Financial planning is an integral part of business growth and development. Without it, you can’t know if your company is walking on the right or wrong path. You can’t measure its success, and neither can you realize if your company is heading towards bankruptcy.
Still not convinced?
Let me give you 9 reasons why you should give importance to financial planning as a small business owner.
1. A financial plan helps you plan your daily and monthly expenses
Financial statements, graphs and figures help you manage everyday expenses. You can figure out how much your business can spend on employee salaries, benefits, training budgets, etc. This helps you to run your business smoothly.
2. Your business is more likely to fail without a financial plan
A business without a financial plan is a disaster in the making. Your business can get bankrupt anytime. Without proper financial statements, it is impossible to decipher where your business is standing financially. There is no way to know if you’re overestimating business revenue or expenses.
3. A financial plan can help you measure your progress
Is your business doing well? Has your business progressed in the last 6 months? Has your business revenue surpassed all your expectations? Is it better or worse than your forecast? You’ll get all your answers from your business plan.
4. A financial plan can help you meet your long-term goals
A good financial plan can help you focus on the long-term goal and future of the business. Sometimes, it’s quite easy to forget the long-term goal of the business when your business is going through a problem. An effective financial plan can help you realize what expenses you must make to develop your business in the long-term.
5. A financial plan can help you identify a financial issue
A financial plan lets you know if your business is doing good or bad. You can find out if your revenue is lower than your prediction. If your revenue is poor, then you can change your current sales and marketing strategies. You can look after the issues that are affecting your business growth and development immediately rather than getting trapped into bigger problems later.
6. A financial plan helps you identify your best-selling products
A good financial plan helps you look at the sales trends. You can spot the products giving higher returns. You can also spot products giving lower returns. The sale records are an integral part of your financial plan. These records give you a correct idea about your best and worst products.
You can increase the production of best-selling products and reduce the production of worst performing products in the market. You can also set up a research item to improve the quality of your worst performing product.
7. A financial plan gives you the right spending plan
Small business is heavily depended upon immediate cash. A financial plan teaches you how to use it. It helps you identify your most essential expenses and the ones that can wait until your business revenue is better. Some small business owners misuse their ready cash. This affects business profits big time.
8. A financial plan can tell you if your marketing strategies are good
You spent a lot of money on advertising. But did it help to increase your business revenue? Did it help to sell your products? A financial plan will give you this information. It will tell you if your marketing strategies are effective or bogus.
9. You’re less likely to get financial support without a financial plan
You’re less likely to get a financial support for your business without a loan. Many lenders won’t agree to give you a loan or any other financial support without seeing a proper financial plan. They would want to see financial statements, balance sheet, cash flow forecast, etc.
Just remember one point. Your financial plan should include these 3 statements – cash flow statement, income statement and the balance sheet.
The income statement gives you an idea about company’s revenue and expenditures.
The balance sheet reflects the company’s assets and liabilities.
The cash flow statement shows the goal you wish to achieve. It includes sales receipts, cash receipts and credit
There is a subtle difference between business revenue and profit. It doesn’t matter if your business is making lots of money. Ultimately what matters is business profit. Even if your business revenue is good, it won’t matter if your expenses are too high.
A successful business is the one whose revenue is more than its expenses. A financial plan can help to identify and explore the ways to increase your net profit.
Stacy B Miller has been associated with Oak View Law Group as a content editor for the last 6 years. A financial writer by day and a voracious reader by night, she loathes anyone who wastes money.Tags: Financial planning