December 14, 2025
Share
This is part one of a two-part series on financial planning.
“What’s the point of an annual financial plan if things change all the time?”
“Discipline and accountability,“ I said to the founder & CEO.
She was early stage, under $1M in revenue, but had just raised money for the first time. When her new investors asked about her financial plan, she came to me.
“Things will always change,” I continued. “But the CEO still has to forecast revenue, expense and profit over the next twelve months.”
“You’ll gain a cell-level understanding of the business, which makes you a better operator. And your ability to predict things will get better over time. This is a big deal to investors.”
“Ok, I’m sold. What do I do first?”
“Start with your top-down ambition. Where do you WANT the business to be in 12 months?”
She said $1.5M in revenue and break-even.
“Great. That would be 100% year-over-year growth. Is that realistic?”
“I’m not sure, to be honest”
“That’s where the financial plan comes in. You’ll build a detailed bottoms up forecast to see if you can actually achieve your top-down ambition with the resources you have. If not, then you have to lower your ambition, or find more resources.”
Let’s dive in..
Need help with your financial plan? I created an hour-long masterclass that goes through every step in detail. It’s available through Highland Academy (just start with a one-week free trial for access).
⁂
Top CEOs view the company’s financial plan as their numerical map to success. It’s a detailed roadmap (typically a spreadsheet) that models the financial outcomes your organization expects to achieve over a 12-month period (or longer).
The financial plan forecasts revenue, expenses, profit and cash for the fiscal year, then breaks it out into monthly and quarterly targets. There are 5 major components:
Summary
Goals, Drivers, Assumptions
Revenue Forecast
Expense Forecast
Profit & Cash Forecast
Let’s go through each one…
I. Summary (tab 1)
What: The summary rolls up your three core forecasts (revenue, expense, profit/cash) into one view. It includes important metrics for your business. You should get an excellent understanding of the plan by looking at this tab.
Details:
Profit & Loss summary
Cash flow & cash balance summary
Company Health Metrics
Health metrics measure the health of your business. I always include ‘unit economics’ here. These isolate a single unit (or customer) and measure profitability, payback and lifetime value.
II. Goals, Drivers & Assumptions (tab 2)
What: The second tab includes the company’s goals for the year (priorities), the key drivers of the model, and the any assumptions (estimates) you’re making. This tab is critical for the Board to understand the context behind your forecasts.
Details:
Goals: The top three priorities for the year. The financial plan should align with, and resource these priorities. This adds strategic context to the plan. I wrote a free article about goal setting here.
Drivers: A list of key metrics (without values) that lead to positive financial outcomes. The metrics that move the needle. Examples: sales bookings, conversion rate, average contract value, churn, capacity per sales rep, etc.
Assumptions: The numerical estimate of each driver in the financial plan. An example: Sales Bookings = $500k for the year. Sales Bookings is the driver, and $500k is the assumption for the year.
III. Revenue Forecast (tab 3)
What: The revenue forecast is a detailed estimate of all revenue the business expects to generate in the next fiscal year (broken up by quarter and month). If there are multiple types of revenue, it should include a forecast for each one.
Details:
Total revenue by year, quarter and month
Broken out by revenue type
Basis of estimate (details of how you got there)
IV. Expense Forecast (tab 4)
What: The expense forecast is a detailed estimate of all expenses. There are two main buckets, a) Cost of Goods Sold (COGS) and b) Operating Expenses. COGS is the direct costs associated with delivering your product or service. Operating Expenses are the ongoing costs to run the business, like sales & marketing (S&M), research & development (R&D) and general and administrative (G&A) expenses.
Details:
Total expense by year, quarter and month
Broken out by expense type (COGS & Operating Expenses)
Basis of estimate (details of how you got there)
Headcount table (models total headcount, including new hires you anticipate)
V. Profit & Cash Forecast (tab 5)
What: The third forecast has two parts – profit and cash. The profit forecast is the difference between your revenue forecast and your expense forecast. The cash forecast projects your cash flow and cash balance.
Details:
Profit by year, quarter and month
Cash flow by year, quarter and month
Cash balance by year, quarter and month
Basis of estimate (details of how you got there)
More of a visual learner? I created a video Masterclass on financial planning, complete with financial plan templates. Grab it here (by signing up for a free trial of Highland Academy).
⁂
Now that you have the 5 components down, here are the steps I take as the CEO to build & implement my financial plan:
Step 1: Establish annual company goals (see my goal framework).
Step 2: Meet with senior leaders to review their plans & resource needs.
Step 3: Align with sales and marketing on the sales forecast.
Step 4: Collaborate with finance on the expense forecast, using inputs from all leaders (especially hiring plan).
Step 5: Draft the financial plan, ensuring alignment with goals & forecasts.
Step 6: Review with senior leaders, gather feedback, refine.
Step 7: Present to the Board for final approval.
Next week I’ll show you how to manage your financial plan throughout the year (part 2 of 2). Until then, here’s the link to the full financial planning article (free).
Till next time,
Never say die 🏴☠️
