Home » Why Should a Business Make a Financial Plan

Revenue is your company`s total revenue minus additional costs such as VAT or sales taxes. Revenue doesn`t say whether your business is profitable or not, just the amount of money that goes into your business. Another importance of financial planning for businesses is that it clarifies the financial goals and business of the company. However, a regular review of your company`s financial plan will determine if you`re on track to meet the goals. It helps to know where you stand and what steps you need to take to achieve your goals. It also takes into account the necessary changes due to changes in circumstances. Create monthly financial forecasts by calculating your expected income based on sales forecasts and planned expenses for labor, supplies, overhead, and more. (Companies with very tight cash flows may want to make weekly forecasts.) Now enter the costs of the projects you identified in the previous step. Your financial plan will help you manage your cash flow. Most businesses have an income that varies from season to season. A good financial plan takes these vicissitudes into account so that there are no long-term bottlenecks.

A cushion of money helps ensure that your business can survive a bad season while reaching the top. Planning your taxes, using your cash flow wisely, and careful budgeting can result from careful financial planning. When someone is running their business, he/she may lose sight of the long-term goals that ensure the proper growth of your small business. A solid financial plan can be a reminder of all the expenses needed to grow your small business to stay one step ahead of competitors in your market. Decisions made by a small business owner can have positive or negative consequences. A good financial plan can detect positive and negative trends where they have been lost in a sea of numbers. This will help you better allocate funds to areas where your business makes money and avoid expenses that have not led to sufficient results. Financial planning can also help you prioritize expenses. In small businesses, it is essential to conserve financial resources. A well-thought-out financial plan can help you prioritize areas that need to be funded immediately and where your expenses can wait until you have a better season. Even the world`s largest companies go through an expense prioritization process that results from a careful cost-benefit analysis.

In addition to determining how much you can afford (and for what), a financial plan also allows you to see savings in advance. If you`ve been in business for a while, when creating your financial plan, the first thing you need to do is look back at what you`ve already spent and how fast you`re currently growing. Again, it`s about having contingency plans and trying to figure out how your roadmap changes if you only grow by 20% instead of 30% (or 50%) over the next quarter. There`s no reason to go too far, but you can find risky areas within the company and also consider your best answers if something goes wrong. You need to make a forecast that matches the sales figure you use in your income statement. In fact, in our LivePlan business planning software, sales forecasts automatically populate the income statement. Your balance sheet is a snapshot of your company`s financial situation – at some point, how are you? How much money do you have in the bank, how much do your customers owe you, and how much do you owe your salespeople? A financial plan is different from your financial statements. Saving financial resources and efficiently allocating capital to a small business is an essential part of success. The benefits of financial planning for businesses include the fact that a business owner identifies the most important expenses – those that result in immediate improvements in productivity, efficiency, or market penetration, compared to those that can be moved until the money is plentiful.

Even the largest and best-capitalized companies go through this prioritization process, comparing the costs to the benefits of each proposed expense. Remember that you need to be realistic when filling in the numbers in the financial part of your business plan. Overly optimistic financial forecasts are only harmful to you and your business. Whether you`re changing your plan or starting from scratch, a financial plan should include the following: Sales forecasting is exactly what it looks like: your forecasts or forecasts of what you`ll sell in a given period of time. Your income forecasts are an extremely important part of your business plan, especially if lenders or investors are involved, and should be an integral part of your business planning process. The overall importance of the workforce plan depends largely on the type of business you have. If you`re a sole proprietor without an employee, this may not be as important and could come down to a set of two. However, if you are a large company with high labor costs, you should spend the time necessary to understand the impact of your staff on your business. In business, it`s easy to focus on crises or issues that need to be addressed on a daily basis. The price to pay for being too short-term oriented is that the owner may not spend enough time planning what needs to be done to grow the business in the long term.