The Importance of Financial Planning for your Businesses

 

When you’re starting out with your business it can be difficult to think of next week - let alone 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 helps you to forecast future finances and decide how best to use your company’s current financial resources to realise both your short- and long-term goals. Because planning involves looking well into the future, it is a highly creative and  analytical process, and you might need to call in the financial  experts.

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 is so important that possible investors, bankers, and creditors won’t even set up a meeting  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, 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 and clarifies spending goals -  especially important after initial startup expenditures.
2. Allocate your budget: Financial planning makes for clever budget allocation and allows everyone  to understand where and how money will be spent, ensuring less friction. 
3. Set realistic goals: Work within a realistic budget. Your vision might be lofty, but it pays to be realistic.
4. Mitigate your risk: A good financial plan prepares 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 making it easier for management to make sound decisions when planning to scale. 

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.  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).

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. These become increasingly more important as you head towards further expansion, possible fundraises and potential acquisitions. Developing the right strategy based on analysis, forecasts, and smart financial management is critical. This is where you need the advice of an expert CFO or 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. Click here to reach out to us or visit https://www.ocfo.com/contact/ and let’s get your business ready for growth.