We all know the old saying: when you fail to plan, you plan to fail. So, it goes without saying that financial planning is crucial for any business.
A financial plan is basically a document that details the current monetary situation and long-term financial goals of a business. Having a plan is important because it helps you understand the financial health of your business, and gives you clear goals to work towards.
Here are 4 steps to create a financial plan for your business:
1. Assess the current financial health of your business. Look through key financial documents such as your income and cash flow statements to gauge where your business stands financially. Are you happy with the numbers? Write down your expectations for the future.
2. Create income projections based on expected expenses and sales. These projections will serve as your financial targets for the next year.
3. Create a plan to meet your targets. If you want to increase your profits by 20%, come up with a plan to make it happen. Think of ways to reduce your expenses, for e.g. review your current vendors and opt for more cost-effective options. It’s also important to think about the worst-case-scenario. What if the economy suffers and money doesn’t come in as expected? You’ve got to plan for that. Have cash reserves or a line of credit that can help you pull through tough times.
4. Monitor your progress. Once your plan is in motion, keep track of your progress. Are you moving towards your targets as expected? If not, why? Don’t be afraid to try a different approach to achieve your goal.
If you’ve been putting off financial planning for your business, block some time on your calendar and get to it!