A Financial Plan is a separate document and function of the business plan that speaks more to a sequence-of-events planning rather than the typical financial projections of a business plan. It becomes a document that assists in the ability of an organization to plan appropriate growth patterns and to identify potential problem areas before they become serious. The primary function is to ensure solvency for the organization. When to grow, when to cut back, and when to wait are all components that go into a proper financial plan.
Examples of items that would become more detailed in a financial plan over a business or sales plan financial projection are:
-
When we reach 20% cumulative increase in sales for 3 consecutive months, we will purchase a piece of capital equipment to facilitate increased production.
-
If sales decline by 10% over any given 3 month period, we will increase marketing dollars by 5% for 6 months and perform a LEAN analysis on the production process to ensure minimum non-value added steps.
-
For every 50% increase in sales over a 6 month period, we will hire another salesman. For every 3 salesmen, we will hire an assistant.
These become very detailed instructions that outline a result to occur in the evidence of a cause. Once compiled, the metrics are placed with the Key Business Indicators to ensure that when the cause occurs, management can place into motion the result.