Do you have a well-put-together plan for your business finances? Of course, as a small company, you want to ensure that you’re not wasting time or money. But that would be impossible to achieve without a solid financial plan. It’s an important tool in managing cash flow, identifying financing needs, and making better-informed decisions.
A financial plan is essential for the long-term success of every business. It’s basically a part of an overall business plan. But how do you make one that will improve your company’s chances of growth? We will share the six considerations for your small business financial plan. Learn more about them by reading.
Before looking at the numbers, you have to look at the course of action your business will take. For example, do you need to expand your business? Is it necessary to hire more staff or purchase more equipment? How will these new business endeavors affect your cash flow? Will you need to secure financing?
The answers to such questions stem from strategic planning. They determine what your company wants to accomplish for the next year or quarter. You can view your strategic plan as a warning system of all the factors your company’s resources will revolve around. Once you have the specific course of action, evaluate what will be the financial impact on your business.
A strategic plan without financial projections is only a concept. Look at the goals you listed on your strategic plan and start filling in the numbers. What are the anticipated expenses and income for the projects? Remember that this is different from doing your accounting reports. Instead of evaluating what happened, you’re making an elaborate educated guess.
It can be helpful to consider higher and lower projections when making a financial forecast. Note that external factors like demands, competition, and economic growth can affect your expected outcome. By taking both optimistic and negative scenarios into account, you can better prepare for their potential impact on your business finances.
Unless your business has endless financial resources, you’ll most likely need access to capital to realize your plan. Even many established large corporations need it from time to time. Determine your financing needs by utilizing the data you have in your financial projections.
How much will you need for expansion, equipment purchase, and other projects? Keep in mind that revenues may not always catch up to your expenses as projected. Therefore, your business must have adequate financial resources to cover these costs. Add to that the day-to-day expenses you need to keep operating.
However, small businesses like yours should find suitable funding options when securing financing. As much as possible, finance your capital from less-risky sources, such as a low-cost cash advance loan. Getting money from the wrong source can lock your business up in terms that can impair its growth.
A crisis can strike without warning. Whether it’s an economic downturn, natural disaster, machine failure, or customer desertion, it can significantly threaten your business’s operations and financial health. That’s why preparing for contingencies is an integral part of financial planning.
What would you do when there’s no money coming in or your company’s finances suddenly decline? First, note that contingencies don’t only pertain to the worst-case scenarios. It can also include a flood of customer demands that you have to meet. So make sure to have a plan in place for these potential scenarios.
Besides having access to financing, consider maintaining cash reserves or emergency funds. This can help you respond effectively to any potential setback and have better chances to recover quickly.
Many small business owners make the mistake of looking at their financial plans only once a year. Instead, financial planning should be done continuously. You can’t wait for a whole year to evaluate your strategic plan and financial projections.
It’s best to sit down at least once a month and monitor whether your company targets the goals or are there any adjustments you need to make. Keeping track of your finances can help you detect problems before they threaten your business.
Understanding the basics of finances is crucial to making better financial decisions for your business. But you can also seek help from an expert to create a more effective financial plan. For example, an accountant or bookkeeper can give you advice on monitoring your cash flow, creating a realistic budget, and other things related to your finances.
It’s easy to get overwhelmed with matters relating to your company’s finances. But a financial plan gives you direction on what you should do. Don’t underestimate the power of effective financial planning. If your business can afford it, you can leverage technology to analyze, report, and forecast financial data.