How to Make a Financial Plan: Step by Step

For a company to succeed, it is essential to have the numbers in order, and achieving a positive balance at the end of the fiscal year relies on a solid strategy. Here’s a step-by-step guide on how to create a financial plan. This roadmap sets the medium- and long-term future of any project, making it an indispensable skill for building a career in business.

What is a Financial Plan?

A financial plan is a key tool for any type of company, from SMEs to large corporations, and even non-profit organizations. Without this planning related to finance, it is difficult for an initiative to survive. Therefore, the financial plan is an essential aspect that business owners, entrepreneurs, and professionals seeking specialization in management, administration, and related fields must understand.

In summary, the following points highlight what a financial plan is:

• A tool designed to understand the economic reality of a project.
• Used both to analyze the present and to allocate resources to achieve future goals.
• It should be developed by a specialized team and executed and supervised by trained professionals.

Components of a Financial Plan

Creating a financial plan requires in-depth knowledge of the tool, as mentioned above. For it to work effectively, it must include several key components of a financial plan, without which it cannot be fully effective. Here’s what is required for this methodology to be truly effective:

• Balance Sheet

First, it should include a diagnosis of the company’s current situation to understand the starting point: what resources are available and what will be needed.

• Business Budget

Establish which financial resources will be allocated to each area: administration, sales, marketing, human resources, etc.

• Income and Expenses Statement

Another essential part of the financial plan: how much is being spent? This includes utilities, personnel costs, and other operating expenses. Also, how much revenue is generated and from which sources.

• Investment Plan

Determine which projects are currently underway and their requirements. In parallel, define goals to align the investment plan with achieving those objectives.

• Results Forecast

It is essential to include a final summary that forecasts results. Considering expenses, income, planned investments, cash flows, and other factors, this provides a financial health projection of the company.

How to Create a Financial Plan

Implementing a tool like this requires specialized knowledge. That is why courses such as an MBA or degrees in Business Administration and Management cover how to create a financial plan. Both theory and practice are important, as it is essential to show real examples of applying this tool.

At the EAE Business School, two programs are perfect examples of this, covering both what a financial plan is and how to execute it, along with its benefits. One is the Master in Financial Management, and the other is the Master in Finance.

In both cases, special attention is given to both the definition and the step-by-step process of creating a financial plan. Essentially, there are several steps to follow to ensure effectiveness.

• Step 1: Analyze the Company’s Situation

Assess the current state of the business, including its financial reality and accounts. It is essential to be honest and transparent when evaluating the company’s economic situation.

• Step 2: Set Goals

Determine the objectives to achieve in the medium and long term. Financial plans can be created for both short-term and long-term goals.

• Step 3: Identify Necessary Resources

Determine what is required to achieve the goals, including existing finances, available resources, and potential financing options, such as investors.

• Step 4: Structure Resource Allocation

Smart management of resources is a key to success. It is not only about quantity but also quality. Properly managed small resources can lead to significant achievements.

• Step 5: Plan for Contingencies

Unexpected situations will always arise. Being prepared allows the company to respond quickly and effectively, ensuring the financial plan remains on track.

In short, this is what a company’s financial plan entails. The value of this tool is clear, and it is vital for a company’s future. It is an essential subject for professionals specializing in project management and administration and should be included in any comprehensive curriculum.

Benefits of a Financial Plan

What can be achieved? What are the benefits of having a financial plan? The advantages of this tool—and also of using a financial model—for managing your organization or a future project include:

1. Assess the present: for a new company, know the resources needed and those already acquired; for an existing company, understand the financial status and overall situation.
2. Set challenges that require financial resources: define goals, make predictions about required resources, and identify sources to obtain them.
3. Project the future: determine the desired business direction, growth pace, revenue alternatives, and access to investors.
4. Provide credibility for securing external financing. Without a financial plan, it is difficult for entities to trust the proposed project.

Financial plans can be designed to establish a roadmap:

• Short-term, for achieving concrete and immediate objectives, such as liquidity for international expansion.
• Long-term, as part of the overall business plan.