Given the necessary premises, the economic-financial plan serves two very importantthings,verify the economic and financial feasibility of a business idea. Checking the economic and financial feasibility of a business means understanding if this business has to be done or not. Studying in advance if a business idea is “feasible” means understanding whether the idea makes money (or not) in the long run. And this analysis is carried out in a future time horizon of three to five years. This is a check carried out on the forecasts of revenues and costs, as well as on the financial structure of the company. Its purpose is to control the cost creation mechanism following the achievement of revenues. A Finance specialist can help you out in these matters.
The Other Factors:
Furthermore, it is useful to understand if there is money to reach the economic goals that have been set. What does this actually mean? A very simple example can help us better understand. Suppose you have to buy a machine (which costs 100,000 dollars). You need this machine to produce 1,000 units of the X product you sell for 1,500 dollars per piece.
This means that you have to face a double financial aspect. The first is the one concerning the retrieval of the 100,000 dollars you need for the machinery. The second is what you have to face as soon as you start producing the 1,000 units of my “X” product. In fact, to produce my pieces you have to bear fixed and variable costs of various kinds.
Business plan and economic-financial plan: the feasibility of the idea
Checking the economic and financial feasibility of a business idea really means checking that the expected revenues will allow me to pay all the costs. In this sense, therefore, the turnover that you will achieve (i.e. 1, 5 million dollar), will allow to pay all the costs you have to bear to produce and sell those 1,000 units of product. Furthermore, the same turnover must also be sufficient to pay for the loans you took from a bank or somewhere else.
Business plan and economic-financial plan: management control
As anticipated a little while ago, the economic-financial plan also serves to perform management control as a whole. In this respect, the business plan is usually referred to as a “guide” tool for the entrepreneur. In fact, specifying the company objectives and the strategies you want to use to achieve them is part of the business plan. Furthermore, defining strategic plans and preparing forecast budgets is part of the business plan. In addition to this, analyzing the financial structure and the trend of revenues in the medium-long term is intended to guide the activity of the entrepreneur.