My take on Financial Plans, their Importance and Validity

My take on Financial Plans, their Importance and Validity

It’s very difficult to imagine a modern enterprise or an upcoming business to work without some type of financial planning. This is a very important tool that allows managers and investors to control the money invested and future income. And don’t get me wrong; I think this is a tool that has to be used by all businesses and entrepreneurs. However I usually think of Financial plans as a second or third category actor in business, especially in business plans.

I’m a Systems and Computer Engineer and my way of thinking is very structured and linear. In this respect I’m quite fond of this type of tools, however as I said earlier, for me this is not my first source of information. Many people will probably say I’m crazy, but I do believe there are other information sources, that although not as structured, can be much better.

When writing a business plan, you HAVE to include a financial planning model. This is a must and there’s no question about it. However, I feel that the financial plan is something that has to be second to other aspects, such as the business idea and the team that will work on the project. I have to know how much money is needed and what will be the returns, so the financial plan has to be present, but once again this comes second.

The first reason why I think this way about financial plans is that in writing you can do everything. Plus, if the source is digital, for instance a worksheet on Excel, you can do just about anything. For instance, you can have a very bad and crappy business idea but you’re a master in financial planning and have created a superb financial plan. An investor might be tempted to invest on your idea based on this sound financial plan. On the other hand, I prefer to lay my judgment on the quality of the idea and the team behind it.

Many investors think this way. They will always analyze the financial plan, but many of them invest in people and in ideas. Many times you have great people with great ideas, but the financial plan is not as good as this could be. Also, many investors take action in the famous one-minute elevator pitch, where it’s impossible to talk deeply about the financial plan.

My recommendation is to work on the financial plan, to make it good or great, but don’t waste extra time on this. If it was on me, I rather spend more time crafting the idea, making a superb marketing plan and gathering up the troops, that is the business troops, for the upcoming battle.

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