Does your company have a financial plan to help pave the way to future success? Financial planning for businesses is a key component in understanding your organization from a dollars and cents perspective, both today and down the road.
What is a Business Financial Plan and Why is it Important?
As an all-inclusive assessment of your company’s current and future financial states, creating, tweaking, and consulting a business financial plan is essential for figuring out where you are, where you want to go, and how you’re going to get there.
Many small business owners are unaware that having a thorough financial plan in place from the outset is vital, since it serves as one of the biggest predictors of sustainable business growth. In fact, documented research supports the fact that entrepreneurs with a well-thought-out business plan are twice as likely to grow their businesses AND achieve the funding they need to do so.
To that end, your budgetary blueprint should look at and evaluate the various elements of your firm’s:
- Business Activities (including its revenue framework, overhead expenses, and fixed costs)
- Equipment and Materials
- Assets, Marketing Resources, and Personnel
- Funding and Capital
A well-crafted financial plan will not only consider how these elements work together right now, it will predict the direction they’re likely to take in the future. And armed with that valuable data, your business can better anticipate forthcoming revenues, cash flow, and asset values.
By understanding the monetary activity you can expect from your business going forward - and how to best influence that activity - you’ll be primed to make the most sensible decisions for achieving your company’s short-term and long-term goals.
Benefits of Financial Planning for Businesses
Financial planning affects every aspect of running and scaling your small business – from managing your cash, to capitalizing on trends, to evaluating progress. Let’s take a look at each of these attributes in turn, to see how they’re inextricably linked to a five-star business financial plan.
Cash management is the foundation of successfully collecting, allocating, and distributing your company’s money. Ideally, you’ll want to have your monetary assets spread out in such a way that you’ll always have access to the liquid cash you need to support your normal business operations, and to fund growth and expansion activities.
You’ll also want to avoid the loss of solvency that can result from overextending yourself financially. According to Dunn & Bradstreet, poor cash flow is still the reason why 90% of small businesses fail. A business financial plan helps you to monitor the cash you have:
- coming in as revenues,
- going out as expenses, and
- parked in fixed assets, inventory, and short-term investments
Managing your cash properly not only improves profitability, it also makes it easier to obtain outside funding, and reduces the likelihood of finding yourself without a safety net when sales drop off unexpectedly, or unforeseen expenses come along.
Amidst the flurry of activity that defines the typical small business, it can sometimes be difficult to determine which decisions are contributing (or not) to which results. Using a business financial plan to spot and manage trends in your company’s sales activities can benefit you in several key ways:
- it allows you to connect specific activities to outcomes
- it helps you keep tabs on which of your products and services are most relevant to your evolving clientele
- it lets you define the best allocation of your marketing dollars
- it encourages the incremental innovation that can gradually improve both your company’s products, and its processes (think advertising, customer service, billing, etc.)
- it can point the way to lucrative new opportunities
While business plans are rarely bang-on accurate, they do play a crucial role in comparing results like expense and sales projections, period over period. Measuring growth and progress is impossible without understanding where your business stood financially prior to today. But by reviewing and revising your business financial plan on a regular basis, you’ll have the opportunity to fine-tune and implement the course corrections that can gradually take you where you want to go:
Do you need additional capital to meet your growth objectives?
What are the steps that will move you closer to your ideal profit level?
Should you expand your marketing reach? Move to bigger premises? Hire additional staff? Invest in more modern processes and technologies? These are the types of questions that a solid financial plan can help you answer.
One of the reasons why so many entrepreneurs forge ahead without a plan in place, is simply that they’re unsure of how to put one together. Consider enlisting the services of a business financial planning consultant to help you pin down your professional and financial objectives, and to help lay the groundwork for turning those goals into achievements.