The Importance of a Financial Plan for a Small Business


Managing cash flow efficiently is one of the most crucial tasks for any small business. I have seen many excellent business ideas fail due to poor cash flow management. Therefore, you need to be well-disciplined and know exactly when cash is going in and out. Here, financial planning plays an important role. The importance of a financial plan for a small business:

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Without proper financial planning, you simply will not know if your business is getting profit or you are ultimately doing the right things at the right time. In this blog post, I have looked at 8 important reasons for making financial planning a priority for your small business.

1. Lack of financial planning leads to failed business

Without a proper and effective financial plan, your business is more likely to fail. A lack of financial planning leads to the shortage of cash flow or overestimating your business revenue. Most small businesses have a variegated income source that differs from season-to-season. An effective financial planning takes these monetary alterations into account so that there are no shortages in future.

2. It helps with everyday costs

If you already have a proper financial plan, you can easily analyze the amount that you can afford to spend on everyday extras, for instance, how much money you can give to your employees and various training expenses you can set aside. This'll help your business to run more smoothly for a long term.

Recommended reading: How to Put in Place Financial Management for Your Startup

3. It helps in focusing future of business

When you have a plethora of immediate monetary pressures at hand, it is easy to lose track of the long time view of your small business. A forward-looking and well-planned financial plan can help you see what monetary expenditures should be made to grow the business in the long term.

4. You won't be able to access financial support without planning

Banks or other money lenders won't consider your business viable for any financial assistance if you do not have a sound and strategic financial plan in place, as well as income statement, balance sheet, and cash flow forecast.

Recommended reading: What Do You Need for a Business Loan? Here Are The 6 C's

5. It can help with your marketing decisions

A sound financial planning also provides you with the information that you need to know if the strategies you are putting into place are actually delivering increased revenue. For example with financial planning, you can analyze that the money spent on advertising leads to increase in sales as per expenditure or not.

6. It can quickly identify a financial downturn

If your business revenue is lower than the forecast, you can focus on sales & marketing to try and improve it. Or, if overhead expenses in your business are coming higher than what is expected, you can take several effective measures to reduce them in stipulated time. By reviewing your financial planning on regular basis, you can address any business issues straight away.

7. It can help you prioritise spendings

Ready cash is a crucial aspect for the success of any small businesses. An effective financial planning can help you in identifying the most important expenditures of your business against those that can wait some time until your cash flow is better. It is a common mistake to underestimate the ready cash they need to keep their business alive & kicking— a mistake that leads many small and medium scale businesses to fail before they have the chance to get up and running.

8. It can spot sales trends

Not only sales trends, but it also enables you to capitalize on them. You can easily find out that different products and strategies that are delivering higher returns or others less so. With precise sales records as the part of your financial planning, you can easily identify your best as well as worst.

Running a small business is a hard nut to crack even in the best of times. Therefore, it becomes even more crucial for you to closely & precisely monitor your cash flow through an effective financial plan that can provide your business a firm foundation for success. 

Over to you now, how does your business do financial planning? Tell us in the comments below.



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Friday, 19 July 2019
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