The goal for every entrepreneur is to see their business grow and flourish, and one of the major keys to success is effective financial planning. Whilst it’s possible to manage finances solely on a month-to-month basis for some while, failing to take the time to create a plan for long-term growth is one of the biggest mistakes new business owners can make – so if you want to make 2024 the year your company explodes, then it’s time to take note.
Here, we take a look at the benefits of having a financial plan for your business and how you can start building one now.
Why do you need a financial plan?
It shouldn’t come as much of a surprise that money management is at the centre of a business’s profitability, and it’s essential to lay the right foundations through financial planning so that you can move forward towards your objectives and make real progress.
Financial planning allows you to assess your business’ current financial status, set financial goals, and devise a strategy to help you achieve them. goals. To do this, you’ll need to analyse current financial conditions, create forecasts of your expected future financial performance, and make informed decisions to ensure long-term sustainability and profitability.
Financial planning encompasses various activities such as budgeting, forecasting, cash flow management, investment planning, tax planning, and risk management and creates a standard for measuring the success of a business. By managing your finances better, you’ll also be able to avoid financial risks and tackle any issues as and when they arise so that there is no chance for them to spiral.
Benefits of financial planning for business
The benefits of financial planning for businesses are many, but these are some of the biggest:
Setting clear goals
Businesses that are successful are goal-driven and are always striving towards a specific objective, whether it be a number of sales or an increase in profits. A key element of creating an effective financial plan is setting goals, so drawing up a plan for your business’ money is the first step to ensuring you’re moving forward on the road to success.
Wise financial management
Think of financial planning as a long-term budget. Setting a budget every month helps you allocate finances to specific areas, and having a financial plan with goals helps you allocate money to the financial growth and future of your company. As a result, it enables you to manage your finances more wisely as you allocate funds to areas that are a priority.
Avoiding unnecessary costs
When you create a financial plan, you put your businesses financial portfolio under a magnifying glass, assessing the income and expenses and how you can shuffle them around to better benefit your business, and helps to identify and eliminate any unnecessary costs going forward. By taking the time to review your past expenses, you’ll be able to factor in which expenses are essential, and which you can do without, which is a simple and effective way of increasing your profits.
Risk planning
A comprehensive financial plan includes risk assessment and mitigation strategies, which are important to ensure that your business is prepared for uncertainties such as economic downturns, market volatility, or unexpected expenses.
By working with financial planners to implement a financial plan, you’ll know what to do should any of these issues arise and have a robust contingency plan up your sleeve to ensure that you can keep going with minimal financial impact to your business.
Plotting a plan forward in a crisis
On that note, if you do find your business in an unexpected crisis, a financial plan will also offer you some solid footing and a better chance of being able to get it back on track. Reviewing your financial plan will help you to identify where you went wrong and enable you to plot a plan forward.
Businesses should always start with the end goal in mind, and having a financial plan is based around setting realistic growth targets and developing strategies to ensure you achieve them. By forecasting future revenues and expenses, you can identify opportunities for expansion and invest in new projects or markets, as well as creating milestones you’d like to reach in specific time periods so that you can always see whether or not you’re on course. Once you’ve achieved your first goal, you can then move onto planning the next one, and as you do so, your business will continue to grow.
An open book for if you choose to sell
In the event that you decide to sell your business, investors and potential buyers are going to want to take a look at its financials. This will include your business’s past financial decisions and the current plan going forward, as this will allow them to determine whether or not it is a viable opportunity. Having a good financial plan in place is thus key to showcasing the potential value of your business and could be a significant influence in getting you a better price for it.
The bottom line
There’s no getting around the fact that having a financial plan as a business is crucial, and plays a fundamental role in your path ahead to success. If you haven’t done so already, then getting in touch with a trusted financial planner to begin the process of putting together a financial plan for your business is the best possible thing you can do, and could make all the difference between where you are on your trajectory this time next year.
