Why You Should Have A Financial Plan For Your Business

If you’re a business owner, you know that running a company is challenging. There are endless moving parts, deadlines, and decisions to make each day. But one thing that can make or break your business is how well you handle finances. If you don’t have effective financial systems in place, it’s easy to lose control of your cash flow—and, even worse, miss opportunities for growth.

In this month’s blog post, we thought we’d help break down the importance of creating a financial plan for your business so that you can avoid these pitfalls and get on the path toward growth and success!

What is a financial plan?

A financial plan is a document that outlines your financial goals and how you will achieve them. A financial plan for businesses helps to establish business goals and make decisions to help you reach them. It is a roadmap for your business that allows you to make informed decisions about your future direction and finances.

Financial planning can be both personal and business orientated, but regardless of where the focus lies, some key elements should be considered when creating or updating a financial plan:

• Goals – What do I want? Where do I want my company to be in 5 years? How much money do I need to achieve this goal? These are the kinds of questions that should be answered when creating a financial plan.
• Obstacles – What factors could get in the way of your goals? Listing and understanding barriers and potential solutions will determine if you can meet your desired goals and targets.

Why do you need a financial plan for your business?

Creating a financial plan for your business is helpful for a few reasons:

• Financial planning is an integral part of running any business. It helps you to plan for the future and make better decisions.
• A financial plan allows you to budget for your business, understand its finances and cash flow, and manage risk.
• Having a long-term vision can help you make important decisions about how to grow your company in the most effective way possible. You can also see if there are any holes or weaknesses that need addressing before they become giant sinkholes that threaten the longevity of your company – something that could be disastrous when it comes time to raise funds from investors!

How to create a financial plan for your business

A financial plan is your roadmap to success, so it’s essential to get it right.

First, set some goals and objectives to help guide you through the process and ensure you’re on track. Next, identify where your business currently stands in terms of its growth potential and profitability by analysing its current state: What are its strengths? Where does it have room for improvement? What would need to happen before investments and targets could achieve growth?

Lastly, make sure you have a tracking system in place to monitor progress and make revisions when necessary. This can be as simple as making notes in Google Sheets or Excel spreadsheets which can then be organised into an official document once all your information has been gathered from different sources.

Here are some steps we recommend to help you start your own business financial plan:

Step 1: Identify your business goals

The first step in setting business goals is defining your business objectives. When thinking about your target audience and the problems they may have, it can be easy to get lost in hypothetical ideas and not-so-realistic expectations. The best way around this is by setting measurable targets that can be tracked over time—this will help keep you on track while providing concrete evidence of your business progress.

Step 2: Know your Environment

Your environment is not just about the market you sell into, it also has to do with things like:

• The economy (factors such as interest rates or exchange rates) – You may not be able to influence these directly, but they can significantly impact your business. Hence, it being crucial that you’re aware of them and understand how they might affect your financial position over time.
• How your industry operates – This includes things like competition, regulations and taxation policy; again, these factors can change over time, so it’s critical that you keep up-to-date with them so that any changes have less impact on your business financial goals.

Step 3: Calculate your regular costs and funding needs

Take a look at your recurring costs and funding needs. For example, if you operate a retail store that sells clothing items, there will be inventory costs, overhead costs and labour costs that must be accounted for in your plan. You also need to include depreciation, capital costs, financing costs (if any), taxes and other external costs to your business operations.

When starting a business, these would include expenses like equipment, furniture, supplies and other startup expenses, including marketing! Your funding needs are the overall amount of funds needed to launch and run your business without profit until it becomes profitable enough so that profits can pay back the initial investment into the company plus interest on the principal amount borrowed from lenders, banks or credit unions – stating this in your financial plan is great for accountability.

Step 4: Set up Record Keeping Systems and Processes

Setting up a record-keeping system can be a daunting task for small business owners, but it is essential to the success of your financial plan. You need to have all the information you need at your fingertips in order to make good decisions about your business finances and know where you stand at all times.

Here are some things that you will need to track:

• Income and Expenses
• Cash Flow
• Profit & Loss
• Debt

If you need any assistance with this part of the process, check out our recent blog post about record-keeping options or contact us today – we’d be happy to help!

Step 5: Monitoring and Revising your Financial Plan

Once you have a financial plan in place, monitor your progress and ensure your business is on track with its goals. If not, then you can just adjust your plan accordingly. You should also use your financial plan as a tool for seeing how your business is growing and changing over time.

It’s important to understand that financial planning is an ongoing process. It can be difficult at first, and it might feel like a lot of work, but the more you practice creating plans, the easier they will become. Even if you do struggle with financial planning at first, it can help you understand where your money is going and help scope your business goals. This means you’ll be able to decide whether you have enough cash flow to meet everyday costs and goals – no matter how amateur or professional your plan may be.

Shoebox offers a range of services from record-keeping solutions to financial planning guidance, and we know life can get busy when running your business, so if this all seems like a bit too much work right now, feel free to contact us if you need any help creating or updating your record-keeping and financial planning documents.