Here Are Some Financial Planning Tips for Your Business
The adage, those who fail to plan, plan to fail, applies to all business organizations – whether small or large. Think about it this way: if you are going on a long journey, how would things go if you just wander off without a plan?
Similar is the case when doing financial planning for a business. It is about looking into the future – analyzing your goals and making effective decisions that allow you to achieve these goals. By making projections for the future, you can identify the problems beforehand and come up with solutions to handle them before they arise.
Financial plans also serve as a benchmark to determine current performance of a company. Any dips in performance can be identified and corrected so that the business stays on track. Want to get your finances in order? Here are some financial planning tips for your business.
- Set financial goals based on your corporate objectives
Start by reviewing your overall corporate objectives and strategy to see what the business aims to achieve in the near future. Next, determine how your business finances will be affected by these objectives over the next financial period.
For instance, your company objective is to increase market share over the next 5 years. Based on your financial situation, you may increase sales through investing in a new product so that maximizes returns.
- Make budgets and forecasts of future performance
Once you are clear on your financial goals for the upcoming year, the next step is to create projected financial statements by estimating revenues and costs. Recent financial performance data can be used as a guideline after making adjustments for foreseeable changes.
For example, when estimating costs, the effect of inflation should be considered. The financial impact of the objectives set should also be considered. Also, when launched, the new product is likely to increase revenue, but the cost of funding will be an additional expense.
- Come up with a plan of action
Using the above information, a plan of action can be established on how finances will be managed in the upcoming period. Different options can be assessed and evaluated before deciding on a financial strategy.
For example, if external financing is needed to launch the new product, various options can be evaluated to cover the capital cost. Different financial analysis techniques such as pay-back period (how long the project will take to break-even) and return on investment (ROI) are used to evaluate the returns likely to be generated.
- Arrange funds for emergencies
Since forecasts are only estimates of future performances, there’s always a chance of actual results deviating from forecasts. Therefore, it is always a good idea to maintain a reserve of funds to avoid business operations coming to a halt during an emergency.
Having access to quick business loans is essential to avoid cash flow problems as they offer simpler terms and conditions when applied.
- Compare actual results with budgets
Once the business has a set budget, it must constantly measure actual performance against it to ensure it stays on track to achieve company goals. Any variances must be investigated and corrective action should be taken in a timely manner.
The final verdict
The bottom line is: if you want your business to be successful in the long term, you need to give financial planning the attention it deserves. Taking time out to come up with a sound financial plan and using it as check and balance tool will ensure you are headed in the right direction of to achieve your goals.