How to create and improve your financial plan in 2022

Charts of ROI, Revenue Development, Profit and loss statement, loan bank and overhead
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The financial plan – one of the most feared and problematic areas. An essential for businesses to convince investors, banks, internal strategy and essential for business plans. It is definitely easier to improve your financial plan than creating your first one from scratch. Still, both scenarios require the same amount of detailed work and structure

How to approach writing a financial plan in an efficient way

Give me six hours to chop down a tree, and I will spend the first four sharpening the ax. – Abraham Lincoln

When it comes to efficiency, we highly believe in having a plan of action. The same goes for the creation of a financial plan.

— Our recommended strategy —

Go from as broad as you can to as detailed as possible. Use these three levels of questions to get started:

  1. Which areas do you need to cover in your financial plan? Who will read it? What do you want to achieve with it?
  2. Which areas do you have a lot about already, and which areas seem more problematic for you?
  3. In the specific problematic area, what exactly do you need to know or to do to make it less problematic? How to make it more successful?

You see, by going from broad to detailed, you’re able to deconstruct a complex topic into a manageable topic. Use these three levels of complexity breakdown to improve your financial plan. We recommend getting help from experts to work on those problematic areas.

You might already know from our other business development articles, we like to go deep. We like to solve real problems, give guidance and practical advice. All that being said, let’s dive deep into what a financial plan needs.

Which areas do you need to cover in your financial plan

Without any further ado, these are the seven essential areas that every financial plan should have.

  1. Profit and loss statement
  2. Liquidity plan
  3. Cash flow statement
  4. Overhead budget
  5. Sales plan
  6. Loan bank (if applicable)
  7. Break-even analysis

Depending on your company’s situation, you will need to shift your focus slightly.

If you’re writing a financial plan for an existing business, you’re in the best possible position. You can use historical data to support your projections. Things look different if you’re writing a financial plan for a new startup. You probably won’t have any previous financial information. In that case, we recommend focusing more on trust-building facts. Any experiences you had with businesses, or successes you had with finances. Be able to justify your assumptions with real life examples and statistics. Of course, all besides your prospective data.

1. Profit and Loss Statement

A Profit and Loss Statement is a way of measuring a business over a particular period. Among others it measures turnover, direct costs related to your product, overhead and

The profit and loss statement is a comparison of expenses and income of a period for the purpose of determining the company result and presenting its consolidated sources.

The profit and loss statement is all about income projections for the next few years.

2. Liquidity Plan

Liquidity planning is one of the most important sections in your financial plan. It shows the ability to pay receivables at all times. To put it in business phrases: The liquidity plan exists to ensure that a company can remain solvent for the foreseeable future.

You might ask “All I want to do is win, why should I bother with surviving?”.

While it is good to win, things can go down anytime. Challenges will occur. Even another pandemic like Covid-19 might happen. And you need to show that you’re prepared for all possibilities. Equally important, you need to make the impression of being prepared. Especially in front of your potential investors and your loan bank.

As you might know from having a business, it’s not only about actual value but about perceived value. You need to work on both to get their support, investment, and trust.

Note: It is always good to have a buffer or follow-up financing option, as most of the time something doesn’t work out as planned. E.g. higher development costs, failure in production, higher rates of return.

3. Cash flow Statement

An often misunderstood area, the cash flow statement. You might already know this fact: “Profit is not cash”.

Even profitable companies can run out of cash. Sadly, some companies and entrepreneurs need to learn it the hard way. We don’t want you to experience that situation though. Make sure to know your numbers and manage your cash accordingly.

While profit and cash are bound to each other, they can affect each other differently.

We recommend spending your cash rather with an investing attitude. New equipment and assets will reduce your cash for the moment, but not your profitability.

So how do you start then?

You can choose one of two options. The direct or the indirect method.

The direct method, as the name states, is pretty straight forward. Your projected cash flow results in cash received subtracted by cash spent.

Direct Method: Cash Flow = Cash Received – Cash Spent

Let’s have a look at the indirect way.

You create the indirect cash flow statement by:

  • taking your net income (your profits)
  • listing everything that impacts profit
  • adding it up

Remember, profit does not equal cash.

While both ways work, a bank or investor might want one over the other. We recommend the indirect way, as it is often perceived as more fact-based than the direct method.

4. Overhead budget

Here’s what the overhead budget is about in one short sentence.

The main mission of the Overhead Budget is to forecast and present all the expected costs occurring in the next years. This usually focuses on costs around the manufacturing of the products or providing the service.

This may include:

  • Employee costs
  • Website Development
  • Insurance expense
  • Rent expenses
  • Transportation/delivery costs
  • Utility Expenses
  • Maintenance Cost

The overhead budget is pretty straight forward in its creation. List up everything that keeps your company together, and fuels it’s way to success.

5. Sales Plan

Probably one of the most interesting sections in your financial plan, the sales plan. Within the sales plan, you have to show your companies price structures in relation to products or packages. Especially how they will or might develop over the next months and years. It’s important to include not only actual prices but also percentage numbers which indicate growth. Be realistic in the assumptions.

Be sure to get the numbers right, as this will come in handy when it comes to your break-even analysis. There is a direct correlation between reaching your break-even point and the growth estimation in your sales plan

6. Loan Bank

If we look back to the first 5 points, we’ve dealt with our income and expenses, and with that how much capital we need. In the best cases, we’ve managed to make a reliable impression. But a reliable impression to whom? Exactly. Your loan bank. But it’s not only about a trustful impression to the bank. They also want to see how they receive their investment back. That’s what a loan bank sheet is used for.

Some questions to ask yourself before you take on this section:

  • What kind of loan do you want?
  • How high does it have to be?
  • Which bank are you having in mind?

If you go for a bank loan, consider the different options. Periods with interests-only and lower percentages can give your company a head start. Consultation experts usually know which funding programs might be suitable for you. If you want an overview, click here to contact us.

Note: If you get an investor, you usually receive the money as equity in your company. Therefore you might not need a loan bank section in your financial plan.

—- Our advice —–

Research the advantages and disadvantages of different banks and investors. Even before you start your financial plan. It’s important to think about what these investors are looking for. Not only money, content, and trust, but also impression wise. Think of simple things. Impressions start already before reading the actual content. How do the layout and overall design feel? Traditional? Modern? Minimalistic? Is your text “easy-to-digest”? Are your chosen colors appealing? Which section might be the most important for your investor? Try to make a first great impression. You might want to get involved with an funding expert to figure out those details.

7. Break-Even Analysis

Your break-even analysis states how much you need to sell to cover all your expenses. This is also called the break-even point.

The easiest way to figure out your exact break-even point is to have a look at your contribution margin. Take your product’s price, and take away all the costs around the product. This could include production, delivery, employees. Let’s say your product’s value is priced at 75€. For one of those products, you have costs around 25€ in employees and 25€ in delivery. Take that away, and you end up with a contribution margin of 25€ (75€ – 25€ – 25€ = 25€).

Now that we know your contribution margin, we have to ask the following question: “How high does your sales revenue need to be to break even?”.

For that, simply have a look at your contribution margin ratio. In our example, our contribution margin is around ⅓ or 33%. If your fixed costs are around 5.000€, you would need 15.000€ in sales to break even.

If this was too fast, quick explanation here:

15.000€ in sales equals in 5.000€ of contribution margin. As shown in the calculation before, for every 75€ priced sale, we’re having 50€ of costs. So our margin ratio is averaged around one third. Our fixed costs are 5.000€, and we have to reach this number to break-even. 5.000€ now becomes our one third, and if we triple that amount, we have our three thirds, resulting in our final number of 15.000€.


So you want to write a financial plan that succeeds? As you see, understanding the differences in required information can be quite difficult. Structuring in an easy-to-understand way can also be quite a challenge. Especially when you need to be convincing, professional, and show expertise.

We understand that all this information might sound overwhelming. To be honest, we are just scratching the surface here. There are a lot of small details and little extras that you can add to make your financial plan stand out and win. While just reading all this information would result in information overload, we’re still here to help. At M&M Consultants, we highly believe that the best results are achieved in working together. Financial plans and business plans are our daily business, and we are here to guide you the way. Click here to go to the contact form.

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