What comes first – Business Plan or Financial Model

When starting a new business venture, entrepreneurs often wonder which comes first: a business plan or a financial model? While there is no hard and fast rule, it is generally recommended to develop a business plan first and then use that plan to create a financial model.

A business plan is a comprehensive document that outlines the company's goals, strategies, and tactics. It includes sections such as an executive summary, company overview, market analysis, marketing and sales strategies, operational plans, management structure, and financial projections. A business plan is typically the first step in the process of starting a new business, and it provides a roadmap for the business and a foundation for creating a financial model.

Once a business plan has been developed, the next step is to create a financial model. A financial model is a tool used to evaluate a company's financial performance and projections. It typically includes projections of revenue, expenses, profits, and cash flow, as well as a detailed analysis of the company's financial health. The financial projections are typically based on assumptions about market conditions, pricing, costs, and other factors.

Creating a financial model requires a deep understanding of the business's operations and financials, as well as the industry in which it operates. By creating a financial model based on the business plan, entrepreneurs can ensure that their financial projections are accurate and realistic.

There are several benefits to developing a business plan before creating a financial model:

Provides a Strategic Framework: A business plan provides a strategic framework for the business, outlining its goals and objectives. This information is critical when creating a financial model, as it helps to ensure that the financial projections are aligned with the overall strategy of the business.

Helps to Identify Assumptions: Financial models are based on a set of assumptions about market conditions, pricing, costs, and other factors. By creating a business plan first, entrepreneurs can identify the key assumptions that will be used to create the financial model.

Helps to Ensure Realistic Projections: Financial projections can be tricky, especially for new businesses that have little or no historical financial data. By developing a business plan first, entrepreneurs can ensure that their financial projections are realistic and achievable.

Provides a Basis for Funding: A business plan is typically used to secure funding, partnerships, or growth opportunities. By creating a business plan first, entrepreneurs can ensure that their financial projections are aligned with their funding needs.

In conclusion, while there is no hard and fast rule, it is generally recommended to develop a business plan first and then use that plan to create a financial model. A business plan provides a strategic framework for the business, helps to identify key assumptions, ensures realistic projections, and provides a basis for funding. By creating a financial model based on the business plan, entrepreneurs can ensure that their financial projections are accurate and aligned with the overall strategy of the business