Speak to any business owner and they will tell you that long-term success is their goal. In order to get there, it takes preparation and planning which is where financial planning for small business is vital. It enables you to deal with investors, plan for growth and manage cash flow at the same time.
What is a Financial Plan?
A financial plan will enable you to determine whether an idea is feasible. It will then ensure you remain on track when it comes to financial health as your business grows. It will form an integral part of your business plan and consists of three financial statements. This includes a cash flow statement, income statement and balance sheet.
So, if you are wondering how to create a financial plan then there are four steps that you should follow.
Develop a Strategic Plan
This is crucial as a strategic plan will give you an idea about what you want to achieve with your business. Before you start considering your figures, you should have a think about what is required to meet your goals. Will you need more staff? Will you need more equipment? Is your cash flow going to be affected by new goals? You need to think about how your finances will be impacted and develop a list of assets and expenses that will help underpin your next steps.
Develop Financial Projections
Anticipated expenses and sales forecasts should underpin your financial projections. You should consider your goals and then look at the costs involved in achieving them. Furthermore, you should also consider different scenarios whereby you take an optimistic approach, a pessimistic approach and also what is quite likely to happen. This will make it possible for you to determine what the outcome will be. When financial planning for small business, you have to consider every scenario so that you can plan ahead accordingly.
Prepare For Contingencies
This is where your cash flow statement will be crucial as well as your assets. You will be able to develop a plan for a time when there might not be any money coming into your business or if your business begins to underperform. You might want to think about having cash reserves or even a reliable line of credit should you need to access cash quickly. Furthermore, you might also want to think about how you would sell assets in order to generate cash.
Monitor and Manage Goals
Your cash flow statement will give you the results you need to make a decision as well as income projections and possibly business ratios during the year. This will make it possible to look at your plan and determine if it needs changing or whether you are heading in the right direction. By checking regularly, you will be able to identify problems before they evolve and become damaging.
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