Yearly Financial Planning

Posted on 08/09/2017 at 12:00 AM by Shannon Hoyle

Written by Dan Burden, AgMRC Program Specialist.

Most experts would say that the results of this process are far less important than the process itself.  This is misleading, all planning of this type may seem superfluous and stupidly time consuming in light of the day-to-day management and running of the business.  Both outcomes are important.  Part of the plan is actual record keeping; along with a projection, essentially a budget, and everyone except the most demented and insane accountant, hates the very thought of one, much less having to build the thing and try to stick to it.

This is, however, an important exercise.  It is critical and required for a new venture seeking funding.  For an existing business, yearly strategic financial planning allows a break from the day-to-day focus and paints a picture of how the business is a living being with monthly and seasonal consistencies and inconsistencies.  Having an idea of the regular and irregular costs of running the company, where and when are the greatest expenditures, and where, when and what you can expect in the way of income, can give you some peace-of-mind and is key to developing the knowledge base to adapt and grow your business.

Change is constant, and in its many forms is the greatest source of stress in people’s lives.  Strategic financial and related business planning allows you to translate your company's goals into specific targets to achieve targeted results by developing milestones toward sustainable successes.  Strategic financial planning helps you manage and direct change; this reduces business-related uncertainty and stress.

At the end of the fiscal year, one can look at the projections and determine if they were close (good) or not close (also good).  If they were close, the picture is reasonably accurate.  It will reveal places where greater efficiency, or the expansion or removal of something can pay off.  If the projections were off, again, there should be some clear reasons why this was the case, and those factors can be reflected in the next plan.  Build detail into your budget and reporting forms.  Include categories for cash-in, cash-out, and expenses.  If it is a regularly occurring income or expense, it my warrant its own column in the spreadsheet.  If you do not have any idea how to structure it, no worries, there are free downloadable financial and business plan templates available from CDs included with books available at your local bookstore, and from the Small Business Association, university extension services and other websites.  It is always a great idea to get feedback on your chosen model from your local business-development outreach professional, accountant or tax professional.

Strategic financial and related planning has several key dimensions and covers several areas.  The model begins as a 12-month budget projection with monthly updates of actual data against and alongside projections.  One option is to express these within quarter-year groupings.  This, usually a spreadsheet projection; and descriptive text: a concise three- or five-year strategic plan that is essentially a goal-oriented forecast for planned mile-stone-based growth.  These can be bullet-pointed items and where needed more complete and detailed text.  Be sure to clearly explain and justify all objectives and assumptions.

For start-ups and businesses developing business plans that will be used to seek funding from banks or investors, the 12-month projection component of the plan should be expanded to three, five or seven years.  This should reflect investment- and debt-capital funding, needed investment in planned infrastructure or staff expansions, depreciation and its effect on taxable income, and the changing profitability of the venture.

This is an important document for many reasons.  The time you and others spend creating and reviewing it will pay off in the future.  Be prepared to share the document.  You must have it if you want to secure a loan and prove your ability for making loan repayments and illustrate the timeline for doing so.  This is an extremely important and required piece of the package for anyone preparing to submit an application for a Value-Added Producer Grant, Rural-Development Guaranteed or Small Business Administration Loan or similar funding.  You will need, at the very least, a simple business-plan statement and a number of financial statements (balance sheet, profit-loss statement).  More detail always makes a better plan and a more complete and better application.

Financial plans and written business plans are living documents, as they mature they get better and encompass more key detail.  For this reason, variance from projected results, will provide early warning of problems hidden in daily operations, determine the positive or negative impact of unplanned events; as well as determine the financial impact of the resulting positive impacts or corrective actions, and ways to incorporate needed changes into future operations.

Additionally, any sound financial planning helps anticipate receivable- and inventory-cash-flow shortages, regular tax- or licensing-related action dates and similar events.  For some business types, for example, a restaurant, a daily or weekly cash-forecast model may be included in the plan.  Focus on total cash flow, not profit.  It provides a very clear picture of money in and money out, where, when and why.

Overall, constructing this document provides insight into how your business breathes money.  It will show you ways to be more efficient, why you should collect bills in a timely manner, and “when to buy new” and “when to dump old.”  The document also can reveal hidden tax and depreciation issues, inventory and storage constraints, suggest ways to manage health care and manage other costs.  In total, it will show you where and how you profit and why you are in business.


AICC Purdue University: The Elements of a Business Plan: First Steps for Entrepreneurs.  

AgMRC: Business Plans  

AgMRC: Writing a Value-Added Business Plan

SCORE: Business Planning and Financial Template Gallery Financial Projections.   

Projecting Your Business Cash Flow, Made Simple.

SBA: Bare Bones Business Plan for Any Business 

SBA: On-Line Learning Center (a wealth of subjects)
SARE: Handbook 6: Building a Sustainable Business: A Guide to Developing a Business Plan for Farms and Rural Businesses. (book or download, templates) 

Street Wise Business Plans (Cagan). (book or download, templates)
Entrepreneur Magazine: Start Your Own Business, 6th Edition (Lesonsky). (book or download, templates).  

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