It's
never simple to create a financial plan for a business. It takes work, reliable
information, and some creativity. And if you've never attempted this, you'll
probably encounter a few obstacles. But this article will demonstrate why it's
still so important to get financial planning done for your business by CPA
accounting firms.
As
the business expands, new difficulties arise, and unanticipated crises strike,
a solid financial plan helps you stay focused and on course. It enables you to
communicate effectively with staff and investors and create a cutting-edge,
open company.
There
are also a ton of other benefits.
We'll
soon go over some of the main advantages. However, let's first clarify exactly
what we're referring to.
What is financial planning for businesses?
The
financial portion of your business plan is essentially what your company's
financial plan is. It uses actual financial data and projections to
contextualize the remainder of your business plan.
Importantly,
it is also forward-looking. It's not just a case of copying and pasting your
accounting data; rather, you use experience and existing accounting figures (if
you already have them) to create your plan. Instead, you consider your
company's objectives and decide how much money you're prepared to invest in
each of them.
However,
this does not imply that financial strategies are merely "made up."
This section of your business plan is, if anything, the most realistic.
Until
you add the numbers and terms, a business plan is only conceptual. The sections
on your marketing strategy and plan are interesting to read, but they are
meaningless if you can't support your company with solid financial data.
One
of the most crucial sections of a business plan is the financial section, which
is necessary if you want to attract investors or secure a bank loan. A
financial forecast should be created even if you don't need financing to steer
your business successfully.
The significance of financial planning and budgeting in business
Most
readers won't be surprised to learn that financial planning is crucial for
creating a successful company. Depending on how far in advance you plan, your
business plan will determine how you intend to conduct business over the coming
month, quarter, year, or longer.
It
highlights any potential risks you might face and includes an assessment of the
business environment, your goals, the resources required to achieve them, and
team and resource budgets. Although you can't guarantee that everything will go
exactly as you've planned, this exercise will help you be more prepared.
Next,
we'll examine the specific advantages for each individual, but for now, let's
say that without a clear financial plan, all you can do is hope for the best.
Advantages of business financial planning
What
benefits can you expect from business financial planning, then? There are
undoubtedly countless advantages to business planning, but these stand out.
1. Responsible management of cash flow
The
amount coming into and going out of the business should be clearly defined in
your financial plan. Of course, at first, you'll spend more than you earn.
However, what is a reasonable amount of spending, and how will you stay on
schedule?
You
must also consider how you will easily measure cash flow as part of this plan.
Can you efficiently and accurately keep track of where your money is going even
though the team may not have any seasoned financial experts? You can anticipate
difficulties with both receiving and spending money by making your plan now,
and you can find ways to do both more successfully.
2. Risk management
The
ability to assist businesses in avoiding and navigating risk, from financial
fraud to economic crisis, is a critical component of the finance team's role.
While many risks are difficult to anticipate or avoid, many others are obvious.
Your
financial plan should account for costs associated with specific business
insurance policies, losses due to risky inefficiencies, and possibly set aside
funds for unforeseen costs. You might make several financial projections,
especially during stressful moments, showing various outcomes for the company:
one where revenue is straightforward to come by and one or two others where
things are more difficult.
Once
more, the goal is to have backup plans in place and to try to determine how
your roadmap will change if your growth is only 20% next quarter rather than
30%. (or 50 percent ). There's no need to go overboard, but you can identify risky
areas in the business and think through your best course of action if something
goes wrong.
3. Clearly defined business objectives
These
serve as the foundation of your entire financial strategy. What goals does the
company have for the upcoming quarter, year, three years, and so on?
You
should prove right away that there is a genuine need for your business and that
it satisfies that need. Also referred to as "product/market fit,"
these are the initial years of many startups that may be spent developing a
product and determining product/market fit. So, with smaller checkpoints along
the way, this would be your main one- to two-year goal.
Importantly,
if this is your primary objective, you won't set ambitious sales goals or
sizable marketing KPIs. If the product isn't ready to sell, what's the point of
investing in sales and marketing for new clients?
Your
company's goals will come up again and again, so it's important to understand
them right away.
4. Budgeting technique
This
obviously has a close connection to cost-cutting and cash flow management. You
need to decide how you'll use the money after you've determined how much you
have to spend, whether it comes from sales revenue or investments.
The
business is aware of its overall budget, or its "burn rate," for each
quarter or year. Ensure that the funds allocated to each team budget (for
example, those for product development, marketing, and customer support)
reflect their relative importance.
Budgets
give each team its own limitations to work within. They can plan campaigns,
personal growth, and product development accordingly because they are aware of
the available resources.
At
the corporate level, keeping track of project or team budgets will always be
more straightforward than keeping track of overall spending. It's easy to track
who is spending what once you've broken down each budget.
5. Effortless fundraising
Now
let's completely leave risk behind. At some point, you'll probably need money,
whether you're a fresh startup, an established business in need of a modest
injection of cash, or you're looking for a sizable series-level investment.
And
your business plan will be the first thing any potential investor or bank
requests. They want to know what risks and uncertainties are involved, how you
plan to expand the company, and if you'll use their money wisely.
Investors
need to understand your financial plan, and the better your track record of
planning has been, the more confident they will be in your forecasts. A
business financial plan is therefore a crucial tool in your toolbox, whether or
not you are currently looking for funding.
6. Cost savings that are necessary
A
financial plan not only outlines how much you can spend (and on what), but it
also enables you to identify savings opportunities in advance. If you've been
in business for some years, you should first assess how much money you've
already spent and how quickly your company is expanding before creating a
financial plan.
You'll
look back on past expenditures to get insights for the upcoming fiscal budget.
You will be able to spot any anomalies in costs when you do the forecasting and
budgeting. This ensures that your forecast and real-time expenditures stay as
close as possible.
This
deliberate effort is a component of spend control, the process of keeping
business spending within your expectations. A quarterly or annual review almost
always reveals areas where you can save money and utilize your resources more
effectively, which is even better.
7. Crisis intervention
Any
company crisis usually starts with you reviewing and rebuilding your plans.
Naturally, this implies that you must start out with a well-defined business
plan. If not, your only option in a crisis is to improvise.
Nobody
can predict with certainty when the crisis will end or how it will affect their
company. As a result, businesses produce new financial plans at least every
month or quarter.
Additionally,
this process will be simpler for those who have solid and well-thought-out
financial plans. They have already identified the most important levers to pull
in response to the most obvious risks, so they are not constantly starting from
scratch.
8. A growth strategy
As
a final point, you should consider business financial planning as a growth
enabler. Your financial plan aids in situational analysis and forecasts for the
company. Again, your larger business plan will address this on a general level:
the target markets, the anticipated workforce, and the goods and services you
hope to sell.
Conclusion
It
is vital to have the right kind of financial planning in place to ensure the
smooth running of your business. Contact Just Call Jack for all the financial
and tax-related advice.