Financial plans and business plans create an outline for your business’s success, but both are very different documents. Does your business need both for continued success? Yes.
A business plan acts as roadmap to your goals, whereas a financial plan explains the road. No matter the stage of your small business, both documents are guides that help manage money and achieve your business’s financial goals.
While a financial plan does not require a business plan, a business plan is stronger with a financial plan. Having both plans demonstrates to small business lenders that you have a solid plan for your business to succeed financially.
What is a Business Plan?
A business plan gives you a full report on how your business intends to perform and reach its goals. For small business lenders, a business plan shows credibility and preparedness for growth because it outlines core elements of your business.
The goals in a business plan are meant to be reached during the lifetime of the business—these are measurable, chronological goals that your business is operating towards.
Examples of goals in business plans include:
- Increasing customer satisfaction rate by 10% by Q2 by implementing training for employees
- Reduce yearly operational costs by 5% by negotiating contracts with suppliers
- Increase monthly website visitors by 7% in 3 months by increasing content frequency
What is a Financial Plan?
A financial plan is an outline of your business’s current, short, and long-term financial goals. Financial planning will help you understand your business’s financial needs and how to achieve them.
It’s important to review the plan every year or when there is a circumstantial change to the business.
Examples of goals in financial plans include:
- Increase net profit margin by 10% by the end of the fiscal year
- Build a cash reserve that covers 60-90 days of operating expenses
- Minimize accrual of interest by consolidating debt within 2 years
Developing and following a business plan and financial plan for your small business offers a step-by-step guide on how to reach financial milestones. It offers visibility for strategic decision making and stability for long-term growth.