The Importance of Financial Planning for Your Business
Before starting any business venture, it’s important to carefully plan its execution and management. This step – financial planning – is crucial to attaining the business’ purpose and objectives.
Financial planning is intricately tied to a business’ core processes. It’s a necessary practice for any business owner and should be done regularly, ideally before every start of a new financial year.
Financial planning means budgeting for your business on a grander and much more complex scale. The process includes analysing past reports, forecasting net revenue, estimating operating costs, understanding risks, and much more.
A realistic financial plan should be at the core of any business strategy. Here are some reasons why financial planning is so important for any business:
1. Financial planning creates a revenue model.
A good financial plan acts as a revenue model, which includes calculating potential profit and loss. Tracking your cash flow and comparing it with your financial plan helps you analyse where your business is currently at. Having a plan allows you to measure actual progress relative to where you envisioned it to be at the beginning of your financial year.
2. It sets realistic goals and growth opportunities.
Financial planning is a way of setting goals that are realistically attainable for your organisation, as it projects a certain amount of revenue after an extended period of time. It acts as a wide, long-range lens to ensure that the business continues to grow. This makes it essential in facilitating growth and expansion programs to ensure a company’s long-term survival.
3. It provides logic for sound decision-making.
Your financial plan is a guide to running your business – it helps you create a realistic strategy with well-defined steps for achieving profitable growth. You cannot make a bold business move, whether it’s an investment or a purchase, without first consulting this guide. A financial plan enables proactive decision-making, as well as financial stability and control, which can be achieved only with careful, professional planning.
4. It ensures adequate funds.
Running a business requires many resources. A financial plan ensures that the many aspects of your business such as marketing, labour, equipment and many others, have been allocated adequate funds so it continues to run smoothly. Your plan should also account for a set amount of emergency reserves to remedy unforeseen issues. If your cash reserve is adequate, you’ll sleep peacefully at night knowing you’re prepared.
5. It tracks your liabilities.
Financial planning requires analysis of your company’s liabilities, long-term debt and owner equity. We may only want to look at current assets, but liabilities need to be monitored carefully to further aid you in resource allocations and budget planning. Your financial plan will schedule any debt repayments, or help you when considering new liabilities, ultimately empowering you to fully understand your business’ finances and profitability.
Financial planning for your business can feel like a daunting, aimless and unscientific task. At Collaborative Consulting we work closely with you so you can create a measurable, results-driven financial plan geared towards significant growth. Feel free to get in touch. We always love to hear from business owners.