What is a financial plan?

Financial plan

What is a financial plan?

The purpose of a financial plan is to provide a numerical translation of strategic objectives and the business plan, while also establishing milestones to be achieved over time.

A financial plan comprises an investment budget, a financing budget, an operating budget, and a liquidity budget.

Through an investment budget, a company outlines the investments it needs to make now and in the future to sustain its business. This includes purchases of buildings, machinery, vehicles, inventory, as well as investments in stocks and other resources necessary to initiate business processes.

The financing budget details how the planned investments will be funded. This can be through the use of own capital (equity) and through loans (debt).

The operating budget calculates whether the company will be able to generate profit. It includes an overview of costs and revenue.

Finally, the liquidity budget (cash flow forecast) is a summary of expected expenditures and incomes over a certain period. This allows you to see whether there are sufficient financial resources available in each period to meet all payment obligations.

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Also read Successful entrepreneurship can be learned.

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