Financial planning is vital for any business, especially small to medium business owners. Businesses that have a financial plan in place are more prepared to pitch to investors, receive funding, and achieve long-term success. You also need to plan for your customers, making fantastic services or products available to them while creating a superior customer service experience. In addition to taking care of your team and your customer, you also need to organize a range of other important details for your business. You need to pay your bills on time, arrange insurance coverage, create marketing campaigns, and set up a budget. While all of these are important tasks, there is nothing quite as important as developing a strategic plan for your business for the next 5-10 years.
What is a Financial Plan?
A financial plan helps determine if an idea is sustainable, and then keeps you on track to financial health as your business matures. A financial plan is simply an overview of your current business financials and projections for growth. Think of any documents that represent your current monetary situation as a snapshot of the health of your business and the projections being your future expectations.
Why is a Financial Plan Important to Your Small Business?
A well-put-together financial plan can help you achieve greater confidence in your business while generating a better understanding of how to allocate resources. It shows your business is committed to spending wisely and its ability to meet financial obligations. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.
It’s also an important tool when asking investors to consider your business. Your financial plan shows how your organization manages expenses and generates revenue. It shows where your business stands and how much it needs from sales and investors to meet important financial benchmarks.
5 Steps to Creating a Financial Plan for Your Small Business
1. Create a strategic plan: Starting with a strategic plan helps you think about what you want your company to accomplish. Before looking at the numbers, think about what you’ll need to achieve these goals. Will you need to buy more equipment or hire more staff? Is there a chance of new goals affecting your cash flow? What other resources will you need?
Determine the impact on your company’s finances and create a list of existing expenses and assets to help with your next steps.
2. Create financial projections: This should be based on anticipated expenses and sales forecasts. Look at your goals and plug in the costs needed to achieve them. Include different scenarios. Create a range that is optimistic, pessimistic and most likely to happen, so you can anticipate the impact each one will have. If you’re working with an accountant, go over the plan together to understand how to explain it when seeking funding from investors and lenders.
3. Plan for contingencies: Look at your cash flow statement and assets, and create a plan for when there’s no money coming in or your business has taken an unexpected turn. Consider having cash reserves or a substantial line of credit if you need cash fast. You may also need to plot ways to sell off assets to help break even.
4. Monitor and compare goals: Look at the actual results in your cash flow statement, income projections and even business ratios as necessary throughout the year to see if you need to modify your plan or if you’re right on target. Regularly checking in helps you spot potential problems before they get worse.
5. Develop a good tax strategy: Financial planning is helpful when it comes time to submit your tax return or if you sell the company. You can find out if you’re paying too much tax, or if you should increase superannuation contributions. If you increase your annual contribution you can save in payable tax and improve your retirement plan.
Financial plans are critical to the success of small businesses. This is not an area to cut corners, and it can be helpful to seek professional advice to make sure your business has every chance of success. When you create a strategic financial plan, give yourself some wiggle room in case you need extra time to reach a certain target, or you grow faster than expected and can zoom ahead of a certain target. When surprises happen in life and business, consult with your accountant and financial team. They can help you decide when and where to make changes to your plan. They might even be able to help you make better investments or find extra savings.
If you own a business or plan to start a new business in the Surrey and Lower Mainland area, contact us today to set up a phone consultation to discuss your financial targets.
What is a Financial Plan?
A financial plan helps determine if an idea is sustainable, and then keeps you on track to financial health as your business matures. A financial plan is simply an overview of your current business financials and projections for growth. Think of any documents that represent your current monetary situation as a snapshot of the health of your business and the projections being your future expectations.
Why is a Financial Plan Important to Your Small Business?
A well-put-together financial plan can help you achieve greater confidence in your business while generating a better understanding of how to allocate resources. It shows your business is committed to spending wisely and its ability to meet financial obligations. A financial plan helps you determine if choices will impact revenue and which occasions call for dipping into reserve funds.
It’s also an important tool when asking investors to consider your business. Your financial plan shows how your organization manages expenses and generates revenue. It shows where your business stands and how much it needs from sales and investors to meet important financial benchmarks.
5 Steps to Creating a Financial Plan for Your Small Business
1. Create a strategic plan: Starting with a strategic plan helps you think about what you want your company to accomplish. Before looking at the numbers, think about what you’ll need to achieve these goals. Will you need to buy more equipment or hire more staff? Is there a chance of new goals affecting your cash flow? What other resources will you need?
Determine the impact on your company’s finances and create a list of existing expenses and assets to help with your next steps.
2. Create financial projections: This should be based on anticipated expenses and sales forecasts. Look at your goals and plug in the costs needed to achieve them. Include different scenarios. Create a range that is optimistic, pessimistic and most likely to happen, so you can anticipate the impact each one will have. If you’re working with an accountant, go over the plan together to understand how to explain it when seeking funding from investors and lenders.
3. Plan for contingencies: Look at your cash flow statement and assets, and create a plan for when there’s no money coming in or your business has taken an unexpected turn. Consider having cash reserves or a substantial line of credit if you need cash fast. You may also need to plot ways to sell off assets to help break even.
4. Monitor and compare goals: Look at the actual results in your cash flow statement, income projections and even business ratios as necessary throughout the year to see if you need to modify your plan or if you’re right on target. Regularly checking in helps you spot potential problems before they get worse.
5. Develop a good tax strategy: Financial planning is helpful when it comes time to submit your tax return or if you sell the company. You can find out if you’re paying too much tax, or if you should increase superannuation contributions. If you increase your annual contribution you can save in payable tax and improve your retirement plan.
Financial plans are critical to the success of small businesses. This is not an area to cut corners, and it can be helpful to seek professional advice to make sure your business has every chance of success. When you create a strategic financial plan, give yourself some wiggle room in case you need extra time to reach a certain target, or you grow faster than expected and can zoom ahead of a certain target. When surprises happen in life and business, consult with your accountant and financial team. They can help you decide when and where to make changes to your plan. They might even be able to help you make better investments or find extra savings.
If you own a business or plan to start a new business in the Surrey and Lower Mainland area, contact us today to set up a phone consultation to discuss your financial targets.
