It’s often believed that the financial plan—distinct from the business plan—is merely a collection of unrealistic or even incorrect numbers, disconnected from actual business operations. A set of assumptions that feels more like a dream book than a concrete action plan.
Nothing could be further from the truth.
The financial plan is not only a strategic tool for the entrepreneur but also represents a continuous learning process—especially for startups aiming to create something new, innovative, and disruptive. Here lies the paradox: innovation means doing something new, without a historical track record, where financial projections might seem like the last concern in the value chain.
Let’s imagine preparing for a trip to an unknown destination: you would look for information about the place, its people, tourist sites, the right clothes to bring, and the necessary budget.
Building a business is like embarking on a long journey to a new destination without booking anything!
Without planning and mental openness—and a willingness to constantly revise the plan based on real-world experience and daily interactions—you won’t get very far.
What is a Financial Plan?
The financial plan is part of the broader business plan, which includes analysis of potential and real markets, customer needs, detailed descriptions of the product or service and how it addresses those needs, technological aspects, commercial strategy, team competencies, and financial requirements. It also outlines the company’s future vision: possible scenarios, strengths and weaknesses of the business idea, and reasons why an investor should put their money into your team and idea.
Here are six compelling reasons why a financial plan is indispensable for every startup:
1. It helps entrepreneurs ask the right questions
At the foundation of every successful business is an insight about how to fulfill a latent need in the market or among consumers. But insight alone isn’t enough—structured action, or execution, is what drives success. Asking the right questions means continuously reflecting on economic and commercial assumptions, necessary skills, cash flow, corporate structure, and more.
2. It’s the infrastructure that supports the business model
It forces the entrepreneur to think through all the variables that affect potential profitability—from team skills to sales, marketing, technology costs, and more. The financial plan acts as a mirror for the business model, highlighting both its strengths and areas for improvement. It provides essential information to refine the model.
3. It enforces constant measurement of business performance
To succeed in any venture, you must be able to measure, evaluate, and make decisions based on solid data. The financial plan forces entrepreneurs to identify and assess key performance indicators (KPIs), allowing for more rational and validated decision-making rather than relying on gut feelings.
4. It supports the continual validation of assumptions
When will the product/service start selling? How will it be sold? Will costs rise with increased sales?
The financial plan helps track these assumptions and evaluate their accuracy. It’s not a static spreadsheet—it’s a valuable iterative process that allows constant refinement and learning.
5. It’s crucial for raising capital and convincing investors
Investors want evidence of a structured approach to the business model, underpinned by logical financial assumptions and projections. A solid plan shows how much money is being requested, what it’s for, and what kind of returns investors might expect.
6. It reveals internal interdependencies
It shows how changes in one area impact others—from both cost and revenue perspectives. For example, if you want to boost marketing: do you use internal resources or hire externally? What are the costs and benefits of each? How soon will it affect revenue?
Having this insight in advance is essential, especially as the company grows. Being prepared is far better than being reactive with limited flexibility.
This overview is not exhaustive, nor does it claim to be. Instead, it aims to spark reflection on an aspect often underestimated by startup founders.
In Summary
A financial plan is much more than an accounting exercise: it’s a critical opportunity to quantify your startup’s true potential and proactively manage its growth.
