The Most Important Part of the Business Plan- The Financial Model

For a company to be successful, a business plan is absolutely needed. A business plan, helps a company to see in the future, and predict profit/loss statements and also helps set important milestones. In fact, to be precise, a business plan helps the company to stay in track, and meet the expectations that the company has set for each quarter of each year. During the 2000’s, due to the massive growth in GDP in the US, there was a huge resurgence of entrepreneurship and hence, business planning. In 2008, due to the Great Recession, there was a sudden fall in business planning and entrepreneurship. Now, the recession was nothing more than a practical fall of the market, due to the change that the market has encountered due to the integration of technology, and here, comes the importance of business planning. Planning for your business, will help a company be alive in the times of great adversities.

No matter what the changes are in the industry, business planning still remains one of the most important thing, which helps a company improve their business strategy from time to time, and also improves the probability of survival. Though, over the years, the tools for business planning has changed, but it is still very much prevalent among the companies. A business plan is more than just a document, but it is the very key for a company to improve in the future times. One of the most important parts in a business plan, is the financial model. Often, it is the most detailed and definitive part of the business plan, and it generally contains a detailed layout of how all the other parts of the business will function to keep producing cash flow and hence profit.

Now, what exactly is a financial model? The part of the business plan, which deals with the finance of the company, or the part which explains in details how the company makes its money and spends its money is generally known as the financial plan. Now, a financial plan, will provide the reality of the business, where the business will provide a service or a product to the consumer at a reasonable price. In a business plan, there are several objectives which the company aim to reach at certain points in the lifecycle of the business. A financial plan, contains numbers, and these numbers actually explain of these milestones or objectives can be reached. These numbers can be proved by, data analysis of the profit loss statements of the business, or by samples of actual sale data.

Benefits of a Business Financial Model

  • In the lifecycle of a company, there are times when the company needs some external funding, since, the liquid cash ceases to take hold of the company at those points. The capital market is pretty competitive, and any company who will fund the business, will have a look at the business’s financial model, to foresee the future.
  • A financial model, lets the business owner know that if the business that he has been thinking about is either a valid business plan or not. For example, you might want to sell a product, but that doesn’t mean the world or the society will buy your product. The product needs to be something which the society finds interesting. Therefore, once a business owner go through the phase of financial model, he’ll know that if the business is sustainable or not.

ShoreWest Capital Corps is one of the best companies in Toronto, for business funding and planning. They know the market well, and can give you input about several valuable things, that might be pretty helpful to you in the long run. Call them to know more.

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