Financial Planning Guide for Small Business Owners
Maria Peloponisiou~ 4 min Reading time | 10. Oct 2019
Financial planning is a hugely important part of a small businesses’ future. It can ultimately help determine how well it will succeed. Read on for more information about financial planning and how it can help small business owners.
What is Financial Planning?
Financial planning is ultimately how a business can afford each of its goals. A business typically creates a plan once it has determined its objectives and goals. The financial plan describes the materials, equipment, resources and activities that the business needs to achieve its goals.
Why Financial Planning is Important for Small Businesses
Many small businesses have variations in their income. This means there are times when there is a lot of money and times when there isn’t much at all. When you create a financial plan, you will take this into account. This is so you can ensure you spend less when there is less cash available.
When you have a financial plan, you will ensure that you have something of a money cushion, which can ensure that you always have money when you need it. This allows you to buy a product from a supplier should they have a sale, for example.
Offering a long-range view
A financial plan can help you to look forward and see how you can keep the business growing. This will allow you to stay ahead of your competitors and help to improve performance.
Spotting a few trends
It’s not always easy to spot trends and find out what marketing schemes worked and which ones didn’t. A financial plan will help you to set targets and compare them to a previous year. They can also help you make future decisions about where to spend your money.
Prioritising your expenditures
Ensuring you are aware of your resources and how to conserve them is essential. The whole process of financial planning helps you to identify those more important expenditures. This can help to increase productivity or even market penetration. This will help you to make better decisions even when you don’t have a lot of money to spend.
Measuring your progress
It can be hard in a business’s early stages to work out how well things are going. When you’re able to see real results, you might have the encouragement you need to keep going. A chart, for example, that shows how well you’re doing can give you the motivation you need. It can also help you to see where improvements need to be made.
There is also a lot of pleasure gained in beating the previous year’s achievements. 😉
What Does Financial Planning Include?
Financial planning includes every single aspect of your finances. This includes insurance, tax, savings, investment, estate planning and retirement planning. You need to account for every penny coming into the business and what you’re spending it on. The more accurate your financial planning is the more accurate it will be.
How Do I Write a Financial Plan for my Small Business?
The financial plan will help you determine whether you’re attractive to any investors. This section of your business plan will be composed of 3 statements:
You will need to think about your start-up expenses and operating expenses. These are the costs of getting it up and running. These expenses might include:
Down payments on equipment and property
Your starting inventory
Your licensing and permits
Any set-up fees
The above list is only a partial one. However, you will need to ensure that you list every single operating expense that you have. This list will show how much it costs to operate your business. Take this number and multiply it by 6. This will give you the 6-month estimate of all your costs.
Your income statements
Another important aspect of financial planning is to have an income statement. This shows your expenses, revenues and your profit for a certain period. This will show whether your business is making a profit.
The cash flow projection
This shows how much money you expect to come into and out of your business. This is a very important aspect of your financial plan. It shows when expenditure is too high and when you might need someone to invest to help you with your cash flow. The cash flow projection will also show how much capital your business needs. It also shows potential and current investors whether your business is a good or bad risk.
Conclusion: If you have a financial plan, you’re much more likely to be aware of how well your small business is performing.