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What Is Fiscal Policy?

Understanding fiscal policy, types of fiscal policies.

  • Expansionary Policy Downside

Fiscal Policy vs. Monetary Policy

  • Fiscal Policy FAQs

The Bottom Line

  • Fiscal Policy

All About Fiscal Policy: What It Is, Why It Matters, and Examples

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

fiscal planning business definition

Investopedia / Eliana Rodgers

Fiscal policy refers to the use of government spending and tax policies to influence economic conditions , especially macroeconomic conditions. These include aggregate demand for goods and services, employment, inflation, and economic growth.

During a recession, the government may lower tax rates or increase spending to encourage demand and spur economic activity. Conversely, to combat inflation, it may raise rates or cut spending to cool down the economy.

Fiscal policy is often contrasted with monetary policy , which is enacted by central bankers and not elected government officials.

Key Takeaways

  • Fiscal policy refers to the use of government spending and tax policies to influence economic conditions.
  • Fiscal policy is largely based on ideas from British economist John Maynard Keynes.
  • Keynes argued that governments could stabilize the business cycle and regulate economic output rather than let markets right themselves alone.
  • An expansionary fiscal policy lowers tax rates or increases spending to increase aggregate demand and fuel economic growth.
  • A contractionary fiscal policy raises rates or cuts spending to prevent or reduce inflation.

U.S. fiscal policy is largely based on the ideas of British economist John Maynard Keynes (1883-1946). He argued that economic recessions are due to a deficiency in the consumer spending and business investment components of aggregate demand.

Keynes believed that governments could stabilize the business cycle and regulate economic output by adjusting spending and tax policies to make up for the shortfalls of the private sector.

His theories were developed in response to the Great Depression, which defied classical economics' assumptions that economic swings were self-correcting. Keynes' ideas were highly influential and led to the New Deal in the U.S., which involved massive spending on public works projects and social welfare programs.

In Keynesian economics , aggregate demand or spending is what drives the performance and growth of the economy. Aggregate demand is made up of consumer spending, business investment spending, net government spending, and net exports.

Variable Private Sector Behavior

According to Keynesian economists, the private sector components of aggregate demand are too variable and too dependent on psychological and emotional factors to maintain sustained growth in the economy.

Pessimism, fear, and uncertainty among consumers and businesses can lead to economic recessions and depressions. What's more, excessive public sector exuberance during good times can lead to an overheated economy and inflation.

However, Keynesians believe that government taxation and spending can be managed rationally and used to counteract the excesses and deficiencies of private sector consumption and investment spending in order to stabilize the economy.

Corrective Government Fiscal Action

When private sector spending decreases, the government can spend more and/or tax less in order to directly increase aggregate demand. When the private sector is overly optimistic and spends too much, too fast on consumption and new investment projects, the government can spend less and/or tax more in order to decrease aggregate demand. 

This means that to help stabilize the economy, the government should run large budget deficits during economic downturns and run budget surpluses when the economy is growing. These are known as expansionary or contractionary fiscal policies, respectively.  

Fiscal Policy Example

During the Great Depression of the 1930s, U.S. unemployment rose to 25% and millions stood in bread lines for food. The misery seemed endless. President Franklin D. Roosevelt decided to put an expansionary fiscal policy to work. He launched his New Deal soon after taking office. It created new government agencies, the WPA jobs program, and the Social Security program, which exists to this day. These spending efforts, combined with his continued expansionary policy spending during World War II, pulled the country out of the Depression.

Expansionary Policy and Tools

To illustrate how the government can use fiscal policy to affect the economy, consider an economy that's experiencing a recession . The government might issue tax stimulus rebates to increase aggregate demand and fuel economic growth. 

The logic behind this approach is that when people pay lower taxes, they have more money to spend or invest, which fuels higher demand. That demand leads firms to hire more, decreasing unemployment , and causing fierce competition for labor. In turn, this serves to raise wages and provide consumers with more income to spend and invest. It's a virtuous cycle or positive feedback loop . 

Alternately, rather than lowering taxes, the government may seek economic expansion by increasing spending (without corresponding tax increases). Building more highways, for example, could increase employment, pushing up demand and growth.

Expansionary fiscal policy is usually characterized by deficit spending . Deficit spending occurs when government expenditures exceed receipts from taxes and other sources. In practice, deficit spending tends to result from a combination of tax cuts and higher spending.

Contractionary Policy and Tools

In the face of mounting inflation and other expansionary symptoms , a government can pursue contractionary fiscal policy, perhaps even to the extent of inducing a brief recession in order to restore balance to the economic cycle.

The government does this by increasing taxes, reducing public spending, and cutting public sector pay or jobs.

Where expansionary fiscal policy involves spending deficits, contractionary fiscal policy is characterized by budget surpluses. This policy is rarely used, however, as it is hugely unpopular politically.

Public policymakers thus face differing incentives relating to whether to engage in expansionary or contractionary fiscal policy. Therefore, the preferred tool for reining in unsustainable growth is usually a contractionary monetary policy. Monetary policy involves the Federal Reserve raising interest rates and restraining the supply of money and credit in order to rein in inflation.

The two major fiscal policy tools that the U.S. government uses to influence the nation's economic activity are tax rates and government spending.

Downside of Expansionary Policy

Mounting deficits are among the complaints lodged against expansionary fiscal policy. Critics complain that a flood of government red ink can weigh on growth and eventually create the need for damaging austerity .

Many economists simply dispute the effectiveness of expansionary fiscal policies. They argue that government spending too easily crowds out investment by the private sector.

Expansionary policy is also popular—to a dangerous degree, say some economists. Fiscal stimulus is politically difficult to reverse. Whether it has the desired macroeconomic effects or not, voters like low taxes and public spending.

Due to the political incentives faced by policymakers, there tends to be a consistent bias toward engaging in more-or-less constant deficit spending that can be in part rationalized as good for the economy. 

Eventually, economic expansion can get out of hand. Rising wages lead to inflation and asset bubbles begin to form. High inflation and the risk of widespread defaults when debt bubbles burst can badly damage the economy. This risk, in turn, leads governments (or their central banks) to reverse course and attempt to contract the economy.

Fiscal policy is the responsibility of the government. It involves spurring or slowing economic activity using taxes and government spending.

Monetary policy is the domain of the U.S. Federal Reserve Board and refers to actions taken to increase or decrease liquidity through the nation's money supply. According to the Federal Reserve Board, these actions are intended to "promote maximum employment, stable prices, and moderate long-term interest rates—the economic goals the Congress has instructed the Federal Reserve to pursue."

The monetary policy tools that the Fed uses to increase or decrease liquidity (and affect consumer spending and borrowing) include:

  • Buying or selling securities on the open market
  • Lending to depository institutions through its discount window
  • Raising or lowering the discount rate
  • Raising or lowering the federal funds rate
  • Establishing reserve requirements for banks
  • Engaging in central bank liquidity swaps
  • Financing through overnight repurchase agreements

Who Handles Fiscal Policy?

In the United States, fiscal policy is directed by both the executive and legislative branches. In the executive branch, the two most influential offices in this regard belong to the President and the  Secretary of the Treasury , although contemporary presidents often rely on a Council of Economic Advisers as well.

In the legislative branch, the U.S. Congress authorizes taxes, passes laws, and appropriations spending for any fiscal policy measures through its power of the purse. This process involves participation, deliberation, and approval from both the House of Representatives and the Senate.

What Are the Main Tools of Fiscal Policy?

Fiscal policy tools are used by governments to influence the economy. These primarily include changes to levels of taxation and government spending. To stimulate growth, taxes are lowered and spending is increased. This often involves borrowing by issuing government debt. To cool down an overheating economy, taxes may be raised and spending decreased.

How Does Fiscal Policy Affect People?

Often, the effects of fiscal policy aren't felt equally by everyone. Depending on the political orientations and goals of the policymakers, a tax cut could affect only the middle class, which is typically the largest economic group. In times of economic decline and rising taxation, this same group may have to pay more taxes than the wealthier upper class.

Similarly, when a government decides to adjust its spending, its policy may affect only a specific group of people. A decision to build a new bridge, for example, will give work and more income to hundreds of construction workers. A decision to spend money on building a new space shuttle, on the other hand, benefits only a small, specialized pool of experts and firms, which would not do much to increase aggregate employment levels.

Should the Government Be Getting Involved With the Economy?

One of the biggest obstacles facing policymakers is deciding how much direct involvement the government should have in the economy and individuals' economic lives. Indeed, there have been various degrees of interference by the government over the history of the United States. For the most part, it is accepted that a certain degree of government involvement is necessary to sustain a vibrant economy, on which the economic well-being of the population depends.

Fiscal policy is directed by the U.S. government with the goal of maintaining a healthy economy. The tools used to promote beneficial economic activity are adjustments to tax rates and government spending.

When economic activity slows or deteriorates, the government may try to improve it by reducing taxes or increasing its spending on various government programs.

When the economy is overly active and inflation threatens, it may increase taxes or reduce spending. However, neither is palatable to politicians seeking to stay in office. Thus, at such times, the government looks to the Fed to take monetary policy action to reduce inflation.

International Monetary Fund. " What Is Keynesian Economics? "

Up to U.S. " What Is Fiscal Policy? "

Board of Governors of the Federal Reserve System. " Monetary Policy ."

Board of Governors of the Federal Reserve System. " Policy Tools ."

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What is Fiscal Planning?

Fiscal planning is a kind of business planning that runs according to a fiscal financial year. With fiscal planning, the year that the accountant or planner calculates on is not the traditional calendar year that starts on January 1. Using the fiscal year, business leaders can engage in fiscal planning to help them with various aspects of corporate or small business accounting.

Businesses of all sizes undertake fiscal planning for a variety of reasons. Some use it to mitigate some of their tax liabilities. Others find it easier to calculate revenue according to their most lucrative seasons, or use a fiscal year based on annual industry trends. Regardless of why businesses use fiscal planning, many world governments consider it a normal part of business accounting, and anticipate that the reports coming from various businesses will be structured according to a fiscal year.

Business leaders may engage in fiscal planning to help them with various aspects of corporate accounting.

Other aspects of the fiscal year allow for more precise cancellations for a given period of time. For example, some businesses use the fiscal year so that their accounting year can always end on the same day of the week. In this situation, a fiscal year might have a varying number of weeks to conform to the calendar year over the long term, where some fiscal years might be composed of 53 weeks, and others composed of 52 weeks. This kind of alternative calendar setup is somewhat similar to payroll systems that pay out to employees with 26 pay periods per year, rather than calculating according to the calendar year, and handing out two paychecks per month.

Businesses have the authority to determine when their company's year begins and ends.

Different nations have different norms for the fiscal year. In the United Kingdom, fiscal planning might include a year that goes from April 6 to April 5. In the United States, the conventional fiscal year is from October 1 to September 30. Each country has their own rules about how fiscal planning can affect annual tax returns for a business, and what kind of financial reporting is acceptable in various regulatory systems where business leaders have an obligation to disclose aspects of their internal accounts to governments or to the public.

In the United Kingdom, the fiscal year ends on April 5.

In general, lots of professionals in human resources or other areas see fiscal planning as part of a modern convention that recognizes some of the trickier aspects of calculating business revenues and expenses. Many aspects of business have been significantly modernized in the last century, from payroll to capital investment; that helps a business to augment its returns from products or services, which are core elements of the business. Even small businesses are often pursuing greater complexity using modern software tools, accessible third-party accounting services, and other “financial labor saving” methods. Items like fiscal year planning are likely to be taught in small business education programs to help business start-up leaders acquire the skills and knowledge that are common to those in leadership positions at more established corporate businesses.

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Business leaders may engage in fiscal planning to help them with various aspects of corporate accounting.

What Is Fiscal Policy?

Table of contents.

fiscal planning business definition

Fiscal policy is a crucial part of American economics. Both the executive and legislative branches of the government determine fiscal policy and use it to influence the economy by adjusting revenue and spending levels. Those decisions can have significant impacts on your small business.

Fiscal policy defined

Fiscal policy is based on the theories of British economist John Maynard Keynes, which hold that increasing or decreasing revenue (taxes) and expenditure (spending) levels influence inflation , employment and the flow of money through the economic system. Fiscal policy is often used in combination with monetary policy , which, in the United States, is set by the Federal Reserve to influence the direction of the economy.

Fiscal policy is paramount to successful economic management since taxes, spending, inflation and employment all factor into gross domestic product (GDP) . This figure details the value of goods and services produced by a nation within a year. [Learn how to calculate the cost of goods sold (COGS) for your business.]

To understand how fiscal policy can affect the economy, consider a fiscal expansion that leads to rising demand, which in turn increases production. If this demand increase occurs in a high-employment economy, prices will vary. However, in a low-employment economy, this demand will lead to more employment and production but not necessarily price variation. The change in GDP depends on which of these situations applies.

Fiscal policy factors and tools

Economic factors.

The success of the economy is commonly measured by a few factors, including GDP. Another factor is aggregate demand, which is the sum of goods and services produced by a nation purchased at a certain price point. The aggregate demand curve dictates that at lower price levels, more goods and services are demanded, while there is less demand at higher price points.

Fiscal policy affects these measurements, with the goal of increasing GDP and aggregate demand in a sustainable manner. This happens by changing three factors.

  • Business tax policy: Taxes that businesses pay to the government affects its profits and investment spending. Lowering taxes increases both aggregate demand and business investment opportunities.
  • Government spending: Aggregate demand is increased by the government’s own spending.
  • Individual taxes: Taxes on individuals – such as income tax – affect their personal income and how much they can spend, injecting more money back into the economy.

Fiscal policy typically needs to be altered when an economy is running low on aggregate demand and unemployment levels are high.

Policy tools

The two main tools of fiscal policy are taxes and spending. Taxes influence the economy by determining how much money the government has to spend in certain areas and how much money individuals should spend. For example, if the government is trying to spur consumer spending, it can decrease taxes. A cut in taxes provides families with extra cash, which the government hopes will in turn be spent on goods and services, thus spurring the economy as a whole.

Spending is used as a tool for fiscal policy to drive government money to specific sectors needing an economic boost. Whoever receives those dollars will have extra money to spend – and, as with taxes, the government hopes that money will be spent on other goods and services.

It’s important to find the right balance and ensure the economy doesn’t lean too far either way. Prior to the Great Depression in the 1920s, the U.S. government took a very hands-off approach when it came to setting economic policy. Afterward, the government decided it needed to play a larger role in determining the direction of the economy. [Read related article: What Is Economics? ]

Fiscal policy vs. monetary policy

The United States relies on two types of policies to shape the economy: fiscal and monetary. Fiscal policy is used to influence the aggregate demand in a country, whereas monetary policy is used to control the amount of money available throughout the economy. The government may implement fiscal policy to shape the number of products and services that people can or will demand, whereas the central banks’ monetary policy affects our ability to demand these services.

The central banks – like the Federal Reserve – set monetary policy, whereas the federal legislative and executive branches set federal fiscal policy (state and local legislative and executive branches set state and local fiscal policy). The Federal Reserve may take monetary policy action to achieve price stability, full employment and stable economic growth, whereas Congress and the White House determine tax rates for corporations and individuals to work toward fiscal policy goals.

By definition, fiscal policy is thus political. That’s why it’s worth noting Congress has stated that monetary policy decisions should be apolitical. The only requirements that the Federal Reserve must follow when crafting monetary policy is always to prioritize maximum employment and price stability. At no point in its policy creation or execution should the Federal Reserve take any politically motivated actions.

Republican vs. Democrat policy differences

Republicans and Democrats have differing views on fiscal policy. Where Republicans usually feel there should be limited government involvement in the economy, Democrats typically believe regulation is needed. Republicans tend to favor lower taxes, free-market capitalism, corporate deregulation and limits on labor unions. In contrast, Democrats usually support progressive taxation and argue that higher tax rates allow for more programs to be introduced by the government that encourage spending and positive economic conditions.

Even though the Federal Reserve is intended to be apolitical, fiscal policy can vary with each presidential administration or when the party in power changes in Congress. These different approaches can mean businesses have to adjust to policy changes every few years. Which school of thought is better for your business will likely come down to your own personal, economic beliefs.

Types of fiscal policy

There are two main types of fiscal policy: expansionary and contractionary.

Expansionary fiscal policy

Expansionary fiscal policy, designed to stimulate the economy, is most often used during a recession, times of high unemployment or other low periods of the business cycle. It entails the government spending more money, lowering taxes or both.

The goal of expansionary fiscal policy is to put more money in the hands of consumers so they spend more to stimulate the economy. Explained in economic language, the goal of expansionary fiscal policy is to bolster aggregate demand in cases when private demand has decreased.

Expansionary fiscal policy is designed to spur economic activity and increase the amount of money flowing through the system.

Contractionary fiscal policy

Contractionary fiscal policy is used to slow economic growth, such as when inflation is growing too rapidly. The opposite of expansionary fiscal policy, contractionary fiscal policy raises taxes to cut spending. As consumers pay more taxes, they have less money to spend, and economic stimulation and growth slow.

Under contractionary fiscal policies, the economy usually grows by no more than 3% per year. Above this growth rate, negative economic consequences – such as inflation, asset bubbles, increased unemployment and even recessions – may occur.

A recession occurs when there are two consecutive quarters with negative gross domestic product (GDP).

Setting fiscal policy

Today’s U.S. fiscal policies are tied to each year’s federal budget. The federal budget spells out the government’s spending plans for the fiscal year and how it plans to pay for that spending, such as through new or existing taxes. The budget is developed through a collaborative effort between the president and Congress.

The president will first submit a budget to Congress that sets the tone for the coming year’s fiscal policy by outlining how much money the government should spend on public needs, such as defense and healthcare; how much the government should collect in tax revenues; and how much of a deficit or surplus is projected.

Congress then reviews the president’s budget request and develops its own budget resolutions, which set broad levels for spending and taxation. Once the resolutions are approved, legislators start the appropriations process, which spells out where each dollar will be spent. The president must sign those appropriations bills before they can be enacted.

When setting a budget for your small business , you should estimate possible financial risks based partly on expected changes to the federal budget and fiscal policy.

How fiscal policy affects businesses

Public and private companies experience direct effects of an economy’s fiscal policy – whether in the form of spending or taxation. Fiscal policy can have the following effects on your small business.

1. Investment opportunities

Businesses will see more investment opportunities related to government spending. This commonly occurs during an expansionary fiscal policy, when more money is flowing into the economy from the government and from other sources since taxation is also low. When a balance between price and demand is met, then companies can expect to thrive and grow.

2. Slower growth

A contractionary fiscal policy may kick in to prevent inflation when that balance is broken and demand – and prices – fall. Businesses typically rein in their growth due to rising taxes and take measures to stay in the black with less money flowing through the economy.

3. Taxation changes

Depending on your company’s location, your business will face several levels of taxation: including local, state and federal. Consider how your state and local government taxes your company and how it interweaves with federal fiscal policy.

Fiscal policy also impacts the amount of taxation on future generations. Government spending that leads to greater deficits means that taxation will eventually have to increase to pay interest. Inversely, when the government runs on a surplus, taxes must eventually be lowered.

Use the best accounting software to stay on top of your business’s taxation changes and investments.

4. Unemployment rates

A major objective of fiscal policy is to minimize unemployment. For example, the government can lower taxes to put more money back in consumers’ pockets. As such, consumers have more money to spend and companies may face increased demand. With increased demand may come additional production tasks for companies to complete, and businesses can respond by creating more jobs and hiring more employees. With proper fiscal policy in place, a low unemployment rate may gradually increase.

The best ways to tackle policy changes

Before making rash decisions in response to the slightest signs of economic change, business owners should seek financial advice. If your company doesn’t employ a chief financial officer, consider hiring a CPA or a financial management company.

“As a group, small businesses are resilient because we have to be,” said Mike Catania, entrepreneur and founder of Padloop. “Changes in fiscal policy, particularly at the federal level, expose us to what we dislike the most: uncertainty.”

With an expert’s guidance, you can make appropriate decisions on spending, pricing for your products and services, benefits packages and other company aspects that may be impacted by fiscal policy. 

Regardless of economic indicators, it’s always wise to recession-proof your business as much as possible.

The importance of tracking fiscal policy

Fiscal policy is a complicated aspect of economics where political parties may disagree on the best path forward for the success of the nation. The presidential and legislative branches contribute to fiscal policy, making determinations that affect taxes and government spending. These decisions have impacts that trickle down – in good ways and bad – to the smallest of businesses, so it’s critical to stay on top of economic developments.

Kimberlee Leonard and Max Freedman contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article. 

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How to Write a Small Business Financial Plan

Stairs leading up to a dollar sign. Represents creating a financial plan to achieve profitability.

Noah Parsons

3 min. read

Updated January 3, 2024

Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully put your budget and forecasts together. Here is everything you need to include in your financial plan along with optional performance metrics, specifics for funding, and free templates.

  • Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

  • Financial ratios and metrics

With all of your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios. While these metrics are entirely optional to include in your plan, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

  • Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

fiscal planning business definition

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

Download Template

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Accurate and easy financial forecasting

Get a full financial picture of your business with LivePlan's simple financial management tools.

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Content Author: Noah Parsons

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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Planning, budgeting and forecasting is typically a three-step process for determining and mapping out an organization’s short- and long-term financial goals:

  • Planning  provides a framework for a business’ financial objectives — typically for the next three to five years.
  • Budgeting  details how the plan will be carried out month to month and covers items such as revenue, expenses, potential cash flow and debt reduction. Traditionally, a company will designate a fiscal year and create a budget for the year. It may adjust the budget depending on actual revenues or compare actual financial statements to determine how close they are to meeting or exceeding the budget.
  • Forecasting  takes historical data and current market conditions and then makes predictions as to how much revenue an organization can expect to bring in over the next few months or years. Forecasts are usually adjusted as new information becomes available. 

The process is usually managed by a chief financial officer (CFO) and the finance department. However, the definition can be expanded to include all areas of organizational planning including: financial planning and analysis , supply chain planning , sales planning , workforce planning and marketing planning .

Basic business accounting practices date as far back as the 1400s, when Venetian investors kept track of their Asian trade expeditions using double-entry bookkeeping, income statements and balance sheets. The word “budget” is from the old French word “bougette,” meaning “small purse.” The British government began to use the phrase “open the budget” in the mid-1700s, when the chancellor presented the annual financial statements. Businesses began to regularly use the term “budget” for their finances by the late 1800s.

Modern business forecasting began in response to the economic devastation of the Great Depression of the 1930s. New types of statistics and statistical analyses were developed that could help business better predict the future. Consulting firms emerged to help companies use these new prediction tools.

Accounting and forecasting were difficult in the early 20th century because they depended on laborious hand-written equations, ledgers and spreadsheets. The emergence of mainframe computers in the 1960s and personal computers in the 1980s sped up the process. Software applications such as Microsoft Excel became widely popular for financial reporting. However, Excel programs and spreadsheets were prone to input errors and cumbersome when various departments or individuals needed to collaborate on a report.

By the start of the 2000s, companies gained access to ever-growing operational data sources, as well as information outside corporate transaction systems — such as weather, social sentiment and econometric data. The vast amounts of available data for forecasting created a need for more sophisticated software tools to process it.

Numerous planning software packages emerged to handle this data complexity, making planning, budgeting and forecasting faster and easier — both for processing and collaboration. With predictive insights drawn automatically from data, companies could identify evolving trends and guide decision making with foresight, not just hindsight.

Today, cloud-based systems are becoming the standard, providing more flexibility, security and cost savings — helping organizations generate accurate predictions and budgets with fewer errors.

But despite these advancements, businesses are still quite dependent on traditional spreadsheets. 1   Seventy percent of businesses say they rely heavily on spreadsheet reporting, with only 16 percent using on-premise specialist software — and only ten percent using cloud software for planning.

Many businesses still base their strategy on annual plans and budgets, which is a management technique developed over a century ago. But in today’s more competitive environment, organizations are realizing that plans, budgets and forecasts need to reflect current reality — not the reality of two, three or more quarters ago. Continuous planning and rolling forecasts are becoming widely used methodologies to update plans, budgets and forecasts frequently throughout the year, on a quarterly or even monthly basis. These approaches help managers spot trends before their competitors — helping them make better informed, more agile decisions about pricing, product mix, capital allocations and even staffing levels.

Creating and implementing a sound planning, budgeting and forecasting process helps organizations establish more accurate financial report and analytics — potentially leading to more accurate forecasting and ultimately revenue growth. Its importance is even more relevant in today’s business environment where disruptive competitors are entering even the most tradition-bound industries.

When companies embrace data and analytics in conjunction with well-established planning and forecasting best practices, they enhance strategic decision making and can be rewarded with more accurate plans and more timely forecasts. Overall, these tools and practices can save time, reduce errors, promote collaboration and foster a more disciplined management culture that delivers a true competitive advantage.

Specifically, companies are able to:

  • Quickly update plans and forecasts in response to new threats and opportunities, identifying risk areas early enough to rectify issues before they are serious
  • Identify and analyze the impact of changes as they occur
  • Strengthen the links between operational and financial plans
  • Better plan and predict cash flows
  • Improve communication and collaboration among plan contributors
  • Consistently deliver timely, reliable plans and forecasts, plus contingency plans, for a range of possible events
  • Analyze variances and deviations from plans and promptly take corrective action
  • Create a budget specifically for growth and having confidence in how much can be spent
  • More accurately manage sales pipelines while tracking performance against targets
  • Make more confident strategic decisions based on hard data, instead of hopes or guesswork
  • Provide evidence of an organization’s future trajectory to potential investors and lending institutions based on multiple data sources and sophisticated analysis

Budgeting, planning and forecasting software can be purchased as an off-the-shelf solution or as part of a larger integrated corporate performance management (CPM) solution.

Advanced software solutions enable organizations to:

  • Measure and monitor performance through interactive, self-service dashboards and visualizations
  • Examine root-causes with high-fidelity analysis of dimensionally rich data
  • Evaluate trends and make predictions automatically from internal or external data
  • Perform rapid what-if scenario modelling and create timely, reliable plans and forecasts

Planning is easier and more effective when practitioners follow well-established best practices. Software solutions that support these practices can enhance the timeliness and reliability of information and increase participation by key people throughout the organization; especially those at the front lines.

Leading companies have moved to solutions that address the full planning cycle — data collection, modeling, analytics and reporting — on a common planning platform with lean infrastructure requirements. Such platforms can handle a diverse range of business functions, from budget-focused finance tasks to, for example, supply chain-focused planning for retail environments with thousands of SKUs (stock keeping units).

Companies like IBM offer holistic, integrated software solutions to streamline the planning, budgeting and forecasting process. The logic is that to adapt to today's quickly changing business conditions, an organization needs one solution that creates a single source of truth and visibility into all its data. These solutions can extend well beyond the financial aspects of the business, becoming a powerful forecasting engine across the enterprise. With these agile planning and exploratory analytics software solutions — whether in the cloud or on-premises — companies can perform planning, budgeting and forecasting with greater speed, agility and foresight.

Evaluating and selecting planning, budgeting and forecasting software is a complex task. It requires careful consideration of the software’s functionality, its value to the planning process and its ability to support planning best practices. There are also factors such as vendor reliability and support, user community connections and commitment to customer success once the sale is complete.

IBM Analytics (PDF) recently published a guide to help organizations evaluate planning, budgeting and forecasting software — identifying key qualities to look for:

  • Adaptive . Can you rapidly change models and re-forecast frequently, based on input from business units? Can you update plans as often as necessary?
  • Timely . Is your information always current because users contribute directly to a central planning database? Are your consolidations and rollups done automatically to easily meet deadlines?
  • Integrated . Do your planning, analysis, workflow and reporting functions reside on one common platform, reducing the need to maintain “shadow” planning systems?
  • Collaborative . Is your solution web-based? Does it enable participation anytime, from anywhere with a secure connection?
  • Self-service . Are users able to access data and perform complex analysis without the assistance of IT? Are you able to use a familiar spreadsheet interface for faster user adoption and accelerate time to value?
  • Enterprise-scale data capacity . Is your solution capable of handling very large data volumes without limiting cube size? Some solutions do not handle “data sparsity” well — forcing data to be split into multiple cubes for analysis, causing version control issues.
  • Efficient . Are your managers able to spend less time managing data and more time managing the business?
  • Relevant . Do you have the ability to customize views for different user roles, to help increase adoption and process ownership? Do you have formula capabilities that enable modeling of all relevant business drivers?
  • Accurate . Do your plans contain errors because of broken links, stale data, improper rollups and missing components?

The key is not just evaluating product features and capabilities, but also evaluating how those features will be implemented by different users within the organization. It’s important to test any planning solution that will be used by a large variety of stakeholders such as finance, operations, HR and sales.

Discover how one of the largest operators of parking facilities in the Middle East used IBM Planning Analytics to deliver better automation and multidimensional analytical power along with cost advantages.

Learn how the real estate developer enhanced its core planning, forecasting and project management capabilities with IBM technology to drive even greater profitability.

Find out how the company used IBM planning analytics to provide monthly and weekly reporting for engineering, marketing, sales and operations.

IBM Planning Analytics provides a single solution to automate planning, budgeting and forecasting for your enterprise.

Gain the autonomy you crave to find, explore and share insights in the governed, trusted environment you need, with IBM Cognos Analytics.

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Learn how companies are delivering dependable business forecasts and optimizing the allocation of resources.

Learn the five common drawbacks to spreadsheets as planning tools

Discover the benefits of embracing data and analytics in conjunction with well-established planning and forecasting best practices.

See how you can synthesize information, uncover trends and deliver insights to improve decision making throughout the enterprise.

Request a live, 10-minute demo and get hands-on experience with IBM Planning Analytics by building a revenue plan.

See how headcount planning is done with IBM Planning Analytics in a quick, click-through demo.

Predict outcomes with flexible AI-infused forecasting, and analyze large-scale and fine-grain what-if scenarios in real-time. IBM Planning Analytics is an integrated business planning solution that turns raw data into actionable insights. Deploy as you need, on-premises or on cloud. 

1 The Future of Planning, Budgeting and Forecasting Global Survey, Workday and FSN, 2017

6 Elements of a Successful Financial Plan for a Small Business

Table of contents.

fiscal planning business definition

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE .

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

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4 Steps to Creating a Financial Plan for Your Small Business

Rami Ali

When it comes to long-term business success, preparation is the name of the game. And the key to that preparation is a solid financial plan that sets forth a business’s short- and long-term financial goals and how it intends to reach them. Used by company decision-makers and potential partners, investors and lenders, alike, a financial plan typically includes the company’s sales forecast, cash flow projection, expected expenses, key financial metrics and more. Here is what small businesses should understand to create a comprehensive financial plan of their own.

What Is a Financial Plan?

A financial plan is a document that businesses use to detail and manage their finances, ensure efficient allocation of resources and inform a plethora of decisions — everything from setting prices, to expanding the business, to optimizing operations, to name just a few. The financial plan provides a clear understanding of the company’s current financial standing; outlines its strategies, goals and projections; makes clear whether an idea is sustainable and worthy of investment; and monitors the business’s financial health as it grows and matures. Financial plans can be adjusted over time as forecasts become replaced with real-world results and market forces change.

A financial plan is an integral part of an overall business plan, ensuring financial objectives align with overall business goals. It typically contains a description of the business, financial statements, personnel plan, risk analysis and relevant key performance indicators (KPIs) and ratios. By providing a comprehensive view of the company’s finances and future goals, financial plans also assist in attracting investors and other sources of funding.

Key Takeaways

  • A financial plan details a business’s current standing and helps business leaders make informed decisions about future endeavors and strategies.
  • A financial plan includes three major financial statements: the income statement, balance sheet and cash flow statement.
  • A financial plan answers essential questions and helps track progress toward goals.
  • Financial management software gives decision-makers the tools they need to make strategic decisions.

Why Is a Financial Plan Important to Your Small Business?

A financial plan can provide small businesses with greater confidence in their short- and long-term endeavors by helping them determine ways to best allocate and invest their resources. The process of creating the plan forces businesses to think through how different decisions could impact revenue and which occasions call for dipping into reserve funds. It’s also a helpful tool for monitoring performance, managing cash flow and tracking financial metrics.

Simply put, a financial plan shows where the business stands; over time, its analysis will reveal whether its investments were worthwhile and worth repeating. In addition, when a business is courting potential partners, investors and lenders, the financial plan spotlights the business’s commitment to spending wisely and meeting its financial obligations.

Benefits of a Financial Plan

A financial plan is only as effective as the data foundation it’s built on and the business’s flexibility to revisit it amid changing market forces and demand shifts. Done correctly, a financial plan helps small businesses stay on track so they can reach their short-term and long-term goals. Among the benefits that effective financial planning delivers:

  • A clear view of goals and objectives: As with any type of business plan, it’s imperative that everyone in a company is on the same financial page. With clear responsibilities and expected results mapped out, every team member from the top down sees what needs to be done, when to do it and why.
  • More accurate budgets and projections: A comprehensive financial plan leads to realistic budgets that allocate resources appropriately and plan for future revenue and expenses. Financial projections also help small businesses lay out steps to maintain business continuity during periods of cash flow volatility or market uncertainty.
  • External funding opportunities: With a detailed financial plan in hand, potential partners, lenders and investors can see exactly where their money will go and how it will be used. The inclusion of stellar financial records, including past and current liabilities, can also assure external funding sources that they will be repaid.
  • Performance monitoring and course correction: Small businesses can continue to benefit from their financial plans long after the plan has been created. By continuously monitoring results and comparing them with initial projections, businesses have the opportunity to adjust their plans as needed.

Components of a Small Business Financial Plan

A sound financial plan is instrumental to the success and stability of a small business. Whether the business is starting from scratch or modifying its plan, the best financial plans include the following elements:

Income statement: The income statement reports the business’s net profit or loss over a specific period of time, such a month, quarter or year. Also known as a profit-and-loss statement (P&L) or pro forma income statement, the income statement includes the following elements:

  • Cost of goods sold (COGS): The direct costs involved in producing goods or services.
  • Operating expenses: Rent, utilities and other costs involved in running the business.
  • Revenue streams: Usually in the form of sales and subscription services, among other sources.
  • Total net profit or loss: Derived from the total amount of sales less expenses and taxes.

Balance sheet: The balance sheet reports the business’s current financial standing, focusing on what it owns, what it owes and shareholder equity:

  • Assets: Available cash, goods and other owned resources.
  • Liabilities: Amounts owed to suppliers, personnel, landlords, creditors, etc.

Shareholder equity: Measures the company’s net worth, calculated with this formula:

Shareholder Equity = Assets – Liability

The balance sheet lists assets, liabilities and equity in chart format, with assets in the left column and liabilities and equity on the right. When complete — and as the name implies —the two sides should balance out to zero, as shown on the sample balance sheet below. The balance sheet is used with other financial statements to calculate business financial ratios (discussed soon).

Balance Sheet

Cash flow projection: Cash flow projection is a part of the cash flow statement , which is perhaps one of the most critical aspects of a financial plan. After all, businesses run on cash. The cash flow statement documents how much cash came in and went out of the business during a specific time period. This reveals its liquidity, meaning how much cash it has on hand. The cash flow projection should display how much cash a business currently has, where it’s going, where future cash will come from and a schedule for each activity.

Personnel plan: A business needs the right people to meet its goals and maintain a healthy cash flow. A personnel plan looks at existing positions, helps determine when it’s time to bring on more team members and determines whether new hires should be full-time, part-time or work on a contractual basis. It also examines compensation levels, including benefits, and forecasts those costs against potential business growth to gauge whether the potential benefits of new hires justify the expense.

Business ratios: In addition to a big-picture view of the business, decision-makers will need to drill down to specific aspects of the business to understand how individual areas are performing. Business ratios , such as net profit margin, return on equity, accounts payable turnover, assets to sales, working capital and total debt to total assets, help evaluate the business’s financial health. Data used to calculate these ratios come from the P&L statement, balance sheet and cash flow statement. Business ratios contextualize financial data — for example, net profit margin shows the profitability of a company’s operations in relation to its revenue. They are often used to help request funding from a bank or investor, as well.

Sales forecast: How much will you sell in a specific period? A sales forecast needs to be an ongoing part of any planning process since it helps predict cash flow and the organization’s overall health. A forecast needs to be consistent with the sales number within your P&L statement. Organizing and segmenting your sales forecast will depend on how thoroughly you want to track sales and the business you have. For example, if you own a hotel and giftshop, you may want to track separately sales from guests staying the night and sales from the shop.

Cash flow projection: Perhaps one of the most critical aspects of your financial plan is your cash flow statement . Your business runs on cash. Understanding how much cash is coming in and when to expect it shows the difference between your profit and cash position. It should display how much cash you have now, where it’s going, where it will come from and a schedule for each activity.

Income projections: Businesses can use their sales forecasts to estimate how much money they are on track to make in a given period, usually a year. This income projection is calculated by subtracting anticipated expenses from revenue. In some cases, the income projection is rolled into the P&L statement.

Assets and liabilities: Assets and liabilities appear on the business’s balance sheet. Assets are what a company owns and are typically divided into current and long-term assets. Current assets can be converted into cash within a year and include stocks, inventory and accounts receivable. Long-term assets are tangible or fixed assets designed for long-term use, such as furniture, fixtures, buildings, machinery and vehicles.

Liabilities are business obligations that are also classified as current and long-term. Current liabilities are due to be paid within a year and include accrued payroll, taxes payable and short-term loans. Long-term liabilities include shareholder loans or bank debt that mature more than a year later.

Break-even analysis: The break-even point is how much a business must sell to exactly cover all of its fixed and variable expenses, including COGS, salaries and rent. When revenue exceeds expenses, the business makes a profit. The break-even point is used to guide sales revenue and volume goals; determination requires first calculating contribution margin , which is the amount of sales revenue a company has, less its variable costs, to put toward paying its fixed costs. Businesses can use break-even analyses to better evaluate their expenses and calculate how much to mark up its goods and services to be able to turn a profit.

Four Steps to Create a Financial Plan for Your Small Business

Financial plans require deliberate planning and careful implementation. The following four steps can help small businesses get started and ensure their plans can help them achieve their goals.

Create a strategic plan

Before looking at any numbers, a strategic plan focuses on what the company wants to accomplish and what it needs to achieve its goals. Will it need to buy more equipment or hire additional staff? How will its goals affect cash flow? What other resources are needed to meet its goals? A strategic financial plan answers these questions and determines how the plan will impact the company’s finances. Creating a list of existing  expenses  and assets is also helpful and will inform the remaining financial planning steps.

Create financial projections

Financial projections should be based on  anticipated expenses and sales forecasts . These projections look at the business’s goals and estimate the costs needed to reach them in the face of a variety of potential scenarios, such as best-case, worst-case and most likely to happen. Accountants may be brought in to review the plan with stakeholders and suggest how to explain the plan to external audiences, such as investors and lenders.

Plan for contingencies

Financial plans should use data from the cash flow statement and balance sheet to inform worst-case scenario plans, such as when incoming cash dries up or the business takes an unexpected turn. Some common contingencies include keeping cash reserves or a substantial line of credit for quick access to funds during slow periods. Another option is to produce a plan to sell off assets to help break even.

Monitor and compare goals

Actual results in the cash flow statement, income projections and relevant business ratios should be analyzed throughout the year to see how closely real-life results adhered to projections. Regular check-ins also help businesses spot potential problems before they can get worse and inform course corrections.

Three Questions Your Financial Plan Should Answer

A small business financial plan should be tailored to the needs and expectations of its intended audience, whether it is potential investors, lenders, partners or internal stakeholders. Once the plan is created, all parties should, at minimum, understand:

How will the business make money?

What does the business need to achieve its goals?

What is the business’s  operating budget ?

Financial plans that don’t answer these questions will need more work. Otherwise, a business risks starting a new venture without a clear path forward, and decision-makers will lack the necessary insights that a detailed financial plan would have provided.

Improve Your Financial Planning With Financial Management Software

Using spreadsheets for financial planning may get the job done when a business is first getting started, but this approach can quickly become overwhelming, especially when collaborating with others and as the business grows.

NetSuite’s cloud-based financial management platform simplifies the labor-intensive process through automation. NetSuite Planning and Budgeting automatically consolidates real-time data for analysis, reporting and forecasting, thereby improving efficiency. With intuitive dashboards and sophisticated forecasting tools, businesses can create accurate financial plans, track progress and modify strategies in order to achieve and maintain long-term success. The solution also allows for scenario planning and workforce planning, plus prebuilt data synchronization with NetSuite ERP means the entire business is working with the same up-to-date information.

Whether a business is first getting started, looking to expand, trying to secure outside funding or monitoring its growth, it will need to create a financial plan. This plan lays out the business’s short- and long-term objectives, details its current and projected finances, specifies how it will invest its resources and helps track its progress. Not only does a financial plan guide the business along its way, but it is typically required by outside sources of funding that don’t invest or lend their money to just any company. Creating a financial plan may take some time, but successful small businesses know it is well worth the effort.

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Small Business Financial Plan FAQs

How do I write a small business financial plan?

Writing a small business financial plan is a four-step process. It begins with creating a strategic plan, which covers the company’s goals and what it needs to achieve them. The next step is to create financial projections, which are dependent on anticipating sales and expenses. Step three plans for contingencies: For example, what if the business were to lose a significant client? Finally, the business must monitor its goals, comparing actual results to projections and adjusting as needed.

What is the best financial statement for a small business?

The income statement, also known as the profit and loss (P&L) statement, is often considered the most important financial statement for small businesses, as it summarizes profits and losses and the business’s bottom line over a specific financial period. For financial plans, the cash flow statement and the balance sheet are also critical financial statements.

How often should businesses update their financial plans?

Financial plans can be updated whenever a business deems appropriate. Many businesses create three- and five-year plans and adjust them annually. If a market experiences a large shift, such as a spike in demand or an economic downturn, a financial plan may need to be updated to reflect the new market.

What are some common mistakes to avoid when creating a small business financial plan?

Some common mistakes to avoid when creating a small business financial plan include underestimating expenses, overestimating revenue, failing to plan for contingencies and adhering to plans too strictly when circumstances change. Plans should be regularly updated to reflect real-world results and current market trends.

How do I account for uncertainty and potential risks in my small business financial plan?

Small businesses can plan for uncertainty by maintaining cash reserves and opening lines of credit to cover periods of lower income or high expenses. Plans and projections should also take into account a variety of potential scenarios, from best case to worst case.

What is a typical business financial plan?

A typical business financial plan is a document that details a business’s goals, strategies and projections over a specific period of time. It is used as a roadmap for the organization’s financial activities and provides a framework for decision-making, resource allocation and performance evaluation.

What are the seven components of a financial plan?

Financial plans can vary to suit the business’s needs, but seven components to include are the income statement, operating income, net income, cash flow statement, balance sheet, financial projections and business ratios. Various financial key performance indicators and a break-even analysis are typically included as well.

What is an example of a financial plan?

A financial plan serves as a snapshot of the business’s current standing and how it plans to grow. For example, a restaurant looking to secure approval for a loan will be asked to provide a financial plan. This plan will include an executive summary of the business, a description and history of the company, market research into customer base and competition, sales and marketing strategies, key performance indicators and organizational structure. It will also include elements focusing on the future, such as financial projections, potential risks and funding requirements and strategies.

Financial Management

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Small Business Financial Management: Tips, Importance and Challenges

It is remarkably difficult to start a small business. Only about half stay open for five years, and only a third make it to the 10-year mark. That’s why it’s vital to make every effort to succeed. And one of the most fundamental skills and tools for any small business owner is sound financial management.

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Business Planning

True Tamplin, BSc, CEPF®

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on June 08, 2023

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Table of contents, what is business planning.

Business planning is a crucial process that involves creating a roadmap for an organization to achieve its long-term objectives. It is the foundation of every successful business and provides a framework for decision-making, resource allocation, and measuring progress towards goals.

Business planning involves identifying the current state of the organization, determining where it wants to go, and developing a strategy to get there.

It includes analyzing the market, identifying target customers, determining a competitive advantage, setting financial goals, and establishing operational plans.

The business plan serves as a reference point for all stakeholders , including investors, employees, and partners, and helps to ensure that everyone is aligned and working towards the same objectives.

Importance of Business Planning

Business planning plays a critical role in the success of any organization, as it helps to establish a clear direction and purpose for the business. It allows the organization to identify its goals and objectives, develop strategies and tactics to achieve them, and establish a framework of necessary resources and operational procedures to ensure success.

Additionally, a well-crafted business plan can serve as a reference point for decision-making, ensuring that all actions taken by the organization are aligned with its long-term objectives.

It can also facilitate communication and collaboration among team members, ensuring that everyone is working towards a common goal.

Furthermore, a business plan is often required when seeking funding or investment from external sources, as it demonstrates the organization's potential for growth and profitability. Overall, business planning is essential for any organization looking to succeed and thrive in a competitive market.

Business Planning Process

Step 1: defining your business purpose and goals.

Begin by clarifying your business's purpose, mission, and long-term goals. These elements should align with the organization's core values and guide every aspect of the planning process.

Step 2: Conducting Market Research and Analysis

Thorough market research and analysis are crucial to understanding the industry landscape, identifying target customers, and gauging the competition. This information will inform your business strategy and help you find your niche in the market.

Step 3: Creating a Business Model and Strategy

Based on the insights from your market research, develop a business model that outlines how your organization will create, deliver, and capture value. This will inform the overall business strategy, including identifying target markets, value propositions, and competitive advantages.

Step 4: Developing a Marketing Plan

A marketing plan details how your organization will promote its products or services to target customers. This includes defining marketing objectives, tactics, channels, budgets, and performance metrics to measure success.

Step 5: Establishing Operational and Financial Plans

The operational plan outlines the day-to-day activities, resources, and processes required to run your business. The financial plan projects revenue, expenses, and cash flow, providing a basis for assessing the organization's financial health and long-term viability.

Step 6: Reviewing and Revising the Business Plan

Regularly review and update your business plan to ensure it remains relevant and reflects the organization's current situation and goals. This iterative process enables proactive adjustments to strategies and tactics in response to changing market conditions and business realities.

Business Planning Process

Components of a Business Plan

Executive summary.

The executive summary provides a high-level overview of your business plan, touching on the company's mission, objectives, strategies, and key financial projections.

It is critical to make this section concise and engaging, as it is often the first section that potential investors or partners will read.

Company Description

The company description offers a detailed overview of your organization, including its history, mission, values, and legal structure. It also outlines the company's goals and objectives and explains how the business addresses a market need or problem.

Products or Services

Describe the products or services your company offers, emphasizing their unique features, benefits, and competitive advantages. Detail the development process, lifecycle, and intellectual property rights, if applicable.

Market Analysis

The market analysis section delves into the industry, target market, and competition. It should demonstrate a thorough understanding of market trends, growth potential, customer demographics, and competitive landscape.

Marketing and Sales Strategy

Outline your organization's approach to promoting and selling its products or services. This includes marketing channels, sales tactics, pricing strategies, and customer relationship management .

Management and Organization

This section provides an overview of your company's management team, including their backgrounds, roles, and responsibilities. It also outlines the organizational structure and any advisory or support services employed by the company.

Operational Plan

The operational plan describes the day-to-day operations of your business, including facilities, equipment, technology, and personnel requirements. It also covers supply chain management, production processes, and quality control measures.

Financial Plan

The financial plan is a crucial component of your business plan, providing a comprehensive view of your organization's financial health and projections.

This section should include income statements , balance sheets , cash flow statements , and break-even analysis for at least three to five years. Be sure to provide clear assumptions and justifications for your projections.

Appendices and Supporting Documents

The appendices and supporting documents section contains any additional materials that support or complement the information provided in the main body of the business plan. This may include resumes of key team members, patents , licenses, contracts, or market research data.

Components of a Business Plan

Benefits of Business Planning

Helps secure funding and investment.

A well-crafted business plan demonstrates to potential investors and lenders that your organization is well-organized, has a clear vision, and is financially viable. It increases your chances of securing the funding needed for growth and expansion.

Provides a Roadmap for Growth and Success

A business plan serves as a roadmap that guides your organization's growth and development. It helps you set realistic goals, identify opportunities, and anticipate challenges, enabling you to make informed decisions and allocate resources effectively.

Enables Effective Decision-Making

Having a comprehensive business plan enables you and your management team to make well-informed decisions, based on a clear understanding of the organization's goals, strategies, and financial situation.

Facilitates Communication and Collaboration

A business plan serves as a communication tool that fosters collaboration and alignment among team members, ensuring that everyone is working towards the same objectives and understands the organization's strategic direction.

Benefits of Business Planning

Business planning should not be a one-time activity; instead, it should be an ongoing process that is continually reviewed and updated to reflect changing market conditions, business realities, and organizational goals.

This dynamic approach to planning ensures that your organization remains agile, responsive, and primed for success.

As the business landscape continues to evolve, organizations must embrace new technologies, methodologies, and tools to stay competitive.

The future of business planning will involve leveraging data-driven insights, artificial intelligence, and predictive analytics to create more accurate and adaptive plans that can quickly respond to a rapidly changing environment.

By staying ahead of the curve, businesses can not only survive but thrive in the coming years.

Business Planning FAQs

What is business planning, and why is it important.

Business planning is the process of setting goals, outlining strategies, and creating a roadmap for your company's future. It's important because it helps you identify opportunities and risks, allocate resources effectively, and stay on track to achieve your goals.

What are the key components of a business plan?

A business plan typically includes an executive summary, company description, market analysis, organization and management structure, product or service line, marketing and sales strategies, and financial projections.

How often should I update my business plan?

It is a good idea to review and update your business plan annually, or whenever there's a significant change in your industry or market conditions.

What are the benefits of business planning?

Effective business planning can help you anticipate challenges, identify opportunities for growth, improve decision-making, secure financing, and stay ahead of competitors.

Do I need a business plan if I am not seeking funding?

Yes, even if you're not seeking funding, a business plan can be a valuable tool for setting goals, developing strategies, and keeping your team aligned and focused on achieving your objectives.

fiscal planning business definition

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

Related Topics

  • Business Continuity Planning (BCP)
  • Business Exit Strategies
  • Buy-Sell Agreements
  • Capital Planning
  • Change-In-Control Agreements
  • Cross-Purchase Agreements
  • Decision Analysis (DA)
  • Employee Retention and Compensation Planning
  • Endorsement & Sponsorship Management
  • Enterprise Resource Planning (ERP)
  • Entity-Purchase Agreements
  • Family Business Continuity
  • Family Business Governance
  • Family Limited Partnerships (FLPs) and Buy-Sell Agreements
  • Human Resource Planning (HRP)
  • Manufacturing Resource Planning (MRP II)
  • Plan Restatement

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  • Financial Planning

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What is Financial Planning?

Financial Planning includes all the activities that apply general management standards to the financial resources of a firm such as planning, directing, organizing, procurement of funds, investment, and return of the funds. In this article, students will learn about the meaning, objectives, and features of financial planning. 

Financial Planning is one of the major planning that is required to be conducted by the management. Financial Planning includes all the activities which are related to the procurement of funds, investing those funds, and the return expected from the investment done. Financial Planning also ranges from tax planning which is an important activity. This planning is very important for a business to function, in this regard we have initiated the discussion on this topic ‘Financial Planning’ which is to be studied in greater detail. The scope of this topic is vast hence for a conceptualized study this is to be referred to. 

Definition and Meaning

Financial planning is defined as a document that has records of a business owner or firm's financial situation along with planning on the spending of money to achieve a certain goal by working by a well-devised plan. Financial planning may be made independently or by an experienced planner.

It is basically a financial budget plan, which helps organize the business and includes a set of goals that are supposed to be followed by the firm or business owner to save and spend accordingly. It helps distribute various monetary expenses such as rent, while at the same time saving some amount of money as short-term or long-term savings. 

Financial Planning is the process of estimating the capital requirement and also determining the competitive elements required for financial planning. This is a plan which has been defined as a document that contains a person's current money situation with the long-term monetary goals, the strategies to achieve those goals on the basis of the current fund. A financial plan may be devised and drafted independently or with the assistance of a financial planner. The first step in the creation of a financial plan is to involve collecting the numbers from the web-based accounts into a document or a spreadsheet. 

This type of planning is also known as an investment plan as it manages various types of liquid and other assets that involve risk and uncertainty. Financial planning done by individuals is not as risky as they do not involve huge investment or undertaking, such as funds kept separate for college or university, estates, healthcare, or retirement.

Financial Planning in Financial Management

A financial plan is an overall evaluation of an individual's current pay and future financial state by using the current known variables to predict the future income, asset values, and withdrawal plans. Financial Planning includes the budget which organizes the business and the individual finances and at times includes a series of steps or specific goals for spending and saving for the future. This plan distributes the future income to various types of expenses such as rent or utilities and also reserves some income for the short-term and long-term savings as well. A financial plan is sometimes referred to as an investment plan, while personal financing focuses on specific areas like risk management, estates, colleges, or retirement. 

There two main objectives of financial planning which are given below:

Ensuring Availability of Funds When Required: The foremost and most important objective of financial planning is to keep in check that funds are available in cases of emergency or whenever it is required for use. Sufficient funds should be available with the firms for various purposes.

Check Unnecessary Fundraising by the Firms: Insufficient funds are just as bad as surplus funds. Idle money will only result in a loss for a firm as against investment. Therefore, proper allocation of funds is a very important part of financial planning.

The Objectives of Financial Planning are Enumerated as Follows - 

To Ensure Availability of Funds Whenever Required:  

The foremost objective of financial planning is assuring that sufficient fund is available with the company for different purposes. 

To Check if the Firm Raises the Resources Unnecessarily:

Excess funding is as bad as inadequate funds. If there is a surplus amount of money, then the financial planning is to invest it in the best possible manner as keeping financial resources idle is a great loss for an organization as it will be in vain.

There are a number of features of financial planning that are important for firms and individuals. These are listed below:

Foresight: A plan made without foresight will only result in a disaster. Foresight is needed in planning for estimating risks and the need for liquid and other assets. It may not be 100% accurate but it should be able to give an estimate of the future risks.

Flexibility: A plan made should be flexible as it will help in the future to make adjustments according to the needs. 

Optimal Usage of Funds: A financial plan should be able to utilize idle money and assets so that they can prove to be fruitful in the future. It does not involve funds kept aside for unforeseen circumstances but the assets that could be otherwise utilized.

Simplicity: Financial planning should be simple in terms of structure and should be able to provide a sound allocation of resources that can be easily understood even by a layman.

Liquidity: It is also a very important aspect of financial planning which involves keeping current assets in the form of money. This will help in easy allocation and payment of various kinds like salary, fees, and other kinds.

Features of Financial Planning is Enumerated as below - 

Simplicity: A sound financial structure must provide a simple financial structure that could be managed easily and understandable even to a layman.

Foresight: Foresight must be used in planning to know the estimate and the need for capital which may be estimated as accurately as possible. A plan visualized without any foresight will outcast disaster for the company.

Flexibility: Repeating the financial adjustments becomes necessary hence its flexibility is required so that it is easily adaptable

Optimum use of Funds: Capital should not only be adequate but should also employ productive effects. A financial plan should prevent wasteful use of the capital, thus avoiding idle capacity to ensure proper utilization of funds to earn the capacity in an enterprise.

Liquidity: Current assets are to be kept in the form of liquid cash. Cash is also required to finance purchases, to pay the daily needs like paying salaries, wages, and other incidental expenses.

Conclusion:

Financial Planning is an important aspect of the individual as well as business life. This article gives you an insight into what financial planning comprises and what are its key aspects.

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FAQs on Financial Planning

1. What is meant by financial planning?

Financial planning refers to short-term and long-term planning of allocation of available funds according to the requirements of a business firm by estimating the requirements of the firm and determining the sources of funds.

2. What are the two objectives of financial planning?

The two objectives of financial planning are:

To ensure availability of funds whenever required

To see that funds are not sitting idle or are not raised unnecessarily.

3. How does financial planning act as a link between the present and the future?

Financial planning is made by keeping in mind the future requirements of the firm by allocating liquid assets for proper investment and return.

4. What is the role of financial planning in financial corporate firms?

Financial planning in financial corporate firms helps in determining short term and long term capital requirements like the cost of assets, promotional expenses, and long term planning as well as determining the amount and proportion of capital required by the firm in terms of investment which includes making decisions on debt-equity ratio. Financial planning also helps optimal allocation of resources and funds available and framing financial policies related to investments and cash control.

5. Why is Financial Planning useful?

Finance is the lifeblood of a business, this is very crucial to any organization. Hence, utilizing finance without proper planning will be a fool’s act. The organizations force a special team for planning this fundamental factor. Planning involves estimating the future need of finance, its investment in key areas, and executing the return estimate – these activities are required to proceed on for adequate functioning.

6. Who is a Financial Planner?

A financial planner or a personal financial planner is also a professional person who prepares financial plans for his clients. These financial plans often cover cash flow management, retirement planning, investment planning, financial risk management, insurance planning, tax planning, estate planning, and business succession planning which attracts both individual clients as well as business firms.

7. Why is ‘Investment Plan’ also known as ‘Financial Plan’?

An ‘investment plan’, precisely, is a part of a ‘financial plan’ which means that in order to invest in a particular event or activity, the plan is to be devised to know the requirement of the fund needed in the investment, the return from the investment and its factors related. Thus, we see there is planning involved in the finance of the investment, hence, they can be used as synonyms to each other.

8. Enumerate Principles on Financial Planning.

The Principles are –

Think long-term with goals and investing.

Spend less than you earn.

Maintain liquidity (emergency savings).

Minimize the use of debt.

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What is Business Financial Planning? Processes and Definition

What is Business Financial Planning? Definition

Business financial planning (BFP) is the process of creating a financial roadmap to help a business achieve its objectives. 

For example, a business might want to increase profit by 10% in a given year.

To that end, they will embark on some business financial planning to determine areas to improve sales, cut costs or improve profit margin in order to achieve that goal. 

Who Conducts Business Financial Panning (BFP)?

BFP is performed by both startups and established companies.

When a new business is launched, strong business financial planning is an important part of standing up that business.

What is Business Financial Planning?

Image Source:  Business Financial Planning

A new company needs to have a firm grasp of the numbers at play in their industry.

They should have a plan for how much money they need to run their operation, how much money they need to make to stay operational and a firm grasp of where all that money will come from. 

Business financial planning is also very important for established companies .

Every month, quarter or year a business will have goals that they are working towards, and a strong plan helps them to achieve those benchmarks. 

Business financial planning is also important when a business plans to take a significant business strategy, such as expanding a product line or expanding into a new territory. A clear financial plan can help managers understand if these types of strategic objectives are feasible. 

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What is financial planning in business?

Table of Contents

What is financial planning?

Difference between a personal and business financial plan, how to create a financial plan for your business, develop a solid strategy, create a balance sheet, make cash flow projections, prepare a projected income statement, allocate your budget, monitor your results, plan your finances easily with countingup.

Planning and organising your finances is one of the most crucial parts of running your own business. Financial planning helps you prepare for what the future may involve and uncover ways to grow your company. 

But a financial plan involves much more than simply tracking income and expenses. To help you understand what financial planning is, this guide covers:

  • The difference between a personal and business financial plan

Read on to learn how Countingup can help you manage your financial planning with ease.

A financial plan serves as a roadmap for your economic growth, showing where you’re at right now, where you want to go, and how you will get there. 

You can create a financial plan for personal and business purposes, but these processes are slightly different. We’ll explain more about personal vs business financial planning later in this article.

Financial plans are essential because they force you to consider if you’re on the right track to achieve your business goals. Businesses don’t usually grow accidentally but as a result of hard work and careful planning. 

Working with specific goals in mind and a plan for reaching them increases your chances of taking your business where you want it to go. Otherwise, you risk stumbling around in the dark, focusing on things that won’t help your business grow. 

Most financial plans include much of the same information. However, there are some key differences between a personal financial plan and a business one. The reason is that an individual’s financial goals are likely different from those of a growing company.

For example, your personal financial plan may include a retirement plan, a strategy for investments, and a plan for buying a new house. You’ll also likely focus on making more money while paying yourself as tax-efficiently as possible.

On the flip side, your company’s financial plan is more likely to focus on goals like hiring more staff, buying new equipment, expanding your product or service offering, and purchasing additional inventory. 

These goals are entirely different from the hypothetical individual goals we just mentioned. Therefore, you need a different strategy for your business and personal financial planning.

What is important to include in a financial plan? Below we’ve listed some of the main documents and other aspects you need to create a robust plan:

Effective financial planning usually includes a strategic plan. Think about what you want to accomplish in the next year and ask yourself questions like:

  • Do I need to expand or hire more staff?
  • Do I need more equipment or new resources?
  • How will my plan affect my cash flow?
  • Will I need financing? If yes, how much?

Once you know where you want your business to go in the next 12 months, think about how much it might cost you.

It’s also good to think about what you would do if your finances suddenly deteriorated, perhaps from not getting enough jobs or selling enough products. Maybe you could put money aside when the business goes well to have funds available if money ever gets tight.

Your balance sheet is a snapshot of your business’s financial position, meaning how much money you have, how much you’ll receive, and how much money you owe. It’s called a ‘balance sheet’ because it calculates what you need to balance out.

A balance sheet should list your:

  • Assets: Such as unpaid invoices, money in the bank, and inventory.
  • Liabilities : Money you owe, credit card balances, loan repayments, and so on.
  • Equity: For small businesses, this is usually the owner’s equity, but it could include investors’ shares, retained earnings, and stock proceeds.

Financial planning also involves predicting how much money you’ll make and spend in the coming month, quarter or year. Record how much you expect to make from sales and what you think you’ll spend on expenses like bills, supplies, loan repayments, and so on. 

You can use a simple spreadsheet to calculate your cash flow projections. We have a separate guide that tells you all about what cash flow is and how it works.

Next, you’ll want to prepare a projected income (or profit and loss) statement to predict how successful you think your company will be. It can be helpful to include different scenarios, good and bad, to help you prepare for each one.

Income statements typically include:

  • Revenue: Money from sales.
  • Expenses: Money you’ll spend. 
  • Total income: Calculated as your revenue minus expenses before income taxes.
  • Income taxes: Such as Income Tax, National Insurance, and Corporation Tax for limited companies.
  • Net income: Your total income after deducting expenses and taxes.

Once you’ve created your strategy and filled in your balance sheet, cash flow, and income projections, you need to figure out where you’ll spend the money you make. 

Take your company’s overall budget (read more about how to budget money for your growing business ) and divide it into specific budgets. For example, one for hiring new staff, one for buying new equipment, and one for expanding your product or service offering.

Once you’re done with your financial planning, monitor your real-life results and compare them to your predictions. Monitoring helps you spot any problems so you can fix them before they get out of hand. 

It may be a good idea to hire a financial expert to help you put together and monitor your financial plan. Accounting software like Countingup can also help you keep track of your finances almost effortlessly.

Countingup offers sole traders and small business owners the chance to save time and money. 

With Countingup, your business current account and accounting software are available in one app. Coupled with our handy expense reminders, automated invoicing, and tax estimates, you can have complete confidence in keeping on top of your finances as you trade. 

The app’s realtime profit and loss dashboard gives an insight into your business’ performance and can give you the edge you need to make it a success. 

Find out more about Countingup here and sign up for free today. 

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Fiscal Year Definition

Table of Contents

What Is a Fiscal Year?

Why do businesses use fiscal years, examples of fiscal years.

A fiscal year is the 12 months that a company designates as a year for financial and tax reporting purposes . This year can differ from the traditional calendar year, and it varies for each corporation.

Companies align their fiscal years with their preferred accounting schedule, audits, the release of financial reports and other financial activities. You can see the company's fiscal year and the current quarter on its quarterly financial reports.

Fiscal Year for Tax Reporting

The IRS uses the calendar year as a default. Businesses have to specify when their fiscal years start and conclude if they do not wish to use traditional calendar years. Businesses can change their fiscal year, but they must get approval from the IRS. A company must submit an income tax return that indicates the fiscal year to incorporate a fiscal year for tax reporting purposes.

If a company is using a fiscal year to file its corporate tax return, it must do so by the 15th day of the fourth month after its fiscal year ends. This is similar to the way taxpayers following the traditional calendar year typically file on April 15, as the calendar year ends on Dec. 31.

Many small businesses use the calendar year for their financial activities. However, some publicly traded corporations opt for fiscal years. It may not make sense at first glance, since a corporation makes the same amount of money regardless of what time of year the money arrives. There are several advantages to filing on a fiscal year schedule, however.

Tax Advantages

One of the more obvious pluses is that a fiscal year changes the due date for taxes. This approach can help restaurants in seasonal areas that generate most of their revenue in the summer. These restaurants can shift their tax bills to the end of a busy season instead of searching for money in April after a few slow months.

Another perk with fiscal years is that businesses can save money on filing taxes. Accountants are at their busiest leading up to April 15, so many accounting firms will charge higher prices since demand is at its highest. A company that has an Aug. 15 tax deadline doesn't have to contend with the rush earlier in the year.

Advantages for Retailers

It is also common for retailers to end their fiscal year on Jan. 31. This date allows retailers to display all of their revenue from the holiday season. The last quarter of this fiscal year only contains financial results from November, December and January, which is likely one of their best quarters for sales.

Fiscal years vary for each company. Many publicly traded corporations use fiscal years to report earnings , and they include the fiscal year-end date on the 10-K form required annually by the U.S. Securities and Exchange Commission. The following day marks the start of a new fiscal year.

For some firms, it is better to structure a fiscal year around key product release months instead of using a traditional calendar year. This can apply to tech firms as well as other types of companies.

Nvidia Corp. (ticker: NVDA ), for example, has a fiscal year that ends on the last Sunday of January. Nvidia's fiscal year is also about a year ahead of the calendar year. Nvidia commenced with fiscal 2023 on Jan. 31, 2022, for example.

Apple Inc. ( AAPL ) also uses a fiscal year structure. The company's fiscal year ends on the last Saturday of September. So on Sept. 24, 2022, for example, Apple was still in fiscal 2022. Apple's fiscal year 2023 started on Sept. 25, 2022, and ended on Sept. 30, 2023.

Even the U.S. government has a fiscal year. The country's fiscal year starts on Oct. 1 and ends on Sept. 30.

Traditional Calendar Year

Not every company uses fiscal years. Amazon.com Inc. ( AMZN ) and Alphabet Inc. ( GOOG , GOOGL ) are two of the many corporations that use traditional calendar years for tax purposes, earnings reports and other financial activities.

The traditional quarters are as follows:

Quarter 1: January, February and March.

Quarter 2: April, May and June.

Quarter 3: July, August and September.

Quarter 4: October, November and December.

Any quarter can be abbreviated as Q followed by the number. Quarter 1 can also be written as Q1. Fiscal year can be abbreviated as FY. Therefore, a report showing a company's results for the third quarter of fiscal 2024 can be shortened to "Q3 FY24 results."

52-Week and 53-Week Fiscal Year Calendars

Many corporations use fiscal years that start on the first day of the month and conclude on the last day of the previous month. A corporation that starts its fiscal year on May 1 will conclude its fiscal year on April 30 of the following calendar year. However, some companies use 52-week and 53-week fiscal year calendars instead.

These corporations prioritize year-over-year changes on a weekly basis instead of quarterly. This approach gives investors more information about a company's financial results and growth rates .

Costco Wholesale Corp. ( COST ) offers monthly reports that detail sales over the past four to five weeks as well as sales results for the number of weeks that have passed within its fiscal quarter.

Fifty-two-week and 53-week fiscal years do not have to end their quarters in the middle of the month. These corporations use 13-week periods to determine fiscal quarters. Four 13-week quarters result in 52 weeks, or 364 days.

Since most years are 365 days and some years are 366 days long, a gap develops. Corporations using 13-week quarters will have one 14-week quarter every few years to address the small gap between 52 weeks and a full calendar year.

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What Is Business Planning?

Why Business Planning Isn't Just for Startups

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

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Business planning takes place when the key stakeholders in a business sit down and flesh out all the goals , strategies, and actions that they envision taking to ensure the business’s survival, prosperity, and growth.

Here are some strategies for business planning and the ways it can benefit your business.

Business planning can play out in many different ways. Anytime upper management comes together to plan for the success of a business, it is a form of business planning. Business planning commonly involves collecting ideas in a formal business plan that outlines a summary of the business's current state, as well as the state of the broader market, along with detailed steps the business will take to improve performance in the coming period.

Business plans aren't just about money. The business plan outlines the general planning needed to start and run a successful business, and that includes profits, but it also goes beyond that. A plan should account for everything from scoping out the competition and figuring out how your new business will fit into the industry to assessing employee morale and planning for how to retain talent.

How Does Business Planning Work?

Every new business needs a business plan —a blueprint of how you will develop your new business, backed by research, that demonstrates how the business idea is viable. If your new business idea requires investment capital, you will have a better chance of obtaining debt or equity financing from financial institutions, angel investors , or venture capitalists if you have a solid business plan to back up your ideas.

Businesses should prepare a business plan, even if they don't need to attract investors or secure loans.

Post-Startup Business Planning

The business plan isn’t a set-it-and-forget-it planning exercise. It should be a living document that is updated throughout the life cycle of your business.

Once the business has officially started, business planning will shift to setting and meeting goals and targets. Business planning is most effective when it’s done on a consistent schedule that revisits existing goals and projects throughout the year, perhaps even monthly. In addition to reviewing short-term goals throughout the year, it's also important to establish a clear vision and lay the path for your long-term success.

Daily business planning is an incredibly effective way for individuals to focus on achieving both their own goals and the goals of the organization.

Sales Forecasting

The sales forecast is a key section of the business plan that needs to be constantly tracked and updated. The sales forecast is an estimate of the sales of goods and services your business is likely to achieve over the forecasted period, along with the estimated profit from those sales. The forecast should take into account trends in your industry, the general economy, and the projected needs of your primary customers.

Cash Flow Analysis

Another crucial component of business planning is cash flow analysis. Avoiding extended cash flow shortages is vital for businesses, and many business failures can be blamed on cash flow problems.

Your business may have a large, lucrative order on the books, but if it can't be invoiced until the job is completed, then you may run into cash flow problems. That scenario can get even worse if you have to hire staff, purchase inventory, and make other expenditures in the meantime to complete the project.

Performing regular cash flow projections is an important part of business planning. If managed properly, cash flow shortages can be covered by additional financing or equity investment.

Business Contingency Planning

In addition to business planning for profit and growth, your business should have a contingency plan. Contingency business planning (also known as business continuity planning or disaster planning) is the type of business planning that deals with crises and worst-case scenarios. A business contingency plan helps businesses deal with sudden emergencies, unexpected events, and new information that could disrupt your business.

The goals of a contingency plan are to:

  • Provide for the safety and security of yourself, your employees, and your customers in the event of a fire, flood, robbery, data breach, illness, or some other disaster
  • Ensure that your business can resume operations after an emergency as quickly as possible

Business Succession Planning

If your business is a family enterprise or you have specific plans for who you want to take over in the event of your retirement or illness, then you should have a plan in place to hand over control of the business . The issues of management, ownership, and taxes can cause a great deal of discord within families unless a succession plan is in place that clearly outlines the process.

Key Takeaways

  • Business planning is when key stakeholders review the state of their business and plan for how they will improve the business in the future.
  • Business planning isn't a one-off event—it should be an ongoing practice of self-assessment and planning.
  • Business planning isn't just about improving sales; it can also address safety during natural disasters or the transfer of power after an owner retires.

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Run » finance, 4 simple steps to smart financial planning for small businesses.

Financial planning often involves looking for funding to help take your business performance to the next level. Here are some strategies to explore.

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Financial planning is an iterative, ongoing process that helps your business reach its long-term goals. Financial planning strategies assess your business’s current financial position and allow you to adapt to market changes, forecast business growth, and achieve higher returns.

A typical financial strategy combines two key elements to help you reach your short- and long-term financial benchmarks. These elements are debt and investments. As you think about your financial strategy for the next year and beyond, here’s how to evaluate these options for fueling growth.

Start with goal-setting

Before you can determine whether to take on debt or pitch to investors, you must know the result toward which you are working. Set a SMART goal — one that’s Specific, Measurable, Achievable, Relevant, and Time-Bound — that you can break down into smaller financial targets.

For instance, most business owners aim to increase profit. However, there are more manageable goals that you can set along the way to earning more profit, such as:

  • Increase revenue.
  • Streamline operating expenses.
  • Improve customer retention.
  • Optimize pricing.

Set numerical targets and deadlines for these smaller benchmarks to get a clear picture of the resources and financial strategy that will help you make progress toward your larger objective.

[Read more: CO— Roadmap for Rebuilding: Planning Your Financial Future ]

How to use debt as a financial strategy

Loans are the most common form of debt that a company can use in its financial planning strategy. Loans from financial institutions, credit card companies, or even friends and family can be a good way to get the cash you need for short-term investments.

As a financial planning strategy, the appeal of using debt is that it’s relatively flexible. “Banks offer a range of different business loan products, including term loans, business lines of credit, equipment financing and commercial real estate loans, among other options,” wrote NerdWallet . “Unless you opt for a product that has a specific use case, like a business auto loan, for example, you can generally use a bank loan in a variety of ways to grow and expand your business.”

However, loans have strict eligibility requirements and can be slow to fund, involving a lot of paperwork and a strong credit score. New businesses may struggle to use debt in their financial planning strategy.

Loans are the most common form of debt that a company can use in its financial planning strategy.

How to use equity or investments in financial planning

Issuing equity (stock) is another way to fund your financial plan. Startups in particular can sell shares of ownership to investors to raise capital for growth, expansion, or acquisitions. This allows you to avoid taking on debt and can bring on partners with mentorship and advice to offer.

“With equity financing, there is no loan to repay. The business doesn’t have to make a monthly loan payment which can be particularly important if the business doesn’t initially generate a profit. This in turn, gives you the freedom to channel more money into your growing business,” wrote The Hartford .

The downside of equity financing is that you will need to share a part of your profit with your equity partners. Equity is best suited for financial strategies that require significant capital quickly.

[Read more: 4 Financial Forecasting Models for Small Businesses ]

Final tips for financial planning

Debt and equity are the key ways to ensure you have the cash flow to reach your financial goals, but there are other elements to consider in your strategy. Make sure you plan a safety net for unforeseen risks; build an emergency fund and get insurance to protect your business. In addition, review your financial results quarterly and annually to ensure your projections are realistic.

“As you look over your annual income reports, you can gain insight into the activities that led to improved revenue and double down on them to raise profits as part of your financial plan,” wrote FundKite , a business funding platform.

Revisit your financial plan frequently to make sure the funding options you explore are still serving your business goals. There are plenty of alternative funding sources — such as grants and crowdfunding — that can help you reach short-term benchmarks along the way.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here .

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What is fiscal? Definition and examples

Fiscal relates to government revenue and spending , i.e., tax revenue and government expenditure. It also relates to government borrowing, i.e., public debt. In the United States, the term also means ‘financial year.’

In Scotland, the procurator fiscal  is a public official who puts people on trial, i.e., the public prosecutor.

This article focuses on the word when it relates to government revenue, expenditure, and debt.

The Collins dictionary has the following definition of the term :

“Fiscal is used to describe something that relates to government money or public money, especially taxes. Example sentence: ‘…last year, when the government tightened fiscal policy.'”

Fiscal policy

Fiscal policy refers to using government expenditure and taxation to impact the national economy.

All national governments hope that their policy encourages strong and sustainable growth.

Sustainable growth is a growth rate that a country can continue achieving over the long term . In other words, growth that does not subsequently result in serious economic problems.

Fiscal

When a government alters levels of taxation and public spending, the following variables in the economy are affected:

  • Aggregate demand and levels of economic activity.
  • Savings and investment.
  • The distribution of income.

The government can fund expenditure through taxation , borrowing money, and dipping into savings. It can also sell assets or print money.

Two government measures – boosting public spending or reducing taxation – come under the umbrella term ‘ fiscal stimulus .’

People who believe that fiscal policies are vital in economic regulation are ‘ fiscalists .’

Fiscal measures, such as tax incentives for businesses and credits for low-income families, are designed to address income inequality and stimulate economic participation from all sectors of society.

Fiscal vs. monetary policy

We frequently see these two terms in the financial press. Their meanings are quite different.

Monetary policy

Monetary policy is the focus of the central bank . Regulating the cost of borrowing, i.e., interest rates, for example, is part of monetary policy.

Monetary policy’s main aim is to control inflation and stabilize the country’s currency.

Fiscal policy refers to public spending, i.e., government expenditure, and its impact on macroeconomic conditions.

Macroeconomics is a branch of economics that looks at general or large-scale economic factors.

GDP (gross domestic product) and unemployment, for example, are macroeconomic factors.

Etymology of fiscal

Etymology is the study of where words come from, i.e., their origins, and how their meanings have evolved.

The term first emerged in the English language in the 1560s. According to etymonline.com , at the time it meant ‘pertaining to public revenue.’

The English term came from the Middle French word Fiscal , which came from Late Latin Fiscalis . The Late Latin word meant ‘belonging to the state treasury.’

The Latin word Fiscus meant ‘state treasury, money bag, purse, basket made of twigs (in which one kept one’s money).’

Fiscal – vocabulary and concepts

There are many derivatives of the English root word “fiscal,” as well as compound words. Let’s have a look at some these terms, their meanings, and examples of how we can use them in a sentence:

Fiscal (Adjective)

Related to government revenue, especially taxes. Example: “The fiscal policies of the government were revised to combat inflation.”

Fiscally (Adverb)

In a way that relates to financial matters. Example: “The government needs to act fiscally responsible to reduce the national debt.”

Fiscalist (Noun)

An economist who emphasizes the role of fiscal policy in government. Example: “As a fiscalist, she believes in adjusting tax rates to manage economic cycles.”

Fiscalism (Noun)

The economic theory that endorses the use of fiscal policy to manage the economy. Example: “Fiscalism has gained traction among policymakers during the economic downturn.”

Fiscality (Noun)

Definition: The state or condition of being subject to taxation. Example: “The fiscality of the new regulations could impact small business owners the most.”

Fiscalize (Verb)

To deal with financial matters or bring into relation with finances. Example: “The government decided to fiscalize the new public health initiatives to ensure adequate funding.”

  • Nonfiscal (Adjective)

Not related to government revenue, taxation, or public spending. Example: “They discussed nonfiscal benefits of the legislation, such as improved public health.”

Fiscal Year (Compound Noun)

A year as reckoned for taxing or accounting purposes. Example: “The company’s fiscal year runs from July 1 to June 30.”

Video – What is Fiscal?

This educational video presentation, from our YouTube partner channel – Marketing Business Network , explains what the word ‘Fiscal’ means using simple and easy-to-understand language and examples.

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Financial Budgeting

Financial budgeting definition.

Financial budgeting is the process of planning company expenses and revenues for a time period. Budgets set forth the plans of management in financial terms. This includes allocating financial resources and identifying available cash flows for required spending.

A budget and financial planning strategy detail a company’s expectations for what it aims to achieve for the current, upcoming year or another timeframe. For example:

  • Expense and revenue estimates
  • Cash flows expected
  • Debt reduction expected
  • Comparison of actual versus projected business financial budget, calculation of variances between them

Financial budgeting represents the overall financial position, goals, and cash flow of an organization. This regular practice of timely operational and financial budgeting creates a baseline for comparison to see how actual results vary from expected performance.

Basic corporate financial budgeting process steps for an annual budget usually take between three to six months to complete. The components of this process, which remains confidential, might include:

  • Establish and communicate management targets and goals
  • Develop the detailed, final budget to directly support those targets and goals, and attach financial documents such as the balance sheet, income statement, and cash flow statement
  • Finalize employee compensation plans (usually this is part of the process)
  • Compile and adjust budget model and measurement metrics so management can assess progress
  • Review and make final changes
  • Disseminate subordinate and/or line of business budgets across the organization

Financial budgeting enables a team to implement a business plan tactically to achieve corporate goals based on a detailed and descriptive roadmap using set metrics. This allows for careful monitoring of performance over time and the ability to make changes while in progress to eventually achieve the desired goals.

3 advantages of having a budget. [smucker]

Financial Budgeting FAQs

What is financial budgeting and forecasting.

Financial budgeting and financial forecasting help organizations plan where and how to evolve. The financial budget helps the business with the plan itself and the financial forecasting helps the team assess the current financial situation and whether the organization is moving in the right direction financially. The two tools are used in tandem, but they are distinct.

Budgeting quantifies the projected finances a business will be working with during a period. It sets the company’s financial direction for that period and sets expectations for income and revenue.

In contrast, financial forecasting estimates how much income or revenue will be achieved in a future period. This projection helps determine whether the company is meeting goals, allocating funds properly, and going in the right direction.

Budgeting serves as a baseline for comparison; this way management can see how expectations differ from actual performance. Management uses financial forecasting to analyze historical trends and company data to determine how to allocate the budget for the future.

In brief, financial forecasting:

  • Does not engage in the historical analysis of the difference between actual performance and past forecasts like budgeting
  • This is the future-facing assessment of how to allocate the budget for a future period
  • Updated regularly, periodically, month-to-month or quarterly, as inventory, operations, or the financial budgeting plan change
  • Can be short-term and/or long-term and can be updated with new data; for example, quarterly revenue forecasts might need to be updated based on changes to customer roll-up
  • With forecasted data, a management team can take immediate action

fiscal planning business definition

Why is Budgeting Important for Financial Planning?

There are several reasons why financial management is important:

Greater resource availability. The primary function of financial budgeting is to ensure core resources are available as needed to implement plans and achieve business goals. Advance planning of financials allows leadership to determine which initiatives and teams require more or fewer resources.

Inform financial goals. Financial planning and budgeting can help set metrics for internal financial goals and record progress against them. Budgeting for any given period involves assessing how much revenue is needed to meet company-wide and team financial goals, not just allocating spend. Financial goals should be evidence-based and achievable enough that they inform other budget allocations.

Prioritize projects and initiatives. The value proposition of financial budgeting techniques is that prioritizing projects and initiatives is a natural byproduct of the process. When prioritizing each project, consider how it aligns with company values, the potential return on investment (ROI), and the extent it might affect broader financial goals. Determine each line item’s value to the organization and compare them.

Optimize financing opportunities. Documented budgetary information is particularly important for anyone potentially seeking funding or financing, such as a startup seeking outside investors, or an existing company needing a loan. Investors value detailed information about past, current, and predicted financial performance highly. Offering budgeting and financial reporting documents for previous periods demonstrates the ability to manage the finances of a business and allocate funds, and in some cases is required.

Achieve optimal flexibility. Ideally, everything goes to plan and all predictions are accurate. But as things like the coronavirus (COVID-19) pandemic in 2020 show us, this is rarely the case for organizations in the real world. Executives must often rework budgets thoughtfully and rapidly to account for safety concerns, major losses, and potential reputation damage. A budget is a plan to start with, and an agile mindset and the right tools enable leadership to adjust the plan as needed.

Business financial management is important because it helps organizations improve their profitability, extend their mission, save money, remain economically stable, and increase in value over the long haul.

Types of Financial Budgets

There are several types of financial budgets. Each approaches financial planning prioritizing different factors. Here are some common types:

Zero-based budgeting. At the start of each planning period, each item is set at zero dollars before reallocating. This approach is often used by organizations in financial distress, allowing them to start over each period.

Activity-based budgeting. Works backward from the company’s goals to determine the cost of achieving them and can be used to improve efficiencies and cut costs, especially in a large business.

Static budgeting/Incremental-based budgeting. Creates the budget for the upcoming period by adding or subtracting a percentage from the previous period using historical data. This model is usually best for businesses with highly predictable revenue and expenses that don’t fluctuate much.

Performance-based budgeting. Performance-based budgeting focuses on cash flow per unit toward programmatic results. It is often used by governments and nonprofits that need to keep an overall focus on their mission.

Value proposition budgeting. Assumes only line items that directly provide value to the organization should be included in the budget. This is another approach to government spending and sometimes to larger businesses taking an aggressive approach to spending.

Trialing various financial budgeting and forecasting techniques is one way to determine which is best suited to your organization; the right type of financial budget varies by situation and company.

What is the Financial Budgeting Process?

There are multiple steps in the process of creating a budget. Keep budgets as detailed and thorough as possible. Typically, a financial budget should include:

  • All predicted revenue—including the value, types of revenue, and when it is expected
  • Fixed expenses for the organization (employee salaries, insurance, property taxes, rent, utilities, etc.)
  • Variable costs (maintenance, professional services, supplies, vehicle and travel expenses, etc.)

To create a budget, consider these financial budgeting tips:

  • Review, collect, and comprehend all of the required budgetary inputs
  • Analyze historical data, including previous budgets, to determine revenue and expense expectations by each fiscal period and year
  • Collaborate with a cross-functional team of stakeholders, including budget owners, C-suite executives, and sales leaders to formulate the plan
  • Identify any required capital expenditures such as infrastructure, equipment, or property that are required during the period
  • Prepare financial statements with budgeted numbers including balance sheet, cash flow, and income statement
  • Identify KPIs to measure progress
  • Review the final budget for strategic growth opportunities such as adding equity or reducing debt, or other investment and divestment opportunities

Always monitor progress throughout the budgeted period, based on performance against budgeted goals, and update forecasts periodically.

Generate reliable financial forecasts as follows:

  • Identify key metrics to focus the forecast such as marketing expenses or sales volume
  • Input the latest actuals into the forecast template
  • Determine the forecast time frame, typically to the end of the budgeted period
  • Calculate trends based on year-to-date and historical actuals
  • Apply trend calculations to real-time numbers and forecast results
  • When updating the forecast, consider any variables such as geopolitical conditions or business situations, like a merger, that could skew the forecast

Periodic forecasts typically only project to the end of the current fiscal year. Instead of projecting to the end of the fiscal year, rolling forecasts are generated monthly, quarterly or weekly to help plan for a specific period beyond the annual budget—the coming six quarters, for instance. The forecast actualizes a unit, whether it’s a fiscal month or quarter, and then “rolls” to the next period. This enables the leadership to keep sight of long-term business strategies.

Zero-based budgeting cycle in five steps helps to smooth ZBB implementation.

What is Included in a Financial Budget?

A financial budget offers a strategic overview of how a business manages cash flow, assets, expenses, and income. It establishes a comprehensive overview of revenue from core operations relative to spending via a comprehensive documentary picture of a company’s financial health. Financial budgets typically include a balance sheet, budgeted income statement, capital expenditures budget, and cash budget.

Benefits of Financial Budgeting

Financial budgeting enables an organization to chart its path and empowers the management team to engage in strategic enterprise budgeting and planning . The financial budgeting process delivers a clearly defined plan that reflects organizational goals for operations and finances. Financial budgets offer critical guidance for the year’s goals.

Other key benefits of financial budgeting include:

  • Close examination of financial activities
  • Expenses are more likely to be assessed for viability
  • Detailed documentation of all the uses and sources of cash is required, ultimately allowing for accurate anticipation of cash flows by management
  • Cross-functional stakeholders involved in budgeting create a sense of ownership and motivate team to achieve budgeted goals
  • Budget, forecasts, and up-to-date financial results can always be compared for real-time insights into performance, and offer a chance to adapt
  • Clarifies internal hierarchies and individual responsibilities
  • Clarifies where and when financial resources are allocated and needed

Remember, budgets can become outdated as they are prepared in advance and based on a number of assumptions, so forecasting is also important—especially when questions are time-sensitive.

Other benefits to forecasting include:

  • Forecasting identifies trends that may require a strategic adjustment
  • A well-informed prediction of how, when, and why future costs may fluctuate enables simpler management of capital requirements and cash flows
  • Reliable forecasts may open up more opportunities for financing with investors
  • Forecasted numbers offer a logical starting point for the next budget
  • Forecasting offers smart short-term focus for managers

Who is Responsible for Enterprise Financial Budgeting?

The budget owner is the person who is ultimately responsible for ensuring that the budget is followed. Budget owners are usually the operational directors and managers of companies who must ensure that the company follows whatever budget is laid out for them. The shareholders, owners, or the board of directors tasks the budget owner with this one, overarching duty.

Many large companies employ a committee of multiple budget owners charged with ensuring that the budget is followed. Typically, the committee consists of directors and managers from various divisions and departments of the company. This is a more democratic but less efficient approach that can lead to indecisiveness and even infighting.

However, even a single budget owner does not work alone and instead has consultants, financial experts, lawyers, industry experts, and others working under them. The budget owner is ultimately accountable to the shareholders or owners.

Typically on the budget owner team:

Department managers. Mid-level department managers provide information to the finance and accounting department throughout the budgeting process, reporting revenue contributions and departmental expenses and providing the details needed to project future income and expenses.

Finance and Accounting team. Corporate finance and accounting teams manage accounts receivable, accounts payable, bookkeeping, and payroll. Senior associates might create sales and payroll reports, analyze input-cost trends, audit expense reports, or engage in other tasks as part of the budgeting process.

Corporate executives. Corporate executives at the top management level are directly accountable to the board of directors, manage the company’s finances, and present final budget proposals to the board. The chief financial officer (CFO) or equivalent executive is responsible for top-level budgets based on the finance or accounting team’s input. Sales directors forecast the next year’s sales trends. Chief operating officers (COOs) forecast future payroll and operating costs. Chief marketing officers (CMOs) forecast the next year’s expected market-share increase and marketing expenses, while chief technology officers (CTOs) forecast technology expenses.

Board of Directors. Corporate executives report directly to the board of directors who serve as the stockholders’ chosen representatives, and offer the final vote on proposed budgets. Board members answer directly to shareholders and company owners.

What are Financial Budgeting Tools?

There are a number of challenges that impede financial budgeting and forecasting efforts. Financial planning & budgeting software tools are commonly used to deal with these issues—because nearly all of them have to do with coping with data.

Disparate, wide-ranging sources of disconnected data collected. Data silos are a tremendous problem for finance and budgeting teams. Trying to extract data from siloed sources reduces the time spent on real analysis. It slows down the financial budgeting and forecasting cycle and makes it tougher to adapt to rapidly changing market conditions.

Manual processes and inaccurate data. While many finance teams still use offline spreadsheets and similar analog tools for financial budgeting and other core FP&A activities, they are slow, labor intensive, and impossible to manage across large businesses. Something like an Excel spreadsheet lacks the version control and data integrity solutions of corporate financial budgeting software with database capabilities.

Time-consuming data collection and input automated. Many contributors spending time editing many spreadsheets means that aggregation and data entry will be lengthy, error-ridden tasks. Finance automation tools render this manual sorting of budgeting data unnecessary.

Difficult collaboration simplified. The old-fashioned way of collecting data for the budgeting process from various departments is difficult. Spreadsheets are inflexible, and it’s not easy to aggregate, manipulate, retroactively change, and/or share budgeting data. An FP&A platform such as Planful makes data sharing and work between cross-functional teams simpler, and lends visibility to processes with current, accurate data. 

Insights made relevant. Real-time tracking of forecasting and financial budgeting KPIs are the key to regulating the financial health of a business. This kind of agile budgeting and financial planning process keeps companies profitable and competitive.

The role of data-driven platforms is to remain responsive, and rapidly help the user share insights. They can generate accurate sales forecasts based on historical data, create projections for future sales, and predict fluctuations to help develop accurate budget plans.

Does Planful Help With Financial Budgeting?

How does Planful financial budgeting and forecasting software help with financial budgeting?

Planful financial budgeting and forecasting software helps by providing teams with audit trails, workflows, and data validation measures all in one place for confident financial budgeting and forecasting.

There are many reasons to automate data entries for financial budgeting and forecasting:

  • Reduce budgeting and forecasting cycle times by up to 50% or more
  • View forecasts, budgets, and actuals from the same template so you can more easily identify trends and variances
  • Drill down into transaction-level details right from your budget and forecast templates
  • Complete planning solutions don’t usually require maintenance or management from IT
  • Cross-functional stakeholders can all work from the same connected template. Audit trails allow users to track, validate, and approve changes and add commentary
  • Scenario modeling features make it simple to test forecasts and budgets against an unlimited number of potential future business scenarios 
  • Customizable workflows let you supplement the budgeting process with an additional executive review step
  • Data visualization dashboarding helps stakeholders visualize where the business is headed

Curious to learn what else Planful can do to help your team learn how to do financial budgeting more effectively? Contact us for a demo of our automated financial budgeting services.

Get Started with Planful

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International Edition

I'm a HENRY financial planner who makes $125,000. Here's how I manage my money — and the mistakes I see others making.

  • Georgia Lord, a HENRY and financial planner, earns a salary of $125,000 but doesn't feel wealthy.
  • Lord's financial goals include early retirement, travel, a wedding, and a larger NYC apartment.
  • She warns HENRYs against investing without knowledge and recommends financial planning for everyone.

Insider Today

This as-told-to essay is based on a conversation with Georgia Lord, a 27-year-old certified financial planner and HENRY in New York City. It has been edited for length and clarity.

I studied finance and started my career in Brisbane, Australia.

When I was 22, I moved to New York to join Morningstar in the credit ratings division. I pivoted to financial planning for a Canadian Fintech called Wealthsimple a year later.

I discovered that I love financial planning and working one-on-one with clients. Last year, I got my certified financial planning license .

I now make a comfortable living, but I consider myself a HENRY and have a way to go before I hit my goals.

I make 6 figures but don't feel wealthy

I earn a base salary of $125,000 and manage to live in New York City by being frugal. I love a bargain or a sale. I save for certain things I want, and I'm good at it because it's my job. I'd feel like a hypocrite if I didn't do what I told others to do.

I save on my Broadway tickets by entering into the lottery. I splurge on some things — I spend around $600 monthly on dining out. I also travel a lot, so I automate a certain amount of money every month for travel.

I lived with roommates for four years, and I've lived with my boyfriend for the last year. We split the rent more favorably to me since he makes quite a lot more, so I contribute $1,500 per month. That's also been helpful for managing my finances.

I have a few financial goals

One of my financial goals is to save up for the professional designations available in my field since they can be expensive.

I want to retire early , and I want to keep prioritizing saving for travel and visiting my home in Australia, which is not cheap.

I'm also saving for a wedding and improving cash flow to move into a larger apartment.

To reach my savings goals, I automate at least 20% of my paycheck every two weeks and deposit it in a high-yield savings account . I use Wealthfront but also like Ally, CapitalOne360, and Betterment. I preach that to all of my clients who are HENRYs : Automate your savings for big goals.

There's not a number in mind that I'm looking to reach to feel rich, but I will feel successful if I can achieve my goals without sacrificing my lifestyle in the process. Being in a great financial position today and in the future is what I consider rich.

I see HENRYs making one big mistake

Because the market did well in 2023 , I've noticed HENRYs (both in my personal life and those I see as clients) wanting to throw money into it without thinking about how they will fund other goals, like a down payment for a house.

Not only is it harder to access funds once they're invested, but there can also be financial benefits to other strategies. For example, some stock market returns might've been 3% last year, but some high-yield savings accounts have a return of 4.5%.

I still invest in the market, but I do so strategically. I have a 401(k) , Roth IRA , Traditional IRA , brokerage account with Betterment, and a brokerage account in Australia. I mostly invest in ETFs — I'm not a stock picker and love the diversity that ETFs provide.

It can be difficult to figure out how to divide your money and where to put it, so I recommend HENRYs work with a financial planner . We're not just for the rich — I've worked with clients in many different financial situations, and all can benefit.

Even if you're not ready for a financial planner, take the time to think through what your goals are and what you want to spend your money on. That's just as important as putting $100 into the stock market every week.

fiscal planning business definition

Watch: A financial planner reveals an important money lesson young people can learn from the rich

fiscal planning business definition

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US is imposing more than 500 new sanctions on Russia’s war machine, indicts Russian businessmen

FILE - Russian President Vladimir Putin, left, listens to VTB Bank Chairman Andrei Kostin during their meeting in Moscow, Russia, July 11, 2023. The Justice Department announced Thursday, Feb. 22, 2024, a series of arrests and indictments against Russian businessmen and their facilitators in five separate federal cases meant to send a message to Russian President Vladimir Putin. Among those targeted are sanctioned Russian banker Kostin and two of his U.S.-based facilitators. (Alexander Kazakov, Sputnik, Kremlin Pool Photo via AP, File)

FILE - Russian President Vladimir Putin, left, listens to VTB Bank Chairman Andrei Kostin during their meeting in Moscow, Russia, July 11, 2023. The Justice Department announced Thursday, Feb. 22, 2024, a series of arrests and indictments against Russian businessmen and their facilitators in five separate federal cases meant to send a message to Russian President Vladimir Putin. Among those targeted are sanctioned Russian banker Kostin and two of his U.S.-based facilitators. (Alexander Kazakov, Sputnik, Kremlin Pool Photo via AP, File)

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WASHINGTON (AP) — The Treasury Department plans to impose more than 500 new sanctions on Russia and its war machine on Friday as the U.S. vows to keep up its financial pressure on Moscow with the war entering its third grueling year.

The sanctions represent the largest single tranche of penalties since Russia’s invasion of Ukraine on Feb. 24, 2022. They come on the heels of a series of new arrests and indictments announced by the Justice Department on Thursday that target Russian businessmen, including the head of Russia’s second-largest bank, and their middlemen in five separate federal cases.

The Biden administration is seeking to demonstrate its unwavering support for Ukraine, even though Republican lawmakers allied with former President Donald Trump are blocking vital additional U.S. military aid.

The White House had promised major sanctions in response to the death last week of Russian President Vladimir Putin’s most prominent critic, opposition leader Alexei Navalny, in an Arctic penal colony. Biden said Thursday after meeting with Navalny’s wife and daughter that the sanctions would be “against Putin, who is responsible for his death.”

Ukrainian Foreign Minister Dmytro Kuleba addresses the United Nations General Assembly, Friday, Feb. 23, 2024 at United Nations headquarters, ahead of the second anniversary of the Russian invasion of Ukraine,. (AP Photo/Mary Altaffer)

The planned sanctions were previewed by two administration officials who spoke on condition of anonymity before their release on Friday. Additional sanctions are expected from the State Department as well.

Thousands of sanctions have already been imposed on Russian officials, businessmen, banks, companies and entire industries since the start of the war.

Out of the Justice Department, the cases announced Thursday include charges unsealed in New York against sanctioned Russian banker Andrei Kostin and “two of his U.S.-based facilitators.” The facilitators, Vadim Wolfson and Gannon Bond, were arrested Thursday.

Kostin, the longtime president of state-owned VTB Bank, is charged with engaging in a scheme to evade sanctions and launder money to support two superyachts. He, along with the two others, is also accused of trying to evade sanctions by concealing his ownership of a home in Aspen, Colorado. The indictment says Wolfson and Bond arranged to sell the house and provide Kostin with about $12 million from the sale.

Michael Khoo, a co-director of the department’s Task Force KleptoCapture, said on a call with reporters that the announcement was meant to send a message to Russian President Vladimir Putin that “we’re not going away” and “we can play the long game as well” so long as the war continues.

The KleptoCapture task force enforces the economic restrictions within the U.S. imposed on Russia and its billionaires.

The Justice Department says over the past two years it has secured court orders for the restraint, seizure, and forfeiture of nearly $700 million in assets and has charged more than 70 people with violating sanctions and export controls.

The United States has been able to transfer more than $5 million of seized Russian assets to Europe in support of Ukraine’s defense, U.S. officials said Thursday. But the process of justifying each confiscation of alleged illicit assets in court is a painstaking one by law, playing out over years.

“The Justice Department is more committed than ever to cutting off the flow of illegal funds that are fueling Putin’s war and to holding accountable those who continue to enable it,” Attorney General Merrick B. Garland said in a statement.

The U.S. and other allies of Ukraine had hoped to cripple and isolate Russia’s economy with a succession of sanctions targeting its financial sector and sources of revenue, including oil sales. But Putin has worked with Iran and others to blunt the impact of the international sanctions, so that the International Monetary Fund reports Russia’s economy growing at an unexpectedly healthy pace.

Also Thursday, an indictment was unsealed in Washington, D.C., charging Vladislav Osipov with bank fraud connected to operating a 255-foot luxury yacht owned by sanctioned Russian oligarch Viktor Vekselberg . Osipov, a Russian national, lives in Switzerland. The State Department has offered a reward of up to $1 million for information leading to his arrest or conviction.

The indictment identifies the superyacht as the Tango, the first belonging to a sanctioned Russian with close ties to the Kremlin to be seized at the request of the U.S. government following Russia’s invasion of Ukraine.

In Florida, Serhiy Kurchenko, a sanctioned pro-Russian Ukrainian metals magnate, was indicted for trying to evade sanctions that prevent him from doing business in the United States. He and Kostin are believed to be in Moscow and thus unlikely to face U.S. justice.

Also in Florida, a civil forfeiture complaint was filed against two luxury condos in Bal Harbour owned by sanctioned Russian businessman Viktor Perevalov, the co-owner of a Russia-based construction company that was sanctioned for building a highway in Crimea, a Ukrainian peninsula that Russia seized in 2014.

And in Georgia, Feliks Medvedev pleaded guilty earlier this month to helping launder over $150 million on behalf of Russian clients through bank accounts he controls. Medvedev, a Russian citizen, lives in Buford, Georgia.

AP Writer Zeke Miller contributed to this report.

FATIMA HUSSEIN

How Americans define a middle-class lifestyle — and why they can’t reach it

A poll from The Washington Post finds widespread agreement among Americans on what it means to be middle class. But just over a third of U.S. adults have the financial security to meet that definition, according to a Post analysis of data from the Federal Reserve.

Americans also underestimate the income required for that lifestyle, suggesting that the popular image of middle-class security is more of an aspiration than a reality for most Americans.

About 9 in 10 U.S. adults said that six individual indicators of financial security and stability were necessary parts of being middle class in the Post poll. Smaller majorities thought other milestones, such as homeownership and a job with paid sick leave, were necessary.

“Middle class-ness and predictability are very tied in the American imagination,” said Caitlin Zaloom, an anthropology professor at New York University. “Sometimes that is about security in the present, but it also means feeling secure about where life is going.”

Are you in the American middle class? Use our income calculator.

Just over a third of Americans met all six markers of a middle-class lifestyle. While about 9 in 10 Americans had health insurance, only three-quarters had health insurance and a steady job. With each added measure of financial security, more Americans slipped away from the middle-class ideal.

fiscal planning business definition

About a third of Americans meet middle class criteria

About 90 percent of Americans agreed that these six individual conditions were necessary to belong to the middle class, according to a Washington Post poll

American adults ...

... with health insurance ...

... and steady employment ...

... who can save for

the future...

... pay their bills ...

expenses ...

... and retire

comfortably.

35% meet all 6

65% do not meet all

middle class criteria

Source: 2022 Survey of Household Economics

and Decisionmaking

fiscal planning business definition

About 9 in 10 Americans agreed that these six conditions were necessary to belong to the middle class, according to a Washington Post poll

... who can save for the future...

... afford emergency

Source: 2022 Survey of Household Economics and Decisionmaking

fiscal planning business definition

About 90 in 10 Americans agreed that these six individual conditions were necessary to belong to the middle class, according to a Washington Post poll

91% of American

... pay their bills without worry ...

35% meet all 6 criteria

65% do not meet all 6 middle class criteria

fiscal planning business definition

About a third of Americans match popular image of the middle class

About 9 in 10 Americans agreed that these six individual conditions were necessary to belong to the middle class, according to a Washington Post poll

... pay bills

without worry ...

... who can save

for the future...

... and steady

employment ...

... with health

insurance ...

all 6 criteria

Researchers often define the middle class based on income, in part because income data is frequently collected and easy to access. But that income doesn’t guarantee a middle-class lifestyle.

One commonly used definition from the Pew Research Center sets a middle-class income between two-thirds and twice the national median income, or $67,819 to $203,458 for a family of four in 2022. Most Americans consider the lower end of that range, $75,000 and $100,000, to be middle class, according to the Post poll.

Even when looking at middle-income Americans using Pew’s more expansive range, the majority did not have the security associated with the middle class.

Those that did tended to be older, had higher incomes and were more likely to have a college education and own their homes. While the Post poll found 60 percent of Americans considered homeownership essential to being middle class, homeowners over age 30 were more likely to be financially secure even when comparing people with similar ages and incomes, according to a Federal Reserve survey .

The most common barrier was a comfortable retirement, something that about half of middle-income Americans over 35 felt they were on track to achieve.

fiscal planning business definition

Most middle-income people lack

middle-class financial security

Percent of Americans that meet criteria

in each income group

Meets all criteria

U.S. adults

Lower income

Middle income

Upper income

Health insurance

Able to save

Pay all bills

Emergency $1K expense

Retirement (35+)

Lower income for a family of 4 is defined as a household income of $68K or below, middle income is between $68K and $203K, and upper income is above $203K. Percent meeting

retirement criteria reflects only people 35 and older; younger people did not have to meet the retirement criteria to meet the full definition.

2022 Survey of Household Economics and Decisionmaking

fiscal planning business definition

Percent of Americans that meet criteria in each

income group

Lower income (under $68K)

Middle income ($68K-$203K)

Upper income (above $203K)

All incomes adjusted for a household size of 4. Percent meeting retirement criteria reflects only people 35 and older; younger people did not have to meet the retirement criteria to meet the full definition.

fiscal planning business definition

Most middle-income people lack middle-class financial security

Percent of Americans that meet criteria in each income group

Americans overall

Middle income ($68K to $203K)

Upper income (over $203K)

Pay emergency $1K expense

Comfortable retirement (35 or older)

All incomes adjusted for a household size of 4. Percent meeting retirement criteria reflects only people 35

and older; younger people did not have to meet the retirement criteria to meet the full definition.

Gallup polling last spring found that retirement was Americans’ top financial worry. Even for those who can save, retirement planning requires complicated judgments about how long someone expects to live and the future of government support through programs such as Social Security and Medicare.

How the graying of America is reshaping the workforce and economy

“The de facto landscape now for retirement is to save like hell and hope you don’t live too long,” said Ben Harris, vice president and director of economic studies at Brookings. “And that’s a terrible paradigm.”

The shift from defined benefit plans to individual retirement accounts has increased the importance of saving for retirement, at the same time as rising housing and student loan payments are taking up a growing share of income, according to Annamaria Lusardi, senior fellow at the Stanford Institute for Economic Policy Research.

“There was a time in which family income was a lot more defining about your life and your financial security,” Lusardi said. “But now you are in charge of much more of your future, particularly in terms of the financial decisions that people have been asked to make.”

While the path to middle-class financial security has become more complicated, the share of people with it hasn’t markedly declined over time.

Since 2017, the earliest year of comparable data, between 32 and 40 percent of Americans met all six measures, with a low in 2017 and a high in 2021.

Are you rich? How your net worth compares to the rest of America.

Another survey, the Federal Reserve’s Survey of Consumer Finances, provides a broader view of American financial stability back to the 1980s. More Americans today have $1,000 in liquid savings than they did 40 years ago, after adjusting for inflation. And the share of Americans with money in a retirement or pension account has held steady over the past 40 years.

“The idea that you can have a secure job with predictable wages, with health care and retirement, and being able to pay for your housing — those things are all part of a mid-century vision of the middle-class life trajectory,” said Zaloom, the anthropologist.

“Even in the 1960s, the idea that this was a very widespread phenomenon was always kind of a fiction,” she added.

The draw of the middle class is rooted in far more than the desire for financial security.

Not rich? Take this quiz to see how to build your wealth.

“It’s the perfect model of American identity,” said cultural historian Larry Samuel, author of “ The American Middle Class: A Cultural History .” “It fits so well with our ethos of egalitarianism and being a meritocracy. These are all myths, of course, but they’re embedded in how we see ourselves.”

“It’s a club that everyone kind of wants to be a part of,” Samuel said, “regardless of your economic circumstances.”

About this story

Sonia Vargas and Dylan Moriarty contributed to this report.

This Washington Post poll was conducted Nov. 3-6, 2023, among a national sample of 1,280 U.S. adults with an error margin of plus or minus 3.7 percentage points. The sample was drawn through SSRS’s Opinion Panel, an ongoing survey panel recruited through random sampling of U.S. households. To enable subgroup comparisons, the survey included oversamples of households with lower incomes. This and other groups were weighted back to their share of the adult population according to the U.S. Census Bureau.

The definitions of low, middle and upper household incomes are based on values from the 2023 Annual Social and Economic Supplement to the Current Population Survey. All household incomes are adjusted for size via an equivalence adjustment scale, following the Pew Research Center’s methodology .

Analysis of the financial security of American households uses data from the Federal Reserve’s Survey of Household Economics and Decisionmaking (SHED) and the Survey of Consumer Finances (SCF).

The middle class criteria were defined as follows for each survey:

  • Steady job: had a non-temporary job or were already retired (SHED 2017-2022); working, retired, disabled, student or homemaker (SCF).
  • Cover emergency expenses: could pay a $1,000 emergency expense using only their savings (SHED 2022 for point in time analysis); would pay a $400/500 emergency expense using their savings or a credit card they would pay off in full at the end of the month (SHED 2017-2022 for historical analysis); had at least $1,000 in liquid assets (SCF).
  • Pay bills: were able to pay all their bills in full during the month of the survey and would be able to pay those bills even if they had had to pay an emergency expense of $400 or $500 (SHED 2017-2022); no late debt payments in the last year (SCF).
  • Health insurance: had health insurance (SHED 2017-2022); not applicable for SCF.
  • Comfortable retirement: feel that their retirement savings are on track, or are already retired and feel they are doing at least okay financially; individuals under 35 did not have to meet this criteria to be considered middle class (SHED 2017-2022); any amount in retirement savings or pension accounts (SCF).
  • Save for the future: spent no more than their household income in the last month or has a rainy-day fund that can cover three months of expenses (SHED 2017-2022); saved over the last 12 months (SCF)

fiscal planning business definition

IMAGES

  1. Financial Planning Process

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  3. Financial Planning Process

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  5. Fiscal Planning PowerPoint Template

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  6. Fiscal planning

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VIDEO

  1. Fiscal Deficit: Definition and History in the U.S

  2. WHAT IS BUSINESS| DEFINITION OF BUSINESS| Learn with easy language

  3. Concord School Board Finance Committee 1-31-24

  4. Financial Planning

  5. Empowering Your Business's Future: Budget Planning and Business Planning strategies Unleashed

  6. Concord School Board Capital Facilities Committee and Finance 1-29-24

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    Financial planning is an iterative, ongoing process that helps your business reach its long-term goals. Financial planning strategies assess your business's current financial position and allow you to adapt to market changes, forecast business growth, and achieve higher returns. A typical financial strategy combines two key elements to help ...

  23. What is fiscal? Definition and examples

    Fiscal relates to government revenue and spending, i.e., tax revenue and government expenditure.It also relates to government borrowing, i.e., public debt. In the United States, the term also means 'financial year.' In Scotland, the procurator fiscal is a public official who puts people on trial, i.e., the public prosecutor.. This article focuses on the word when it relates to government ...

  24. What is Financial Budgeting? Definition and Related FAQs

    Financial budgeting is the process of planning company expenses and revenues for a time period. Budgets set forth the plans of management in financial terms. This includes allocating financial resources and identifying available cash flows for required spending. A budget and financial planning strategy detail a company's expectations for what ...

  25. McKinsey-led think-tank advised China on policy that fed US tensions

    Urban China Initiative counselled Beijing on cutting-edge technologies in preparation of Five-Year Plan

  26. HENRY Financial Planner Shares How She Manages Her Own Money

    Georgia Lord, a HENRY and financial planner, earns a salary of $125,000 but doesn't feel wealthy. Lord's financial goals include early retirement, travel, a wedding, and a larger NYC apartment ...

  27. US is imposing more than 500 new sanctions on Russia's war machine

    The U.S. and other allies of Ukraine had hoped to cripple and isolate Russia's economy with a succession of sanctions targeting its financial sector and sources of revenue, including oil sales. But Putin has worked with Iran and others to blunt the impact of the international sanctions, so that the International Monetary Fund reports Russia ...

  28. and why they can't reach it

    One commonly used definition from the Pew Research Center sets a middle-class income between two-thirds and twice the national median income, or $67,819 to $203,458 for a family of four in 2022.