I am very happy to report that I passed the CIMA exam! Although I was part of the educational program at another school, there is no way I could have passed without the Chicago Booth review program and having been also granted access to the Chicago Booth CIMA program educational materials and live session videos. Kathleen’s voice was a constant companion as I listened to classes driving and even while on family vacation. Thank you so very much!
- Alan P. Jesiel, CFP®, CIMA®, Vice President, Senior Relationship Strategist, PNC Wealth Management
The University of Chicago has a well-planned approach to teaching the CIMA curriculum. All of the important concepts are covered in a clear, concise format. The professors really want to make sure you understand the material and go to great lengths to provide intuition behind some of the math concepts. The class is very interactive and the faculty make themselves easily accessible throughout the class. I strongly recommend this program to anyone considering attaining the designation.
- Todd Muentzer, CIMA®, ETF Specialist
This was a great overall experience. Kathleen does a great job presenting and reviewing the content. It was also beneficial to connect with other students preparing for the exam.
- Jon Maldonado, Financial Advisor, UBS Financial Services
Excellent program with in-depth analysis of calculation needed for course material.
- Robert Filetti, Robert Baird
This class was far above my expectations. This is a great value for the cost.
- Alicia Frye, Regional Business Consultant, Symmetry Partners
I got the passing score I needed to finally achieve my CIMA credentials. I was and am still ecstatic about this accomplishment and absolutely credit it to the Chicago Booth workshop and team for helping me get here. I would tell anyone interested in the CIMA program or who is trying to finish the certification process that the Booth workshop is the way to go.
- Jen Litton, CDFA, CIMA®
Having the two day review class at Booth is a major differentiator from the other education programs. Having a two day intensive review upon completion of the material helped me identify areas of weakness that I needed to focus on before the test and embolden my confidence in the material I knew well coming into the exam.
- Greg Goin CFP®, CIMA®, CLU®, CRPC® Advisory Solutions Director
There are very few people that I have met that have a true depth of knowledge in their field. Kathleen is one of them. She is amazing in her understanding of the concepts.
- Program past participant
© Provided by SmartAsset SmartAsset: CFP exam: how to study and what to expect
If you’re interested in becoming a certified financial planner, passing the CFP test is a necessary step. The CFP test is a 170-question multiple choice test that’s designed to thoroughly test your knowledge about financial planning. Preparation is key, as the test has a reputation for being difficult. Developing a plan for study and knowing what to expect on test day can increase your odds of earning a passing grade.
If you are looking to grow your financial advisory business, check out SmartAsset’s SmartAdvisor platform.
What Is the CFP Exam?
The CFP test is a comprehensive test that gauges your ability to apply financial planning concepts to real-world scenarios. Passing the test is a requirement for obtaining a certified financial planner designation. The test is administered by the CFP Board three times a year in March, July and November, both in person and through remote testing centers.
To complete the test, you must answer 170 multiple-choice questions. The test is administered in two three-hour sessions. There is a fee to take the test, which is determined by your registration date. The fee schedule is as follows:
- Early registration – $825
- Standard registration – $925
- Late registration – $1,025
You can register to take the CFP test online at the CFP Board website. To register for the test, you must either complete a CFP Board registered program or complete equivalent coursework. Submitted coursework is subject to a transcript review by the CFP Board.
If you opt for the second route, you have to verify your coursework before the test date. Otherwise, your registration will be withdrawn, and you’ll be charged a $500 postponement fee.
You don’t need a bachelor’s degree to take the CFP exam. You do, however, need to complete a bachelor’s degree program within five years of passing the exam.
What Does the CFP test Cover?
The CFP test spans several areas of core knowledge that the CFP Board deems necessary to work as a certified financial planner. Those core areas include:
- Professional conduct and regulation
- General principles of financial planning
- Risk management and insurance planning
- Investment planning
- Tax planning
- Retirement saving and income planning
- Estate planning
- Psychology of financial planning
Each section is assigned a different weighting. For example, retirement savings and income planning account for 18% of the test questions while the psychology of financial planning is just 7%.
All questions are pass/fail and count as one point each toward your score. In terms of the minimum score needed to pass, the CFP Board does not disclose one. Instead, the Board uses the results of the test to gauge how competent someone is to carry out the duties of a certified financial planner. As of November 2022, the test had a 64% pass rate.
How to Study for the CFP Exam
© Provided by SmartAsset SmartAsset: CFP exam: how to study and what to expect
The CFP test is designed to test what you know about financial planning and your ability to apply those concepts to situations you might encounter when working as a financial planner. With that in mind, here are a few helpful tips for preparing for the CFP exam.
- Start early. While it takes just a few hours to complete the CFP exam, it can take months of study to fully prepare. Depending on how much time you have available, you may want to begin your studies three months, six months or even a year in advance of your anticipated test date.
- Take advantage of CFP resources. The CFP Board provides free study resources, including a full-length practice exam, study guides and a mentoring program to help you prepare. Those benefits are all included with your test registration fee.
- Create a study schedule. Having a set study schedule can help you to get organized and keep an appropriate pace so that you’re able to cover everything before the exam. You can set your schedule to include specific days and times, which can help you stay committed to the plan.
- Consider a course. Taking a CFP test prep course might be helpful if you’re more comfortable learning in an instructional environment, rather than just doing a self-paced study. You’ll typically pay a fee for these courses, but it may be worth it if you’re able to glean new knowledge or study skills as a result.
Practice makes perfect. And the more problem-solving activities you’re able to complete, the more prepared you may be by the time test day rolls around. Again, what’s most important to keep in mind is how you can use the concepts you’re learning practically when working with clients as that’s what the CFP Board is most concerned with.
What to Expect When Taking the CFP Exam
How you prepare for the day of the test depends largely on whether you registered to take the test remotely or in person. If you’re taking the test at a testing center, you’ll need to have a valid, government-issued ID to gain entry.
You’ll also need to offer a fingerprint, take a photo and complete a body scan upon entering the test center. A body scan isn’t required for remote testing, but you will need to provide a video of your test-taking workspace. And you will need to demonstrate you’re not concealing any cheat sheets on your person.
Before the test begins, the test administrator will go over the rules and regulations of the test center. They’ll review your calculator to make sure it’s up to standard and provide you with a whiteboard to use during the exam. Once the preliminaries are over, you’ll be shown to your test seat.
The test is self-paced but it’s important to keep the three-hour time limit in mind as you work through each section. You’ll have a five-minute tutorial to complete beforehand, followed by 180 minutes to complete 85 test questions. There’s a 40-minute break period, followed by the second 180-minute block to complete the remaining questions.
You’ll have a chance to take a brief survey once the test is over to share your feedback. After you complete the CFP exam, you’ll get your results by email, typically within four weeks.
Is Taking the CFP test Worth It?
© Provided by SmartAsset SmartAsset: CFP exam: how to study and what to expect
Taking the CFP test is worth it if you want to pursue a career as a certified financial planner. You won’t be able to do so without first taking the exam.
Working as a certified financial planner can be rewarding if you’re passionate about helping people to reach their financial goals. The CFP test can prepare you for a wide range of situations you might encounter when working with clients. And it can help you to fine-tune your problem-solving skills.
However, you don’t need to obtain a CFP designation if you’re interested in becoming a certified educator in personal finance (CEPF) or a certified credit counselor. While there are educational requirements that need to be met for those designations, they’re not as rigorous as the CFP exam.
The Bottom Line
The CFP test can seem a little daunting and early planning can be critical to your success in achieving a passing grade. Knowing what the test covers, how to study for it and what happens on the test day can help you to approach it calmly and confidently.
Tips for Growing Your Financial Advisory Business
- Partner for growth. If you’re interested in scaling your financial advisory business, you don’t have to go it alone. SmartAsset’s SmartAdvisor platform makes it easy to match with vetted financial advisors who fit your ideal client profile, without having to do any active canvassing. You can get leads delivered to your inbox and you only pay for those you connect with. If you’re ready, get started now.
- Keep an eye on trends. Knowing what your clients want is key to better meeting their needs. It’s also central to attracting new prospects to your business. SmartAsset’s recent survey reveals the top year-end moves advisors are discussing with clients.
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The post CFP Exam: How to Study and What to Expect appeared first on SmartAsset Blog.
If you’ve been investing for some time, you most likely have a plan in place. Of course, these plans will vary depending on your specific goals, age and risk tolerance. But the essential consideration is that some sort of attainable goal, as well as a plan on how to reach that goal, is common to most investors.
Along with that, however, comes a fatal flaw that is seen far too often: These plans are made in a vacuum. You may think, if I continue earning my current salary, putting 10% in savings, and investing another 25%, then everything will turn out fine. Unfortunately, nothing happens in a vacuum — least of all in the world of investing.
The fact is that the circumstances in which you made your plan will most certainly change. Income can fluctuate (either expectedly or unexpectedly), interest rates change, inflation rises or drops, economies experience recessions, and industries crash.
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This means that our immediate cash needs and the risks associated with certain investments can significantly fluctuate, too. The way they impact our long-term financial plan is vital.
None of us can predict how the future will unfold. However, we can approximate what would happen to our portfolio if some of those initial factors were to change. The basic idea isn’t too complicated: If your primary source of income sharply decreases, will your limited savings require you to liquidate long-term investments to generate short-term cash flow, thereby throwing your entire retirement plan off course?
These are the occurrences we wish to avoid — and stress-testing our financial plan helps us do just that.
In practice, this process requires a vast amount of knowledge and expertise. Most investors turn to financial advisers to help with such a task. Whether you’re seeking to conduct this yourself, or plan to turn to a trusted adviser, the following will provide a head-start either way.
Stress-Testing Your Portfolio: Considerations
The first and most crucial aspect of a stress test is to start with a budget. Calculating your budget will allow you to forecast cash needs over time.
Understanding your cash needs — which are specific to your income, financial goals and lifestyle — allows you to recognize the most important aspect of successfully managing a financial plan over time: Your goal isn’t just about growing your assets; it’s about managing liquidity.
Life happens — and we all eventually run into unexpected cash needs. The last thing you want to do in such a situation is liquidate a long-term investment to satisfy short-term cash flow needs. This will not only divert your long-term financial plan, but you’ll likely incur added immediate expenses through capital gains taxes.
When most investors think of their financial plan, they think long-term. And that’s great — but everyone needs to be prepared for a rainy day in the immediate future. The key to finding this balance between a long-term vision and the immediate future boils down to liquidity management, which all starts with defining a budget.
If your budget isn’t clearly defined, then you’ve already botched your stress-test.
So, once you nail down a budget and projected cash flow, the focus then shifts to your portfolio. This is where things get a little tricky. Most portfolios are built using tools that only professional money managers can access. This is why it’s always best to utilize a financial adviser.
Above all, there are two primary concepts at play in your stress-test: asset appreciation and after-tax cash flow expectations. This is very similar to the strategies behind many large endowment fund managers — but just on a micro-scale.
In action, this typically involves examining risk-ratios to calculate expected returns and volatility from modern portfolio theory. The obvious goal is to maintain the lowest risk ratio for the highest expected value. A key component is maintaining balance between risk and reward, and one way in which this is done is through the Sharpe Ratio.
To put it simply, the Sharpe Ratio adjusts the expected return of an investment based on its risk. Let’s say Jerome and Sarah are both traveling from point A to point B. Jerome takes his car, averaging a modest 45 mph. Sarah takes her motorcycle, averaging 75 mph. Of course, Sarah reaches point B first. But — she also incurred much more risk than Jerome — despite the fact that they both reached the same destination.
Was the risk that Sarah took worth the benefit of arriving early? Of course, the level of risk you’re willing to assume will vary based on your unique situation, but this is the sort of insight that the Sharpe Ratio aims to illuminate.
Then, there are some stressors that need to be thrown into the mix. The most important of which should be a loss of primary income. Many experts suggest having three to six months of your salary readily accessible as cash in a savings or brokerage account. All too often however, this simply isn’t enough. More conservative savers aim for a figure closer to 12 months. Again, we see how starting with a budget — to determine monthly expenses and manage short-term cash flow needs — plays a crucial role.
For most people, the end goal of this entire process is adequately preparing for your retirement — so that you can indeed retire on time. For various reasons, the average age of retirement continues to rise, particularly for men (opens in new tab) and entrepreneurs over the age of 65 (opens in new tab). Making the choice to continue working is one thing, but feeling obligated to maintain an income stream is another. Stress-testing your portfolio will help you gain a better understanding of your preparedness to life’s curveballs — and will hopefully help you sleep better at night.
Of course, the steps above are fairly easy to understand in theory, but are much more difficult to execute in practice. Building a budget, measuring risk and assessing expected value are difficult tasks. While they are not necessarily impossible to perform on your own, the above framework — at the very least — should be used as a template when selecting a financial adviser.
One way in which financial advisers test different scenarios — and their subsequent impact on portfolios — is through the Monte Carlo Simulation.
Monte Carlo Simulations
Dwight Eisenhower once said, “Plans are nothing, planning is everything.” While the first part of that sentence might be too harsh, one is forced to agree that the real planning is more important than the plan. Plans depend on circumstances, and circumstances change, but the ability to adapt — and construct a plan — is valuable at all times.
Monte Carlo simulations work by taking a financial plan and simulating how it would fare under different conditions; the most important of which are changes to your income and expenses, savings, your life expectancy, and expected returns from long-term investments.
Some of these factors are under your control — income, expenses and expected returns due to asset allocation largely depend on you. However, market conditions such as inflation, your investment horizon and many other factors do not. So, in order to get a result, the Monte Carlo method assigns a random value to those uncertain factors. The simulation is then run thousands of times to get a probability distribution.
If this sounds complicated, there’s no need to worry. Even if you’re an experienced investor, this is a subject that requires professional experience in the field. The fact is, even if the software used to run stress-tests were available to the general public (which it isn’t), you would still be left with the trouble of deciphering the results of the test and putting them to use.
Final Thoughts
It’s an arduous task to stress-test a financial plan on your own. Leveraging a professional is the most popular path here. You can, however, do some prep work yourself to better understand the process and select a financial adviser you trust. Most of those preparations will revolve around budgeting and making contingency plans for yourself — think of them as your own prelude to a stress-test.
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The Securities Industry Essentials (SIE) test is an entry-level assessment that covers products, risks, regulatory agencies, prohibited practices, and markets administered by the Financial Industry Regulatory Authority (FINRA). The test has 75 multiple-choice questions, takes an hour and 45 minutes to complete, and it's a tough test, even if you have financial experience.
One of the best ways to get ready for it is to enroll in an SIE test prep course, so you can make sure to make the grade of 70 or above needed to pass. Many companies offer SIE test prep, so when searching for your best fit, consider cost, pass guarantees, the structure of courses, venues (virtual live streams versus on-demand ), and study materials offered.
So you’ve decided you want to become a certified public accountant (CPA). If you've taken all the undergraduate and graduate-level classes in accounting, business law, and general studies that your state requires, and have logged some work experienced (as required in all but a few states), you’re ready to take the Uniform CPA Examination. This is a substantial undertaking. Let’s review what’s involved.
Key Takeaways
- The CPA test consists of four sections: Financial Accounting and Reporting (FAR), Auditing and Attestation (AUD), Regulation (REG), and Business Environment and Concepts (BEC).
- Candidates have up to four hours to complete each test section; test sections can be taken individually and candidates must pass all four sections within 18 months.
- The computer-based CPA test has three written communication tasks, 276 multiple-choice questions, and 28 task-based simulations.
- Each section of the test is graded on a scale of zero to 99; the minimum passing score is 75.
CPA test Structure
The CPA test has 276 multiple-choice questions, 28 task-based simulations, and three writing portions. These are divided into four main sections:
- Auditing and Attestation (AUD)
- Financial Accounting and Reporting (FAR)
- Regulation (REG)
- Business Environment and Concepts (BEC)
Candidates have four hours to complete each section, with a total test time of 16 hours. Each section is taken individually, and candidates can choose the order in which they take them. Candidates must pass all four sections of the test within 18 months. The beginning of the 18-month time frame varies by jurisdiction.
Test Scoring
The American Institute of Certified Public Accountants (AICPA) develops and scores the test, grading each part on a scale of zero to 99. You must score at least 75 to pass each section. For the AUD, FAR, and REG sections, your total score is a weighted combination of scaled scores from multiple-choice questions and task-based simulations. Multiple-choice questions count for 50% of the total score and tasked-based simulations count for the other 50%.
Your total score for the BEC section is a weighted combination of scaled scores from multiple-choice questions, task-based simulations, and written communication tasks. Multiple-choice questions count for 50% of the total score, tasked-based simulations count for 35%, and written communication tasks count for 15%.
The test sections employ multi-stage testlets for the multiple-choice questions. The first testlet is always of moderate difficulty. Depending on your performance, the next testlet will be of the same level or slightly more difficult.
Let's look at what each section covers.
Financial Accounting and Reporting
The FAR section tests knowledge and understanding of the financial reporting framework used by business enterprises, not-for-profit organizations, and government entities. It includes 66 multiple-choice questions as well as eight task-based simulations that use real-life work situations to test your skill.
This section deals with standards for financial statements, what needs to be included in statements, and how to account and report for government agencies, non-profits, and other types of organizations. Test takers are expected to prepare financial statements, including balance sheets, income statements, statements of retained earnings, equity, comprehensive income, and cash flows. They also must review source documents and enter data into subsidiary and general ledgers.
Test takers must show they understand the process by which accounting standards are set and the roles of various governmental and industry groups such as the U.S. Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), and the Governmental Accounting Standards Board (GASB).
For most people, FAR is the toughest section of the overall CPA exam. You have up to four hours to take it.
Auditing and Attestation
The AUD section is a bit easier, especially if you’ve tackled FAR first. It has 72 multiple-choice questions and eight task-based simulations. It covers the planning and reviewing of engagements, internal controls, obtaining and documenting information, and communications preparation.
As with FAR, test-takers need to demonstrate knowledge of international accounting standards, in particular, the difference between International Standards on Auditing (ISAs) and U.S. auditing standards. They must identify situations that might be unethical or a violation of professional standards and determine the appropriate action to these situations. In addition, they must identify key risks in a financial information technology environment.
AUD also covers standards for preparing reports on audited financial statements, government auditing standards, compliance with laws, regulations, and internal control, along with other communication standards accountants must know. This section will also test your knowledge of the ethics and independence required by the AICPA, the Sarbanes-Oxley Act of 2002, the Government Accountability Office, and the Department of Labor.
Regulation
The REG section covers ethics and professional responsibility, business law, tax procedures and accounting, and federal taxation for individuals, entities, and property transactions. This section has 76 multiple-choice questions and eight task-based simulations.
Test-takers must show that they understand the professional and legal responsibilities of certified public accountants, as well as the legal implications of business transactions as they relate to accounting, auditing, and financial reporting. This section deals with federal and widely adopted state laws. You must show you understand the rights, duties, and liabilities of debtors, creditors, and guarantors as well as the audit and appeals process employed by the Internal Revenue Service (IRS). This section also covers the alternative minimum tax and both estate and gift taxation.
Business Environment and Concepts
BEC is arguably the easiest section, and most candidates pass it on their first attempt. The BEC section has 62 multiple-choice questions, four task-based simulations, and three written communication tasks, wherein test takers must respond in a letter or memo format to a work scenario. This is used to assess candidates’ writing skills as well as their organization, clarity, and conciseness.
This section addresses business structures, economic concepts, financial management, and information technology. You must show you understand corporate governance, financial risk management, financial management processes, strategic planning, and operations management. This section also tests your understanding of the economic concepts of global business and how they impact an entity’s business strategy.
Test-takers are called to assess the impact of business cycles on an entity’s operations and evaluate operations and quality control initiatives to measure and manage performance and costs.
Expect to be tested on the rights, duties, and ethics of an entity’s board of directors, officers, and other employees. Questions will also cover information systems and technology risks, the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as well as corporate responsibility and financial disclosures necessitated by the Sarbanes-Oxley Act of 2002.
The Bottom Line
Even without the required schooling and work experience, CPA test takers have their work cut out for them. But the reward is a respected professional designation that most often comes with a significantly higher rate of pay. To deliver yourself the best chance possible when taking the exam, taking one of the best CPA prep courses might be worth considering.
Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business.
For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.
What is a business financial plan, and why is it important?
A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.
A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.
Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources.
FYI: Financial plans should be created annually at the beginning of the fiscal year as a collaboration of finance, HR, sales and operations leaders.
The 6 components of a successful financial plan for business
1. Sales forecasting
You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies.
For instance, a seasonal business can aim to Boost sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.
Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to Boost your sales by 10 percent over each previous period.
2. Expense outlay
A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll.
Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.
Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.
Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities.
As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.
3. Statement of financial position (assets and liabilities)
Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value.
Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report.
A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.
4. Cash flow projection
You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges.
It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment.
A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.
5. Break-even analysis
A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output.
Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.
In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.
6. Operations plan
To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.
It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.
For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider.
Tips on writing a business financial plan
Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead.
A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.
Review the previous year’s plan.
It’s a good idea to compare the previous year’s plan against real performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.
Collaborate with other departments.
A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team, operations leader, and those in charge of machinery, vehicles or other significant business tools.
Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.
Use available resources.
The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com, and service providers, such as Intuit, offer advice on this matter.
If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.
Did you know? Several small business organizations offer free financial plan templates for small business owners. You can find templates for the financial plan components listed here via SCORE.
Business financial plan templates
Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.
SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help.
SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.
Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.
Diana Wertz contributed to the writing and research in this article.
One of my clients, a corporate executive for many years, recently made a major career decision: She decided to leave the corporate world and join a nonprofit organization that aligns with her values to help others. As a result, she will earn approximately $100,000 less annually than she did in her corporate job.
After giving me the news, she surprised me somewhat by saying: “I’m so sorry if this messes up my whole financial plan!”
After congratulating her on the career move, I let her know I understood and applauded her decision. Our lives often take sharp turns in new directions, from starting a family to dealing with a long-term illness. A financial plan’s purpose is to achieve a long-term goal, such as financial independence in retirement. As life changes, so should your plan.
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Many of us are tempted to think of financial planning like early GPS devices from the late ’90s: Input where you want to go, and the plan spits out your route – in this case, how much money you need to save every year. Instead, financial planning should be much more like today’s intelligent navigation apps: always seeking new data, adjusting and suggesting alternate routes.
So, if financial planning is an ever-changing process, how can you plan for the uncertain future? Let’s look at three major elements of this approach.
Write Down Your Retirement Goals
I always encourage my clients to write down their financial goals. Not surprisingly, most people have not done this before, so this exercise begins to bring clarity to their goals. I ask them to start with a general goal and add details over time.
For example, a general goal may be to retire at the earliest age possible. Then, we look at that goal and consider the impact it will have on other possible retirement goals. By retiring at the earliest age possible, purchasing a second home or traveling overseas twice per year will likely take a back seat. Writing down your goal helps a financial plan come into focus and leads to other, more specific decisions.
Next, instead of planning a specific date for retirement and exactly how much spending power you want to have in retirement, identify the general direction you want to move.
I work with several corporate executives who want to get off the corporate treadmill as soon as possible for their physical health, mental health and family relationships. So, we build a strategy with a general goal in mind. For example, if they are 45 years old now, we may build a financial plan that meets their goals by age 55. As they save and invest more, and their expenses in retirement become clear, we gain perspective on how close they are to reaching financial independence.
Save Money for Unexpected Setbacks
Some of life’s curveballs can derail the best laid plans. Job layoffs, failed business ventures and family illnesses are all tragic in their own right. There is no time a plan needs to be more flexible than when disaster strikes.
One of my clients recently disclosed that her spouse has a terminal illness. The couple, in their late 50s, planned to work several more years before celebrating their dream retirement.
Almost immediately, the urgent question was, “Can we afford to retire now and enjoy whatever time we have left together?” Fortunately, due to their disciplined savings and reasonable level of expenses the answer was yes. None of us can certain we can avoid these moments in life. But we can be prepared with financial options if and when they do appear.
Review your financial plan and determine if it should be adjusted to take advantage of a new opportunity or deal with an unexpected obstacle. Maybe there is an opportunity right in front of you: finally opening that yoga studio or traveling overseas to explore your family history. Review your goals and deliver yourself permission to change them as life unfolds.
Consider Opening a Brokerage Account
Saving money in a 401(k) retirement plan, Individual Retirement Account and 529 college savings plan are wise choices. However, all those accounts have restrictions on withdrawing funds too early and without penalties.
It is critical to save money that can be used at any time and for any reason. Starting and saving in a taxable brokerage account can be one of the best decisions you make financially because it provides those options. You can start small with a few thousand dollars and build it over several years.
Need to take an extended time off between jobs? A taxable investment account can help bridge that gap. And what if, one day, you can stop working at age 55 due to the success of your startup company or stock options? Your taxable account can provide liquidity until you reach 59½ years old or older and can access your retirement accounts without penalties.
Remember that life is uncertain and good planning should account for that. Know what direction you want to head in, save money and deliver yourself the benefit of having options when there is a fork in the road.
I am very happy to report that I passed the CIMA exam! Although I was part of the educational program at another school, there is no way I could have passed without the Chicago Booth review program and having been also granted access to the Chicago Booth CIMA program educational materials and live session videos. Kathleen’s voice was a constant companion as I listened to classes driving and even while on family vacation. Thank you so very much!
- Alan P. Jesiel, CFP®, CIMA®, Vice President, Senior Relationship Strategist, PNC Wealth Management
The University of Chicago has a well-planned approach to teaching the CIMA curriculum. All of the important concepts are covered in a clear, concise format. The professors really want to make sure you understand the material and go to great lengths to provide intuition behind some of the math concepts. The class is very interactive and the faculty make themselves easily accessible throughout the class. I strongly recommend this program to anyone considering attaining the designation.
- Todd Muentzer, CIMA®, ETF Specialist
This was a great overall experience. Kathleen does a great job presenting and reviewing the content. It was also beneficial to connect with other students preparing for the exam.
- Jon Maldonado, Financial Advisor, UBS Financial Services
Excellent program with in-depth analysis of calculation needed for course material.
- Robert Filetti, Robert Baird
This class was far above my expectations. This is a great value for the cost.
- Alicia Frye, Regional Business Consultant, Symmetry Partners
I got the passing score I needed to finally achieve my CIMA credentials. I was and am still ecstatic about this accomplishment and absolutely credit it to the Chicago Booth workshop and team for helping me get here. I would tell anyone interested in the CIMA program or who is trying to finish the certification process that the Booth workshop is the way to go.
- Jen Litton, CDFA, CIMA®
Having the two day review class at Booth is a major differentiator from the other education programs. Having a two day intensive review upon completion of the material helped me identify areas of weakness that I needed to focus on before the test and embolden my confidence in the material I knew well coming into the exam.
- Greg Goin CFP®, CIMA®, CLU®, CRPC® Advisory Solutions Director
There are very few people that I have met that have a true depth of knowledge in their field. Kathleen is one of them. She is amazing in her understanding of the concepts.
- Program past participant
