She and her husband have a net worth of just below $2 million, and both made similar incomes before she quit in 2021. Her husband has since doubled his income and has little intention of stopping, even though both could step away and retire early .

When her daughter enrolls in kindergarten soon, Horrocks said she will return to the workforce but not to the high-stress position she held. Instead, given the luxury to pursue her passions, she's considering financial coaching or planning as options.

"We didn't do anything extraordinary — I'd say the way we became millionaires is quite boring," she told Business Insider. "That's the thing I think most people don't understand. Becoming wealthy isn't hustles, dealmaking, and flash. It's discipline and consistency over time."

Many millennials who have achieved financial independence — where people have enough to cover expenses without relying on work — are rejecting the " retire early " part of the FIRE acronym . Some have tried out retirement but dislike the lack of structure , while others have stepped down from high-stress positions but have embraced more casual work. Some continue rising the ranks to teach their kids strong work ethics.

Discovering financial independence

Horrocks' parents came to the US in the 1970s and struggled to find work. She grew up lower-middle class in the outskirts of Chicago, and while she said her parents never had trouble putting food on the table, she lived a very modest lifestyle.

She got a scholarship for her first two years of college, though she regrets not getting a computer science or math degree. Her first job was with a union, which didn't pay well. She also met her husband young, and they married after both secured their first corporate jobs.

Right after their marriage, she said they were approached by a company trying to sell them financial services to help plan their financial futures. While they thought it was a scam at first, they realized this was a wake-up call to start reading up on how to plan for the next five, then 10 years. Their No. 1 change was saving much more of their income.

"I had never thought about our future financial goals . Nobody's ever really talked about in my house, aside from affording certain things," she said. "We were always trying to save, and my parents would go to four grocery stores on the weekends to save $3 on bread and eggs."

For instance, their first home was a one-bedroom, one-bath condo that cost $137,000, significantly smaller than the homes their friends in similar financial situations were purchasing. In the late 2000s, her husband said there was no reason to spend $350,000 on a condo in a city with tons of fees when they could get a larger home in the suburbs for half the price.

"My husband and I have always worked together as a team, and we've treated finances in our marriage like a business. We've always had transparency, goals, and shared effort," she said. "We treat income as household income, not mine or yours. I personally don't understand how marriages can survive with no transparency and a 'my' mentality."

After the housing bubble burst, their home lost $60,000 in value, and tenants rushed out of the building while others foreclosed. They were worried about what to do next, though they rented out the condo a few years later and purchased a townhome.

Strategies for achieving financial independence

After doing some reading, they decided to cut back on their costs. They sold one of their cars, purchased a modest home, and limited their spending on travel and nights out with friends. They also plowed money into investments such as ETFs and individual stocks early on.

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She admits they initially went a little overboard with budgeting , such as pushing beauty salon visits to the next month so they didn't exceed their budget. She said it "created a monster" initially, though strict budgeting helped them stay on track to reach their longer-term goals.

They tried buying investment properties right after the bubble, and they acquired six condos for about $50,000 to $70,000 each. They made a $1,000 monthly profit from them, and she thought they would quit their jobs and do this full-time. Her husband hated it, though, and over time they eventually sold all their properties and put that money into retirement accounts.

She continued to work up the corporate ladder, learning more about data models, Excel, and languages like SQL. Early in her career, a major layoff axed nearly her entire department, and she and her husband continued to work "extremely hard" to have a cushion in case of layoffs.

In the 2010s, she bounced around a few companies as a sales operations manager, developing processes to improve efficiency and grow client bases. She also got an MBA, which her company helped pay for.

She made about $120,000 a year by the time she quit, similar to her husband. Over the years, she and her husband built a net worth upwards of $1 million, and she quit knowing that they would be fine in case of future layoffs or an emergency.

"I think work is not the goal. People get so career-driven, thinking they need to become vice presidents or become a manager to 30 people," she said. "To me, work is just work. What's important is your friends and having time to do the thing you really want to do."

She and her husband have a net worth of nearly $2 million. This includes about $1.16 million in retirement accounts, $460,000 in an after-tax brokerage account, $250,000 in home equity, $30,000 in an HSA, $25,000 in a 529, and $25,000 in savings.

Rejecting 'RE' and returning to work

After she had her baby, her husband took paternity leave while she returned to her managerial position. She recalled having eight hours of meetings one day that she had no desire to attend, and she decided that day to quit.

"I didn't want to be locked in a room for eight hours talking about how the website should be or picklist values when I could just be here with my baby," she said. "My husband was like, you can just quit. We have enough money coming in from rental properties, my husband was doing pretty well at his job, and I was work-optional."

They've become more relaxed about their spending and invest in meaningful experiences. Last month, she decided to go on a transatlantic cruise with her daughter and mom.

"We're at a point now where we're able to do things like that, and I think it was because, in our 20s, we made some big sacrifices," she said. "We had a small wedding, we lived in a small place, we've only had one car for most of our marriage."

Still, Horrocks thinks she's ready to return to the workforce. She no longer needs to strive for the highest-paying or most prestigious position, and she's considered becoming a financial coach to help people achieve their financial goals.

"I think a lot of Financial Advisors make finance complicated and don't make it transparent in a real everyday way," she said. "Also, a lot of financial advisors don't have their client's best interests at heart and aren't wealthy themselves."

She acknowledges she feels some imposter syndrome, questioning if people would listen to a stay-at-home mom, though she said she wants to help people become financially confident. She also hopes to continue writing for her blog, the Moneyaires .

"Who better to learn from than someone who has walked the walk?" she said.

Are you part of the FIRE movement or living by some of its principles? Reach out this reporter at [email protected] .

Watch: Millions of homes could flood the US housing market thanks to boomers

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• Life Insurance

Life Insurance Statistics, Data And Industry Trends 2024

Fact Checked

Updated: Jan 3, 2024, 10:22am

Life insurance can protect your loved ones financially if you’re no longer there to provide for them. The death benefit can be used for almost anything, such as replacing your income, covering outstanding debts, paying for final expenses or providing a tax-free inheritance to your beneficiaries.

But there are many misconceptions about the cost of life insurance and how it works. These misconceptions may have prevented families from getting the coverage they need.

To help you better understand the ins and outs of life insurance, Forbes Advisor conducted in-depth research on current life insurance statistics and facts.

Key Life Insurance Statistics

A large number of Americans rely on life insurance for financial protection. But a substantial portion lacks sufficient coverage or perceives it as too expensive—often due to misinformation about the actual cost.

Nearly 1 Billion American Families Depend on Life Insurance for Financial and Retirement Security

• About 90 million American families rely on life insurance for economic protection, including financial and retirement security. [ ]

41% of Adults Report not Having Sufficient Life Insurance Coverage

• It’s estimated that 106 million of both insured and uninsured Americans feel their coverage is inadequate. [ ]
• 44% of American households would encounter significant financial difficulties within six months if they lost the primary wage earner in their family, and 28% would reach this point in one month or less. [ ]

Over Half (52%) of Americans Said They Don’t Have Life Insurance Because It’s Too Expensive

• 82% of Americans overestimate the cost of a policy, with the largest majority incorrectly guessing the cost to be three times as high (28.4%). [ ]
• Americans with life insurance feel more financially secure than those without (68% compared to 47%). LIMRA reports that those with multiple sources of life insurance (employer-based and individual plans) report feeling the most financially secure (78%). [ ]

Americans are Unaware That Health History, Age and Other Factors Affect Life Insurance Quotes

Based on a Forbes Advisor survey, there is confusion around what factors determine life insurance costs , and whether disclosing certain lifestyle information will lead to higher rates.

• Less than half of respondents knew that health history and age are considered when determining a life insurance quote. [ ]
• Nearly three-fifths (59%) of respondents said they’d have reservations about applying for life insurance if they legally use marijuana, and 56% said they would lie about their usage to avoid higher costs. [ ] Marijuana use may affect how much you pay for life insurance, or whether you can qualify for at all.

What Percentage of Americans Have Life Insurance?

While there’s been a small uptick recently in policy ownership, the overall trend since 2011 indicates that fewer Americans now have life insurance coverage.

Just Over Half of Americans Have Life Insurance

• 52% of Americans report owning life insurance in 2023, including both individual and workplace life insurance, according to LIMRA. [ ]
• This percentage is up 2 percentage points from 2022, but down 11 percentage points from 2011. [ ]

Life Insurance Ownership by Gender

Women trail behind men when it comes to life insurance ownership and knowledge.

Women are Less Likely to Have Life Insurance Than Men

• For the fifth consecutive year, women are 11 percentage points below men in life insurance ownership rates, with 47% of women reporting they have life insurance compared to 58% of men. [ ]
• Life insurance ownership by women is on the decline. The number of women with life insurance policies has decreased for the past five years in a row. [ ]
• In 2020, 36% of women who lost their life insurance coverage cited losing their jobs unexpectedly as the reason. [ ]
• Survey data from LIMRA indicates about a third of American women planned to buy life insurance within the next year, compared to 42% of men. [ ]

Men Are More Likely to Report Being Knowledgeable About Life Insurance

• About four in 10 men (39%) describe themselves as being very knowledgeable about life insurance. For women, this figure is about two in 10 (22%). [ ]
• Men are less likely than women to cite paying for burial expenses as a major reason for having life insurance. [ ]
• Men are more likely than women to view life insurance as a supplement for retirement income. [ ]

Life Insurance Ownership by Race and Ethnicity

The number of people with life insurance varies greatly across different racial, ethnic and generational groups. The primary reasons why these groups buy life insurance differ.

Only 45% Of Hispanic Americans Have Life Insurance, Lower Than Any Other Racial Or Ethnic Group

• Black and white Americans average nearly 10 percentage points higher in life insurance ownership rates than Hispanic Americans. [ ]

56% of Black Americans own a life insurance policy

• Among insured Americans, Black individuals (66%) are more likely to cite covering burial costs and other final expenses as their main reason for buying life insurance than the overall population (48%). [ ]
• Black respondents were nearly three times more likely to cite building generation wealth as a benefit of life insurance than white respondents (22% compared to 8%). [ ]
• More white (64%) than Black (37%) survey respondents cite wanting to shield their families from unpaid debt as the purpose of life insurance. [ ]

Life Insurance Ownership by Age

Younger age groups feel a greater sense of urgency to purchase life insurance than their older counterparts, despite life insurance for seniors being available.

40% Of Gen Zers And 48% Of Millennials Report Having Life Insurance

• The intent to buy life insurance is higher among Gen Z (44%) and millennials (50%) than other generations . [ ]

How Much Does Life Insurance Cost?

Many people don't have a life insurance policy, or lack the coverage they need, because they assume it’s way more expensive than it actually is.

The Average Cost of Life Insurance is about $20/Month

• The average cost of a representative term life insurance policy is about $20/month (based on a 10-year, $500,000 term life insurance policy for a healthy, 40-year-old male buyer). [ ]
• About five in 10 Americans report not having any life insurance or lacking sufficient coverage. [ ]

Term Life Insurance Policies are Usually the Most Affordable

• Only 3% of Americans correctly guessed the cost of a 10-year, $500,000 term life insurance policy for a healthy, 40-year-old buyer. The largest percentage of respondents (28.4%) thought the cost was at least three times as high, and 20% guessed it was quadruple the cost. [ ]

Life Insurance is Generally Cheaper for Women Than Men

• Life insurance cost is dependent on several factors, including gender, age, height and weight, health history, nicotine and/or marijuana use, driving record, credit and criminal history and other factors. [ ]

What Factors Are Considered When Determining a Life Insurance Quote?

Companies consider your age, criminal history, driving record, gender, finances, health, occupation, hobbies and nicotine/marijuana usage when giving life insurance quotes . [ ] They don’t consider other factors such as household income, how many children you have and how many other life insurance policies you already have. [ ]

More Than Half of Americans Believe Risky Drivers and Extreme Hobbyists Should Pay More for Life Insurance

• Nearly six in 10 people (56%) believe it’s reasonable for risky drivers to pay higher premiums. [ ]
• More than half of Americans (51%) believe that hobbies perceived to be dangerous, like skydiving, should lead to higher life insurance premiums. [ ]

15% Of Americans Strongly Believe Those Who Are Not Vaccinated For Covid-19 Should Pay Higher Premiums

• However, more than two-fifths (44%) of respondents disagree that unvaccinated people should pay more. [ ]

Marijuana Usage and Life Insurance Quotes

• Nearly three-fifths (59%) of respondents to a Forbes Advisor survey on marijuana and life insurance indicated they’d have reservations about applying for life insurance if they legally used marijuana. [ ]
• More than half (56%) of respondents indicated they would not respond honestly to questions about marijuana use to sidestep higher life insurance quotes. [ ]

The Majority of Americans Believe Having Poor Credit, Using Marijuana and Having a Criminal History Should Not Lead to Higher Life Insurance Quotes

• 70% of Americans believe having poor credit should not create higher life insurance premiums. [ ]
• Nearly six in 10 believe regular users of marijuana should not have to pay higher premiums as a result. [ ]
• Less than a quarter of respondents believe that criminal history of felonies should play a role in quoting life insurance. [ ]

What Types of Deaths are Covered by Life Insurance?

A common misconception is that life insurance doesn’t cover deaths related to illnesses, including Covid-19.

Almost All Types of Death are Covered With Life Insurance Policies

• Suicide that occurs within the first two years of the policy is the only outlier that life insurance policies typically do not cover. [ ]
• Life insurance policies cover death from accidents (including car accidents), death from illnesses (including Covid-19, heart attack or disease, death from old age, death from accidental drug overdoses, homicides and death in another country. [ ]

How Much Do Life Insurance Policies Pay Out?

Life insurance claims statistics show that payouts can range from a few thousand dollars to several million dollars, depending on the type of life insurance you choose.

On Average, Life Insurance Policy Payouts Range Between $250,000 to $1 million

• The payout varies on the type of policy, coverage amount and insurance provider. [ ]
• A life insurance policy can have a payout reach several million dollars, depending on the type of policy and premium cost. [ ]

The Sum of Life/Annuity Insurance Benefits And Claims in 2022 was $797.7 Billion

• With $89.7 billion of that being annuity benefits (annuities provide a steady stream of income for one’s lifetime), and $88.8 billion being death benefit payouts. [ ]
• In 2022, the largest payout was $348.1 billion (for surrender benefits and withdrawals from life insurance contracts made to policyholders who terminated their policies early or withdrew cash). [ ]

The Smallest Amount of a Life Insurance Payout is Typically Around $5,000 to $10,000

• These policies can often have specific purposes, such as covering funeral expenses or burial costs. [ ]
• The 2022 payout of annuity/life insurance benefits follows an industry shift from traditional life insurance towards annuities. In 2022, annuities accounted for 48% of life/annuity premiums written. [ ]

Life Insurance Policies Typically Pay Out 30 to 60 Days After a Claim is Filed

• This may vary on policy terms, cause of death, claim filing timeliness and insurance company procedures. [ ]

What Can You Spend a Life Insurance Payout On?

Life insurance payouts don’t generally come with spending rules. You can use the money for anything you want.

A Life Insurance Payout Can Be Used on Anything the Beneficiary Desires

• From paying for funeral expenses and covering final medical bills to paying off a mortgage or going on a lavish vacation, how a life insurance payout is spent is up to the beneficiary's discretion. [ ]
• In a Forbes Advisor survey, Americans were confused about what they could spend a life insurance payout on, with only 50.5% of respondents believing they could use the funds for funeral/burial expenses. [ ]
• Additionally, less than half (45.7%), believed they could use the funds for recreational purposes, such as season baseball tickets. [ ]

The Majority of Americans Worry That Their Family Would Struggle to Pay Bills if They Died

• 66% of parents say they’re concerned about their family’s ability to pay regular monthly expenses if they pass away. [ ]
• More than half (60%) of those we surveyed say they are concerned about their level of debt. [ ]

25% Of Americans say They Have No Emergency Savings

• 40% of respondents say they have savings that would cover up to three months of expenses. [ ]

Who Qualifies as a Life Insurance Beneficiary?

You can pick almost anyone to get your death benefit when you pass away—but life insurance statistics show there’s a lot of confusion about this.

A life insurance beneficiary is a person or entity chosen by you to receive the benefits from your life insurance policy when you die. [ ]

Anyone Can be a Life Insurance Beneficiary, Except Pets

• This includes family members, friends, charitable organizations, children, guardians of your children, trusts, etc. [ ]
• In a Forbes Advisor survey, respondents showed confusion about who could be a beneficiary, with only 58% believing a spouse could be listed as a beneficiary, and only 18% believing a charity could be listed as a beneficiary. [ ]
• In the same survey, 12% incorrectly guessed that a pet could be listed as a beneficiary. [ ]

The Policyholder Can Choose More Than One Beneficiary and The Percent Percent of the Death Benefit Each Receives

• Some states require you to name your spouse as your primary beneficiary, with 50% of the benefit going to them. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. [ ]

Get Forbes Advisor’s ratings of the best insurance companies and helpful information on how to find the best travel, auto, home, health, life, pet, and small business coverage for your needs.

Covid-19 and Life Insurance

The pandemic has changed how Americans think about life insurance. Many people now feel a bigger push to get affordable life insurance .

The Pandemic Made American Consumers Consider Life Insurance More Seriously

• About 30% of respondents indicated the pandemic made them more likely to buy life insurance. [ ]
• About 60% reported a “heightened awareness” of the value a life insurance might provide. [ ]
• Just under half (42%) of respondents who contracted Covid-19 now say they are more likely to purchase life insurance as a result. [ ]

The Pandemic Motivated Black Americans, Millennials, Men and Those Making $150,000+/Year to Buy Life Insurance

• Millennials (45%), Black Americans (38%), men (33%) and those making more than $150,000 per year (42%) were the demographics in which the pandemic was the biggest motivator for buying life insurance. [ ]

More Than a Third (37%) of Americans are Unsure or Do Not Know Life Insurance Covers Death From Covid-19

• 63% of survey respondents correctly believe life insurance will pay to cover a Covid-caused or Covid-related death. Some respondents (12%) incorrectly believe insurers can deny claims if they are for a Covid-related death. [ ]
• The increase in life insurance claims resulting from the pandemic has not substantially impacted the bottom line for life insurers, yet 20% of survey respondents believe life insurance companies are struggling financially due to the impacts of Covid-19. [ ]

What is The Difference Between Term and Whole Life Insurance?

Both term life insurance and whole life insurance pay a death benefit to your beneficiaries. But term life is usually cheaper, while whole life comes with more features.

Term Life Insurance Policies

• Term life insurance policies are generally the cheapest option. [ ]
• The annual monthly price for a term life insurance policy doesn’t change throughout your coverage period (10, 20, 30 years, etc.). You can usually renew your term policy once it ends, however, your new premiums can be more expensive. [ ]
• You don’t build cash value with term life insurance policies, meaning you cannot withdraw any funds you’ve contributed to this policy at any time. ​​ [ ]
• The percentage of Americans who have term life insurance decreased to 48% in 2019 from 52% in 1998. But the median face value of these policies rose to $110,000 from $60,000 during the same period. [ ]

Whole Life Insurance Policies

• Whole life insurance policies are significantly more expensive than term policies. [ ]
• A whole life insurance policy also has fixed monthly premium pricing, however, you can build cash value with whole life insurance policies that can be withdrawn while the policy is active. [ ]
• Whole life insurance policies cover you for your lifetime, as long as you continue to make payments. [ ]
• Both term and whole life insurance policies provide a guaranteed death benefit, however, the death benefit could be reduced in a whole life insurance policy if you withdrew cash value while the policy was active. [ ]
• The percentage of Americans who have cash-value life insurance policies dropped to 20% in 2019 from 30% in 1998. At the same time, the median face value of these policies increased from $45,000 to $50,000. [ ]

Life Insurance Market

The life insurance industry is a huge part of the American economy—and it continues to grow year over year.

How Much is the Life Insurance Industry Worth?

• Insurance is a trillion-dollar industry in the United States ($1.4 trillion in 2021), and the life insurance sector is one of its largest and most important components. [ ]

Life Insurance And Annuities Were Responsible For Nearly Half (47%) Of The American Insurance Industry’s Net Premiums In 2021

• Life insurance net premiums surpassed $635.8 billion in 2021. [ ]
• Revenues taken in from life insurance premiums are on the rise overall (up 3.5% from 2021 to 2022), however, annuity premiums and deposits were up 20% from 2021 to 2022. [ ]

Life Insurance Buying Statistics

The statistics are clear—the more you know about life insurance, the more likely you are to sign up and have the right amount of coverage. Use a life insurance calculator to estimate your needs.

Americans Who Feel Knowledgeable About Life Insurance are More Likely to Enroll Than Those Who Aren’t

• Three in 10 Americans (31%) of Americans report feeling ‘extremely’ knowledgeable about life insurance. [ ]
• Research shows that those with more knowledge about life insurance are more likely to have adequate coverage. [ ]
• About three-fifths of Americans believe life insurance coverage is only for burial and final expenses, however, a life insurance benefit can be used to supplement lost income, or for whatever the beneficiary chooses. [ ]

It’s Estimated That More Than 100 Million Americans are Either Underinsured or Uninsured

• Simplified underwriting, or simplified issue life insurance , allows Americans to get approved for a policy more quickly and easily (for one, it forgoes a medical exam) but carries certain drawbacks as well. Roughly half of Americans would be more likely to seek life insurance coverage if simplified underwriting were used. [ ]
• Among the younger generations, members of Generation X are more likely (52%) to consider simplified issue life insurance than age groups (47%). [ ]

What Types of Life Insurance Do Americans Buy?

You can usually get life insurance on your own or through an employer.

Individual Life Insurance Policies Are the Most Common

• 64% of all life insurance policies in the U.S. are individual plans, which include both term and whole life insurance policies. [ ]
• Term policies accounted for 40% of individual life insurance policies purchased in 2021. [ ]
• Whole life insurance policies accounted for 60% of individual life insurance policies in 2021. [ ]
• Although whole life insurance policies were purchased more commonly than term policies, term policies accounted for 71% of the individual life face amount (the amount of money the insurer agreed to pay the beneficiaries if the insured passes away) while whole life insurance policies accounted for 29%. [ ]
• Individual life insurance policies totaled $13.6 trillion in 2021, a 2.1% average annual growth rate since 2011. [ ]

Many Americans Rely on Employer's Group Life Insurance Coverage

Many employers offer group life insurance as a workplace perk at a low-or no-cost to employees. [ ] But group life insurance is called supplemental life insurance for a reason. The coverage is usually limited to an amount predetermined by the employer—such as one year’s salary—and is usually only active if you stay with the company. [ ]

Relying solely on workplace life insurance may leave you underinsured. You could also risk losing your policy if you leave your job. Instead, buy an individual life insurance policy with a death benefit and length of time that best fits your needs.

Inheritance and Lost Income are the Top Reasons for Buying Individual Life Insurance

There are many reasons you may decide to buy an individual life insurance policy, even if you’re covered under an employer's group life insurance policy. Based on a Forbes Advisor survey:

• Nearly half of respondents (44%) say they have purchased life insurance outside of their employer’s policy. Of those who did so, 46% say they did it to provide an inheritance. [ ]
• Nearly one-third (29%) want life insurance to replace lost income for their beneficiaries. [ ]

Why Don’t Some Americans Purchase Life Insurance?

Despite the many benefits of life insurance , there are still several reasons people hold back from purchasing a policy.

Americans Cite Cost, Other Financial Priorities and Confusion as Reasons to Not Purchase Life Insurance

• 42% of Americans report not purchasing life insurance because it’s too expensive. [ ]
• 28% of Americans report not purchasing life insurance due to other financial priorities. [ ]
• 23% of Americans report not purchasing life insurance because they are unsure of their needs. [ ]

82% of Americans Overestimate the Cost of Life Insurance

• 82% of consumers think the cost of coverage is three times more than it is. [ ]
• A quarter (26%) of Americans believe life insurance through their employer is sufficient, while the average payout sum is $20,000, or one year’s salary. [ ]
• Not purchasing the proper amount of life insurance can lead to significant financial hardship for families, especially for the 54% of American households that rely on dual incomes. [ ]
• 44% of families would face financial hardship within six months of losing a household member’s income, while 25% would struggle after just one month. [ ]

Black Americans, in Particular, Commonly Report Life Insurance Being too Expensive

• LIMRA reports that Black Americans are more likely to overestimate the cost of life insurance than the general population. [ ]
• The median coverage amount for white Americans with life insurance ($150,000) is three times higher than that of Black Americans ($50,000). [ ]

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Disclosures

• American Council of Life Insurers
• Forbes Advisor Survey, August 2023
• Forbes Advisor Survey, April 2022
• Forbes Advisor: Average Cost Of Life Insurance In February 2024
• Forbes Advisor Survey, June 2022
• Forbes Advisory: 10 Factors Affecting Life Insurance Rates
• Forbes Advisor: 82% of Americans Overestimate The Cost Of Life Insurance
• Forbes Advisor: How Does Life Insurance Work?
• Annuity Expert
• Insurance Information Institute
• Forbes Advisor Survey, January 2023
• Forbes Advisor: What Is A Life Insurance Beneficiary?
• Forbes Advisor: Term vs. Whole Life Insurance: What’s The Difference?
• Forbes Advisor: Group Life Insurance Policy: Defined And Explained
• Affects Of Covid Deaths On Life Insurance Rates
• Americans Have False Perceptions Of High Cost of Life Insurance
• Americans Overestimate The Cost Of Life Insurance
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Cassidy Horton is a finance writer covering banking, life insurance and business loans. She has worked with top finance brands including NerdWallet, MarketWatch and Consumer Affairs. Cassidy first became interested in personal finance after paying off $18,000 in debt within 10 months of graduating college. She later went on to triple her salary in two years by ditching her 8-to-5 job to write for a living.

Kelly Anne has over six years of experience with reporting and editing in the personal finance space. Her work has been featured in national publications including Reader's Digest, CNBC and Forbes. She has a background in business education and a master's degree in international communication studies.