Financial planning can be easily neglected when the entrepreneur is focused on growing and nurturing business. But creating a solid business financial plan, where both business and personal finances are on point could give one more confidence that anything else. When it comes to long-term business success, preparation is the name of the game. The key to that preparation is a solid financial planning for entrepreneur that sets the business’s short and long term goals and how it intends to reach them.
A financial plan typically includes the company’s sales forecast, cash flow projection, expected expenses, key financial metrics and more. Here is what small businesses should understand to create a comprehensive financial plan of their own.
What is a financial plan?
Business financial planning is a record that details money management and ensures efficient allocation of resources etc. Financial planning provides entrepreneur a clear understanding of the company’s current standing; outlines its strategies, goals and projections. Financial planning ensures that the financial objectives align with overall business goals. Financial planning also helps entrepreneurs in attracting investors and other sources of funding.
Importance of financial plan
The reason why entrepreneurs need financial plans is it can provide small businesses with greater confidence in their endeavors by helping them determine ways to best allocate and invest their resources. The process of creating the plan forces businesses to think through how different decisions could impact revenue and which occasions call for dipping into reserve funds. It’s also a helpful tool for monitoring performance, managing cash flow and tracking financial metrics.
Financial planning benefits
A financial plan is only as effective as the data foundation it’s built on and the business’s flexibility to revisit it amid changing market forces and demand shifts. If done correctly, a financial plan can help small businesses stay on track so they can reach their expected goals, short-term or long-term. Effective financial planning delivers and can help entrepreneurs save money, improve finances, and avoid financial stress. Let’s look at few of the benefits of financial planning
Transparency
As with any type of business plan, it’s imperative that everyone in a company is on the same financial page. With clear responsibilities and expected results mapped out, every team member from the top down sees what needs to be done, when to do it and why.
Realistic budgets and projections
A comprehensive financial plan leads to realistic budgets that allocate resources appropriately and plan for future revenue and expenses. Financial projections also help small businesses lay out steps to maintain business continuity during periods of cash flow volatility or market uncertainty.
Funding opportunities
With a detailed financial plan in hand, potential partners, lenders and investors can see exactly where their money will go and how it will be used. The inclusion of stellar financial records, including past and current liabilities, can also assure external funding sources that they will be repaid.
Financial planning tips for entrepreneurs
Business’ financial health is extremely important for entrepreneurs, however, handling various business aspects, can make them overlook financial planning. So, to avoid that here are few finance advice for entrepreneurs that can help:
Strategic financial plan
A strategic plan focuses on what the company wants to accomplish and what it needs to achieve its goals. A strategic financial plan helps in determining how the plan will impact the company’s finances. Creating a list of existing expenses and assets is also helpful.
Contribute towards pension
Some entrepreneurs see their company as their pension, but this is a risky mentality to adopt. Making contributions into a pension could help you build a more secure retirement, and it is also a tax-efficient way to save. As the owner of your company, you can make your own tax-efficient savings into your pension, and you can also make employer contributions which are then deductible against corporation tax.
Insurance
Most companies insure their business premises and stock, but forget to insure the most valuable asset, their people. As a business owner, you are your business. Protection against death and illness could be crucial for entrepreneurs. Also protection for the other key people in business can help the business stay afloat should the worst happen to one of your key members of staff or shareholders.
Planning exit
Exiting business may seem a long way off, but thinking about your exit early on could reap rewards further down the line. If you want to sell your business in the future, then it pays to work out your ‘magic number’. That’s how much you would need from a sale in order to achieve the lifestyle you want.
Financial estimation
Financial projections look at the business’s goals and estimate the costs needed to reach them in the best or worst case scenario.
Diversify income source
Overall investment strategy is important and entrepreneurs should consider investing across other asset classes, this could be anything from equities, bonds or even cash. Diversifying investments could help cushion the blow in case the business does not perform quite as well as one hoped.
Plan for contingencies
Financial plans should use data from the cash flow statement and balance sheet to inform worst-case scenario plans, such as when incoming cash dries up or the business takes an unexpected turn. Some common contingencies include keeping cash reserves or a substantial line of credit for quick access to funds during slow periods. Another option is to produce a plan to sell off assets to help break even.
Strong team
There’s a lot more to being a successful entrepreneur than just having a good idea. Businesses needs to be built on solid financial foundations so it can grow to be a success. For any entrepreneur it’s important to surround themselves with a team of experts from day one. It’s also important to review your financial plans regularly to ensure they still align with your business and personal goals.
Financial planning is a critical aspect for any entrepreneur, as it helps to manage finances, and also achieve goals, to ensure the long-term success of business.
