The Importance of Financial Planning for your Businesses

When you’re starting out and putting in the hours to turn that business dream into a functioning reality, it can be difficult to think of next week – never mind next year. However, it always pays to plan ahead, especially when it comes to the financial future of your business.

Business Financial Planning:

Financial planning for your business helps you to forecast future financial results and decide how best to use your company’s current financial resources in order to realise both your short-term and long-term plans. Because planning involves looking well into the future, it is a highly creative thinking process as well as an analytical one, and you might need to call in the experts to help you juggle both these aspects of your financial roadmap.

How can financial planning help me achieve my company goals?

Having a strong financial plan for your business is probably the most important single thing that you can do to help yourself succeed.? It’s your roadmap, your guideline, a reminder of what your goals are–what you are trying to achieve in the short term and the long term. It is so important that possible investors, bankers, and creditors won’t even set up a meeting with you if you don’t have a financial plan in place. We cannot state this clearly enough – get your business’s financial function set up effectively from the start, and the rest will follow.?

Here are 5 benefits of financial planning for your business:

Financial planning can help you:

1. Manage your cash flow properly: Good financial planning allows you to set clear expectations regarding your cash flow so that you know where you can spend and where you need to cut back. This is especially important after the initial startup expenditures.
2. Allocate your budget: Financial planning for businesses makes for clever budget allocation and allows all players within your company to understand where and how money will be spent, ensuring less friction.?
3. Set realistic goals: If you don’t know how much you have to work with, you can’t set realistic financial goals that work within your budget. Your vision might be lofty, but it pays to be realistic.
4. Mitigate your risk: A good financial plan should prepare for unexpected expenses, as well as times of lower income. That way you can ride out the bad times, but keep your doors open.
5. Plan a roadmap for the future: Financial planning helps you clarify your company goals and communicate them to your employees and other stakeholders. This makes it easier for the business owners and top management to make more good decisions when planning to scale.

Most people have some idea of what they would like to achieve financially, but they don’t always know how to go about setting realistic goals. Companies that put in the time and effort to work out an effective and strategic financial plan, will be able to allocate their time and resources effectively, allowing them to expand while ensuring good cash flow and healthy accounts.

Does my business need a financial plan?

In short – yes. If money is the lifeblood of your business, then you cannot afford NOT to have a sound financial plan in place. A good financial plan that you refer back to, will allow you to spot anomalies and positive or negative trends in your finances so that you can take the necessary corrective action. This means that you can make your money work for you – spending when and where it’s needed for growth, and cutting back on those outgoings that are becoming a financial black hole.?

We have found that business owners and entrepreneurs are often so involved in the day-to-day running of their businesses, that they don’t have the time and energy to think of long-term financial planning and strategy. This is where we recommend a financial consultant or CFO with the expertise to see what you might miss.? Many entrepreneurs are making use of the services of a virtual CFO instead of hiring full-time, as this allows them access to expertise without the cost of a permanent hire.

What should be included in a business financial plan?

All business financial plans, whether you’re just starting a business or building an expansion plan, should include at least the following:

1. Revenue or income – what money is actually coming into your business.
2. Your basic fixed operating costs such as rent and utilities.
3. General monthly expenses such as marketing etc.
4. Costing of your goods or services – take the time to note every cent and every minute that you put into producing your product or service.
5. Total profit or loss – the formula for this is income minus cost of goods or services.
6. Actual operating income (total profit minus expenses).

After you have these basics down and feel that you have at least an overview of the financial health of your business, it is important to remember that ‘big-picture’ higher-order financial planning and strategizing ?are also necessary for the long-term viability of your business. Finance is complex and the finance function is often one of the last frontiers to get fortified by the leadership team. It is also one that becomes increasingly more important as you head towards further expansion, possible fundraises and potential acquisitions. Getting the numbers right is critical. So is developing the right strategy based on analysis, forecasts , and smart financial management. This is where you need the advice of an expert CFO or the assistance of a virtual ‘CFO-as service’ company like Outsourced CFO.

At Outsourced CFO we can assist with getting your financial planning off to a solid start,? in order to help you with building long-term profitability for your business. Reach out to us and let’s get your business ready for growth.