Financial Planning Month on October, 2024: Financial plan?

October, 2024 is Financial Planning Month 2024. Financial Planning — Contact A Merrill Lynch Financial Advisor Who Knows Your Priorities.

First find out what your client's financial goal is. Next, set a plan that is feasible for them based on his/her own financial resources. E.g if your client's goal is to put aside $1000/month into a savings account and they make $5000 net income per month, this goal might be unrealistic. YOU, the FP, would guide them to set a more realistic plan based on their resources, expenses and monthly budget.

The whole idea is to guide them in setting a plan that is feasible for them, their current situation and one that they are happy with and can actually apply based on their standard monthly budgets etc. Many times, financial plans involve just setting a feasible, monthly budget without sacrificing a client's cost and/or standard of living.

I'm not a FP however, I occasionally set financial plans, so, just adding my 2 cents.....

need help with a business plan?

here are the items normally under Accounting section

FINANCIAL PLAN

A. Pro Forma Income Statements

B. Pro Forma Balance Sheets

C. Pro Forma Cash Flow Analysis

D. Months to Breakeven and to Positive Cash Flow

E. Cost Control

F. Highlights of the Financial Statements

Documents To Be Developed For This Section

i. Pro forma income statements (3-5 years, done monthly for at least the first 1-2 years)

ii. Pro forma balance sheets (3-5 years)

iii. Pro forma cash flow analysis (3-5 years, done monthly for at least the first 1-2 years)

This section lays out exactly what you are requesting from investors; it is number-oriented. Give the investors the columns and rows that they want to see. The more you give them, the more difficult it will be for them to challenge the assumptions that you have made to produce those numbers.

The financial plan is basic to the evaluation of an investment opportunity and needs to represent your best estimates of financial requirements. The purpose of the financial plan is to indicate the venture’s potential and to present a timetable for financial viability. It also can serve as an operating plan for financial management using financial benchmarks. In preparing the financial plan, you need to look creatively at your venture and consider alternative ways of launching or financing it.

As part of the financial plan, financial exhibits need to be prepared. To estimate cash flow needs, use cash-based, rather than an accrual-based, accounting (i.e., use a real-time cash flow analysis of expected receipts and disbursements). This analysis needs to cover three years (or five depending on your type of business). Included also are pro forma income statements and balance sheets; and a break-even chart.

On the appropriate exhibits, or in an attachment, assumptions behind such items as sales levels and growth, collections and payables periods, inventory requirements, cash balances, cost of goods, and so forth, need to be specified. Your analysis of the operating and cash conversion cycle in the business will enable you to identify these critical assumptions.

Pro forma income statements are the plan-for-profit part of financial management and can indicate the potential financial feasibility of a new venture. Usually the level of profits, particularly during the start-up years of a venture, will not be sufficient to finance operating asset needs, and since actual cash inflows do not always match the actual cash outflows on a short-term basis, a cash flow forecast that will indicate these conditions and enable management to plan cash needs is recommended. Further, pro forma balance sheets are used to detail the assets required to support the projected level of operations and through liabilities, to show how these assets are to be financed. The projected balance sheets can indicate if debt-to-equity ratios, working capital, current ratios, inventory turnover and the like are within the acceptable limits required to justify future financing that are projected for the venture. Finally, a break-even chart showing the level of sales and production that will cover all costs, including those costs that vary with production level and those that do not, is very useful:

Financial Plan?? what does that mean?

A financial plan is pretty simple: It's how you plan to earn, spend, save, and invest your money over the course of a lifetime. Most people live "one day at a time" so they don't really have a plan. That's probably not a good way to do it, since you can't work and earn forever, but they do it anyway. Some people's kids, right? Anyway, you may think you can work forever, but I'm here to you that getting a good job when you're over 50, well, that's a challenge. And, if you're lucky enough to keep the same job your whole working life and retire, that's good work if you can get it; but these companies out there, they love to shed their older, higher earning workers when they downsize themselves. Saves them lots of money! Look out for numero uno...

There are lots of scenarios when it comes to financial planning, but here's the basics:

Over your lifetime-

1. Have at least 6 months worth of living expenses in an easily accessed savings account for a 'rainy day'. Some people prefer 9 to 12 months. That depends on how much in demand your skills are in the job market, and, a lot of other factors like how much debt you carry. Some people live with pretty low overhead and are in professions where they can get another job quickly if they lost one tomorrow.

2. Keep your unsecured (credit card, etc.) debt low. Maybe no more than you could pay off in 2 months would be the max. Unsecured credit, besides having very high interest, wreaks havoc on your credit score. It weighs a lot more in the scoring formula than secured debt (car, house, etc.). You don't want your credit score pulled down by lots of unsecured debt. Higher credit scores give you lower interest rates. That's money back in your pocket later on.

3. Take full advantage of your employer's 401K retirement plan, if they have one, especially employers that match contributions to your 401K retirement account. Not taking advantage of that matching is like turning away free money. Contribute the maximum amount that is allowed to the plan. Take adavantage of other savings and retirement instruments too. Your bank or credit union may offer IRAs, CD's, etc that have a tax-exempt status like your 401K. The younger you start saving for retirement, the better. The time to start is not in your 30s, it's more like in your 20s. Basically, saving for retirement should be an "entire working life" type of a personal project, not something you delay for when you are done raising kids or something like that. Some people say that if you aren't putting away, at the very least, 10% of your current gross income into retirement of some sort when you start working in your 20s, then you're going to come in way, way low on your retirement plan. When you're 65 and have run out of earning years, that is NOT the time to find out that you should have started earlier. You cannot live those working years all over again, you're done. You've got what you've got at that point. And Social Security? Don't make me laugh. That's not a retirement plan. That's social safety net. That'll be about enough to be your "fun money" every month when you retire. Don't count on living on that amount of money. Try living on $700 month when you are 65. I hope you like dog food.

4. Keep your lifestyle lean and your spending under control. Do you really need a $50K vehicle when one that costs $30K will do? Do you really need a 5000 square foot house? All of these things tap into the earnings you have available to save and invest for the future. They are 'drain on your finanical vein'. If you're living 'higher' than you need to, take it down a notch or two. Being a coupon clipper does not make you sub-human.

5. If you want to explore risky, high return investments like stocks and bonds to make money, and, you're not a Wall Street Trader or something like that, then get the advice of a reliable, reputable, licensed financial professional before you go and do it. Hell, even if you are that trader, get a one anyway. There's nothing wrong with these types of investments, provided you're prepared to take risks associated with the returns. This type of investing is essentially a moderated form of Vegas gambling, so, make sure you can afford to lose whatever you invest. Do not invest in your friend's, cousin's new restaurant business venture, as well, do not invest in scams that you see on late-night TV, etc. If you're an average person like me (like I think you are), then you can't afford that kind of risk. That's more suited to rich capital investors that CAN afford to lose that kind of money. Besides, if your friend's cousin couldn't get a bank to make a small business loan to him for that restaurant, then what is wrong with that picture? If a bank won't take the risk, then you definitely have no business there.

6. Last but not least, don't forget to invest in yourself. Keep your professional skills current. Go to school, take more classes, get certifications to get a raise or a higher paying job. Don't get a job and just "coast". That's for losers and lazy people. The next worst thing to being unemployed, is being outdated and irrelevant to the working world. Many employers offer tuition assistance and on-site classes. Not using that money is also like turning away free cash. Yeah, I know, you're graduating from college right now and you might think you're done with school for a while, but you're never done learning.

7. Oh yeah, and one more thing. Over your lifetime, take care of your body. What good is all that retirement savings going to do if you have massive health care bills to pay in your later years? You'll probably run that savings dry in no time with the cost of medical stuff these days. Exercise, keep your weight under control, etc. When you hit your 30s, your metabolism WILL slow down. Guarantee it. If it doesn't, you're not human. You won't be able to shed 10 lbs in 4 days anymore like you used to, or, eat an entire pizza and drink all weekend, whatever, and not gain weight. Things will change. Get your health habits under control when you are young, because it's really hard to shake those bad habits when you get older.