How to understand a financial plan?

How to understand a financial plan?

If you’re looking for help on how to make your financial plan, you’ve come to the right place. To begin with, you must have in mind that this is a document with a certain level of difficulty, because you need to understand your business in numbers to know how you will be able to grow over time.

In this blog we are going to share what is the objective and the bases for you to start your financial plan.

What is a financial plan?

Technically, it is a document that contains the economic objectives of a business, as well as its projections and strategies to achieve the proposed objectives. Simply put, here’s a roadmap with information to achieve a certain amount of profit, over time and with an initial investment. It is important that the financial plan always takes into account current market and business conditions.

What are your objectives?

Your main objective will be to define the most suitable strategies to achieve the economic purposes of your business. Once you have this clear, the next step is to understand if it is profitable or not. If it is profitable, you have already taken an important step, but if it is not, don’t worry, you can still review all the variables and find alternatives to achieve it. Within these alternatives you will be able to understand what is the liquidity with which you have and in case you do not yet reach the solvency necessary for your business, you can identify the possible sources of financing.

Why is it important to have one?

Knowing your numbers is vital. To get started, you need to know the most important investment you should make; it also helps you manage your resources more efficiently and effectively. Know your financial needs in detail and at the same time determine which financing methods would be ideal for you to keep moving forward.

Glossary of a financial plan:

  1. Asset quantification: Subtracting assets minus liabilities will result in current equity.

    • Assets: resources that will generate a future profit, which are already in the business and could eventually be profitable. - Example: cash, equipment, furniture, real estate, inventory, raw materials, among others.

    • Liabilities: obligations or debts that will generate an outflow in the future. Ex: loans.

  1. Cash flow: is the collection of the net outflows and inflows of money that your business has over a certain timeframe.

  2. Definition of objectives: For this part you can help you from the SMART methodology (Objectives that are (S) Specific (M) Measurable (A) Achievable (R) Relevant and (T) Established in Time.) The financial plan should allow you to:

    • Establish the investments you need.

    • What are your best sources of financing.

    • Projection and sales plan.

    • Break even.

    • Feasibility of the project.

This is the basic information you need to work, do not forget to visit our blog every week, we will have more articles that will help you in this interesting process of undertaking and not fail in the attempt.

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