What is the Financial Planning Process?

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  • Written By: Jessica Ellis
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 December 2019
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The financial planning process is the means by which a business or individual defines financial goals and creates a strategy to reach them. A financial plan not only serves as an organizational checklist of actions, but can also be a document against which to check progress to see if a strategy change is needed. The financial planning process may be different depending on the unique characteristics of the person or business and their goals, but there are several general steps that form the backbone of almost every plan.

The first step in the financial planning process is determining the current financial situation. For an individual this may simply be a review of income versus expenditures for the last year, as well as factors such as long-term debt. For a business, it may be necessary to factor in revenue, sales, and expenses. Having a clear picture of the present allows a planner to move on to figuring out strategies for the future.


From this point, some educated guesswork is needed in most cases. The planner must figure out what income or sales will likely look like for the next year, given no major changes to habits or operations. Some people use software known as trending programs to help forecast business sales level based on current data. Individuals may have an easier time of this step, as long as they have a constant and secure source of income expected for the next year. It is important to remember that these forecasts represent a “best guess” in the financial planning process; some experts recommend creating a few plans that can be put into effect if results deviate extensively from predicted outcomes.

An individual in the financial planning process, after gathering present data and researching future performance, will want to determine how much money he or she will have for investing or saving. For a person looking to increase savings percentage, it is important to find areas that can be trimmed or eliminated in the projected budget in order to free up assets for investing. From this point, the financial planning process can be put into place by employing investing or savings strategies based on research or personal preference.

Businesses may have to go through several more steps in the financial planning process before implementing a plan. Several levels of financial and management executives may need to review and tweak a plan before it is acceptable to everyone involved. Factors that may affect a business financial plan may include rising material costs, the introduction of new products, revised marketing or ad campaigns, and changes in profit investment.

Both individuals and businesses can use the plan created through the financial planning process to check on progress throughout the year. Plans are usually broken into monthly segments, with a goal of profit or savings for each month. If a plan meets or is close to its target every month, the plan can be deemed successful.


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