Business Planning – how should I handle financials?
One of the most important yet challenging components of a
business plan is the financial section.
Many first time business planners are overwhelmed by the prospect of
converting their business intentions into financial analysis. For many business plans, this section is
often provided by a consultant or financial service provider (eg. Accountant).
Pro-forma financial worksheets are another option. This option requires a basic level of understanding of financial concepts. Some times the act of building the financial section can help provide input to other sections of the business plan. If the strategy you intended persuing does not result in the appropriate financial outcomes, you may need to go back and adjust your strategy or assumptions.
A particularly effective way to understand the driver of your financials is to use a formal business modelling method. We utilise the 9 element business model method in our Question led planning process. This approach requires you to determine the core activities and capabilities of the business. Often the core activities of the business also reflect the cost driver portion of the financials.
Ideally a financial model will provide for sensitivity analysis. This provides an understanding of the key risk points associated with the business, and determines their implications in financial terms.
After having built hundreds of business plans and associated financial models, we have found that by first taking a structured approach to the construction of the business model, constructing the financial model is a relatively simple process.
Our “Question Led Business Planning” approach simplifies the process of developing a business plan, particularly by automating the construction of the financial elements. This approach automatically uses the information generated throughout the business model design process to populate key drivers of the financial model. This ensures integration and alignment between the financial model and the body of the business plan.