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Financial Planning – Hints & Tips

Why is Financial Planning Important ?

  • Helps you run your business more effectively

  • Speeds up decision making because you have a better understanding of all  the implications

  • Helps you avoid or minimise problems

  • Helps you demonstrate tight control to other stakeholders e.g. banks, shareholders

  • Helps you sleep ……………..!

  • But it’s got to be “good” planning, not just done for the sake of it

  • Put financial planning and cash-flow planning at the centre of your business

  • Ensure good financial disciplines are in place as standard


Understand your Audience and their needs

  •  External e.g. Bank or Venture Capitalist or Business Angel – they sometimes need different information and approaches, so make sure you understand their objectives

  • Internal e.g. Internal Investors/Board/Management Team or Staff – your objectives might be motivational, getting their buy-in, support etc

  • The Financial Plan needs to look professional and be credible – your audience has to believe the financial plan is rigorously prepared and can be achieved

  • If previous financial forecasts have been accurate show them as well as the actuals achieved – this gives third parties confidence in your forecasting ability

  • Need to understand what you are trying to achieve

Trying to estimate your Funding requirement?
Return on investment calculations?
Planning in order to obtain a company valuation?


Time Periods

  • Up to 5 years possibly but might be less depending on your audience and circumstances

  •  Forecast by month initially, then maybe quarters

  • Include historical data to set the scene for the forecast

  • Historical data is your starting point for key assumptions

  • Spend time making sure the key assumptions are realistic


Where to start?

  • Identify all the material headings you need to forecast

It makes life easier if you forecast using the same headings as used in management accounts
Bundle some smaller headings together

  • Make simple assumptions initially (refine later) and build the model logic – critical to let Excel do the work, try not to hard code all data, but create linkages ….

  • Don’t forget to include VAT, Corporation Tax, Dividends – they all affect cash!

  • Balance Sheet – forecast fixed assets, debtors etc

Cash will be the balancing number

  • Record your major assumptions

Make sure your assumptions are realistic
Poor assumptions = poor forecast so research them and make sure they are reasonable
Continually review and revise as you get better information, and
Improve the logic of how important data is calculated


Key Metrics

  • Include a dashboard so you can easily see Key Performance Indicators (KPI’s) important to your business e.g.

Change in order book each month
Percentage increase in sales each month
Change in cash balances forecast each month
Increase/(decrease) in working capital requirement

  • Consider using graphical data for summary important data – it’s easier for people to understand

  • Trend data important – are the trends getting better/worse?

  • If worse – decide what you are going to do about it ……


Other tips

  • Prepare a “Base Case” model that you feel is realistic

  •  Spending time thinking will help you understand the dependencies

  • Learn from the process, prioritise areas of importance

  • You can make business decisions with more confidence

  • Once the Base Case is fixed then flex some key assumptions and see what effect they have on say your Funding Requirement e.g.:

  • Sales are reduced by 20% or delayed by 3 months

  • Debtor days increase from 30 days to 45 days

  • Rent review 25% higher than you hoped

  • Pick sensitivities relevant to your business

  • Financial planning is critically important

  • It’s not just for the bank, it helps you run the business!

  • Don’t kid yourself, it has to be credible

  • Helps you sleep at night – you have control

  • Don’t treat as one-off, update regularly, LEARN LEARN

  • Takes time to set up but not long to update each month

  • Adopt an approach of continual improvement

  • Others can help, but the owner/MD/FD has to take responsibility


“Good fortune is what happens when opportunity meets with planning”. Thomas Edison

If you need any help with these or any other business related issues please contact LAUDIS Business Advisors

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