A financial planning report gives you a clear overview of your business’s financial status, including your goals and strategies to achieve those goals. It serves as a roadmap that guides you through running your business profitably and strategically. Secure a strong financial foothold by learning how to write a financial planning report.
In this article, we’ll walk you through:
- What is a financial planning report?
- What should you include in your financial plan?
- How to write a financial planning report?
- Why is financial planning important?
- When is the best time to prepare a financial plan?
- Work with a professional accountant
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What is a financial planning report?
A financial planning report is a document that gives you a clear overview of your business’s financial status. It summarizes your:
- current financial position,
- cash flow (inflows and outflows),
- growth projections,
- sources of funds,
- information on your reserve funds,
- business goals (short, medium and long-term) and
- strategies to achieve those goals.
What should you include in your financial plan?
A good financial planning report must contain information on your:
- Profit and loss statement (P&L): Shows how much money your business makes minus the expenses.
- Balance sheet: Contains information on these three important components: assets, liabilities and equity.
- Cash flow statement: Tells how much money goes in and out of your business and whether you have enough liquid assets to remain operational.
- Sales or revenue projections (sales forecast): Shows how much revenue you expect to gain over a certain period.
- Break-even analysis: Determines how much you need to sell to cover business expenses. It’s the stage at which total revenue equals total costs.
- Business tax statement: Shows how much tax your business needs to pay. Company tax rates may change so it’s crucial to be updated on the adjustments made by the ATO – you can check out the ATO website for updates.
- Goals: Highlights the desired financial results of your organization. It can be a short-term, mid-term or long-term goal.
- Strategies to achieve your business financial goals: Details the methods and steps to follow to achieve your financial goals.
Ask your accountant or financial advisor which information to include based on your industry and entity type to ensure all pertinent pieces of information are covered.
Now that you have an idea about the types of information to include, let’s proceed to the step-by-step process of preparing a financial plan report.
How to write a financial planning report
A financial planning report guides your business and its stakeholders in allocating resources to different business initiatives. As a guide, it must be flexible and easily adjusted based on your current needs. For example, if emergencies (e.g., sudden Covid-19 lockdowns) occur, how will you adjust your funds to meet your obligations?
It’s ideal to prepare this document along with other decision-makers. If you’re a sole trader, you can still do this by yourself. Regardless of your business type, it’s best to work with an accountant or a Chief Financial Officer (CFO) to get professional insights.
Check out the tips below on how to write a financial planning report.
1. Define your financial goals
Well-defined financial goals are essential to creating a well-thought-out financial plan. If you have clear objectives, you can be more intentional about saving, spending and investing money.
2. Summarize essential financial statements
Information about your goals and current financial position go hand in hand. You need to assess your financial statements to determine the feasibility of the goals you set.
For reference, check out the types of financial statements we have outlined in the section above.
3. Assess your risks
List down any potential threats to help you prepare financially for such occurrences.
Business.gov.au, Australia’s official website for the business community, enumerates the types of risks your business may face:
- Opportunity-based risk: A type of risk that comes from choosing one opportunity over other opportunities. Examples: buying a new property, moving to a different location.
- Uncertainty-based risk: This type of risk is caused by unknown or unexpected events. Because it’s hard to predict, it’s crucial to develop an emergency management plan and set aside an emergency fund for these events. Examples: natural disasters, economic downturn, decrease in market share.
- Hazard-based risk: It refers to a risk that comes from possible dangers at work such as equipment hazards (e.g., faulty equipment), ergonomic hazards (e.g., poor workplace design), psychological hazards (e.g., heavy workload and discrimination), etc.
4. Create a budget
Prepare a budget based on your goals, financial position and risks. Consider your liquid assets and other available funds to determine how much to allocate for each project. In addition, figure out the amount to save up to build your emergency fund.
Your budget must be on a weekly, monthly, quarterly or yearly basis. This will help you become more familiar with your regular business expenses, the amount you can save and the opportunities to cut costs and increase revenues.
5. Look for professional help
For extra guidance, consult with your accountant or financial advisor when writing your financial planning report. By doing so, you can be confident that you’ve covered all relevant information to make your financial plan as helpful as it can be.
Why is financial planning important?
Learning how to write a financial plan is an essential business skill. When you have a comprehensive financial plan, you can:
1. Understand your finances
A financial plan contains information from different financial statements such as cash flow, profit and loss (P&L) and balance sheet. It shows the summarized version of your financial status, making it easier to understand your finances better.
With a good understanding of your finances, you can prepare for any potential roadblocks and create strategies to grow your business.
2. Set realistic goals
A financial plan guides you in setting realistic expectations based on the current situation of your business. Knowing your financials inside and out enables you to determine which projects to prioritize. At the same time, it can pinpoint your low and high-performing business areas and help you decide where to focus your efforts.
3. Apply for business funding easier
Small businesses with a thorough financial plan are more prepared to pitch to investors, submit the necessary paperwork to secure loans and apply for government support.
Read Next: 3 Reasons Why Financial Planning is Important
4. Prepare for emergencies
The havoc caused by the Covid-19 pandemic on many small businesses is still fresh in our minds. Businesses were doing well. The foot traffic was consistent. Then suddenly, we had to stop our business or find ways to operate it from home. Our income either stopped completely or was impacted in one shape or another. Despite this, expenses continued to flow.
A financial plan does not only help us budget our resources for short-term and long-term goals. It also empowers us to prepare for the worst, especially in terms of how much emergency funds to set aside to continue operating amid catastrophic events.
When is the best time to prepare a financial plan?
Financial planning is an ongoing business activity. That’s why it’s a good practice to review your financial plans at least once a year, specifically during the start of the financial year.
Apart from it, you must also review and prepare your financial plans when:
- you’re preparing for a huge business project,
- emergencies occur,
- your business is undergoing a drastic change or
- market or industry trends change, causing your financial plans to become outdated.
As we’ve mentioned before, your financial planning report must be as flexible as possible to allow iterations whenever the situation calls for it.
Work with a professional accountant
Do you need help in writing your financial planning report? Our accountants and CFOs at ABJ Solutions are at your service. For years, we’ve helped our clients develop sound financial plans to guide them through their financial journey.
If you need more information about our service, contact us today.
