Financial planning – 6 steps to a successful plan

Good planning is important for both startups and established businesses, and a financial plan is no exception.

So to help you get your financial plan right we asked Robin Booth of to outline the 6 steps you need to take to develop a coherent, holistic financial plan for your business.

As a new business owner, you have probably never had to produce a financial plan, so it can definitely be a daunting prospect. However, investing a little time and effort in making a financial plan for your new business can save you a lot of money and pain down the line.

When it comes to producing a financial plan, you’re probably asking yourself, Where do I begin? And what do I need to include? These are all great questions. And in my opinion that’s what a financial plan should start with – questions.

Step 1. Scope it. Identify why you are planning and the results you need

Figuring out what questions your plan needs to answer is the first step towards building a financial plan. In many cases your plan will look at the entire business, including all of its financial activities. You will still need to gear your plan towards producing the type of results you need.

Consider, a business with stores in London, Manchester and Birmingham. It sells laptops, desktops and tablets. It has several additional channels that it sells a variety of computer hardware from online. It’s looking to move into software, as well as expanding into new sales channels through partners.

There are many ways we could organise the sales and expenditure of this business into different structures that we can report on. Which structures we choose will be informed by the purpose of the plan. Are differences in product the most central concern, differences in location, or channel?

Even if you are just building a financial plan to identify the ramifications of pursuing a particular project, you should consider making this project plan part of a larger business plan.

Projects rarely happen in complete isolation, and without understanding the consequences of challenges the project could face (higher costs, longer completion time, etc) in the light of a full business plan it will be hard to judge the project itself in a clear light.

At the simplest level, identify what your plan needs to produce. This might be a cash flow forecast, Profit and Loss statement and balance sheet to satisfy an investor or lender. If so, your goal is clear, but you will still have to anticipate the kind of questions that will be asked of these reports;

“Explain why your sales increase so rapidly?”

“Can you cover these loan repayments if you don’t get this contract?”

Your plan should be built in such a way that these kind of questions can be answered quickly and transparently.

Step 2. Collate your figures

It goes without saying that you will need to gather as much financial information as possible about your business as possible. You can broadly split this into 4 areas:

Income (your revenue). Find out…

  • What are your different products/services?
  • How much do you charge for each? (make note of any appropriate discounts)
  • How many of each do you sell, on average?
  • Do you sell more at different times of year? How much more?
  • How quickly do you get paid?

Costs (your expenditure/bills). Find out…

  • What are your costs and how much do you pay?
  • How often do you pay them?
  • How quick do you have to pay?

Assets (things you own/buy) Find out…

  • What does the business own?
  • Do these assets reduce (or gain!) in value?
  • How often do you have to replace them?

Funding (debt/shares/capital) Find out…

  • How is the business funded?
  • Who owns shares in the business?
  • What financial obligations, if any, does the business have to its funders?

This is going to be a bit of a different exercise if the business doesn’t exist yet, but there are still a lot of operational costs and price points that you can get figures for.

Step 3. Do your research

You’re making a financial plan – which means you’re not just extrapolating figures. Depending on the choices ahead of you and the questions your plan is designed to answer, you will need to know more than just the business’ existing financials (if it has any!).

Research the scenarios that you are likely to be planning. What kind of price rises should you consider? How – mechanically – should you build you plan to effectively test this?

Here are some things to consider, but this list will vary a lot depending on your business and how long you are planning for:

  • Realistic prices for deals with suppliers
  • Likelihood of price rises
  • Competitor research – what pricing and strategies do your competitors adopt?
  • Customer research – what is the market for your product/service?
  • How inflation affects the industries you deal with
  • Taxation and how it could affect your plans

If you are basing some elements of your plan of analysing competitors, prices for good and services or other real-world data (including data on your business), it pays to organise this information well.

Keep the information you gather clearly documented in case you need to cite it later. This not only gives you peace of mind that you can track the provenance of the data you are using to plan, it will also give investors and lenders confidence that you have this information at your fingertips.

Step 4. Put it together

Now the exciting/tricky part!

Putting all of this together. If you are not confident putting a financial plan together yourself there are lots of tools available online to help you with this process. There are also a lot of guides available which cover this in depth.

By this stage, you will have a lot of information available to you to build your plan with. The key thing is to keep in mind step 1 – why you are building the plan and what it needs to produce.

Step 5. What did I miss?

Almost inevitably, something will get forgotten or will change during the time you are building your plan. Unless you have an exceedingly good financial/research infrastructure to help you this will probably happen.

But don’t despair! It’s the nature of planning any complex system. Even if you don’t think you have missed anything, take some time to be certain.

Just bear in mind, your plan can be as top-level or as complex as you want to make it. If your requirement is for a top-level 10 year plan then there are some things that are going to be too small to be worth considering (unless they are % points on anything… trust me).

Step 6. Test, test, test

The plan you have built is just a single answer to a set of complex questions. It needs to be flexible and it needs to be tested.

Find out what happens to your plan in different economic conditions. What happens if you don’t increase sales as quickly as you thought you would? And what happens if you sell even better than you predicted, can the business scale to supply this unexpected demand?

The importance of testing financial plans is a bit of a hobbyhorse for me, but it is the cornerstone of leveraging the data in your financial plan. If you only plan for one future, you might get a surprise when the other futures happen to you!

This article has been written exclusively for ByteStart by Robin Booth of the financial forecasting app that turns your ideas into numbers. Robin is a regular ByteStart contributor, and other articles he’s written to help business owners to get to grips with forecasting include;

Last updated: 22nd March, 2022

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