As the name suggests, a small business is small, and there’s a lot less to handle money wise compared to large, established brands. Small businesses tend to have fewer invoices, outgoings and transitions to manage, and a smaller cash flow. But, that doesn’t mean that financial planning is any less important. Even as a small business owner, you need to think about what your financial goals and plans are, how to best use your budget, and how to effectively manage your incoming and outgoing payments.
What is Financial Planning?
Regardless of business size, financial planning is important. It’s how a business stays organised financially, and is able to work in line with financial goals and future plans. Without financial planning, it’s extremely difficult to manage a business’ finances effectively, and budgeting becomes a near impossible task. There is a lot that goes into financial planning, and it’s more than having a rough idea of how much money the business has, and determining how it’s going to be spent. Everything from identifying a business’ current financial position, deciding on key financial goals and coming up with a plan to reach these goals is all part of the financial planning process.
It’s important to remember that financial planning is not something that a business only does once, maybe twice. It’s something that needs to be regularly reviewed and adjusted. As circumstances change – for example, if the business goes through a period of unexpected growth, or if a new investor suddenly comes on board – financial planning is needed to keep on top of these changes, and what they mean for the business’ money.
Why is Financial Planning Important for Small Businesses?
There are a lot of benefits that come with financial planning as a small business, which is why it’s something that small businesses in all industries should be doing. There are a lot of financial challenges facing small businesses, and financial planning is there to soften the blow of these hurdles, increasing the chances of the business becoming successful and sustainable.
Financial planning makes it a lot easier for small businesses to allocate resources, especially if they are somewhat limited. With a plan, a small business can prioritise its spending, ensuring that money is being invested and used wisely. Small businesses tend to struggle within the first year or two, but a financial plan can help them to navigate through challenges, avoid financial mistakes, and build a solid foundation for long term business growth.
It’s also a lot easier to set and track goals with a financial plan in place, something that can help a small business succeed. Whether it’s boosting revenue and profits, or expanding its market share, a business can use financial planning to work towards set goals. This is something that becomes more important as a small business grows. It helps to identify the financial requirements and risks associated with plans to expand, whether that involves opening new locations or launching new products.
Assess Your Current Situation
When you are financial planning for small businesses, you need to assess your current situation. Review your current financial situation, and determine where your strengths and weaknesses lie. You can then navigate financial planning with this in mind. As no two small businesses are alike, each organisation needs to handle financial planning on a bespoke basis. Take the time to look at your incomings, outgoings, balance sheets and cash flow statements. It’s important to have a good understanding of your current finances, and where improvements could be made. If you are doing anything right, plan with this in mind. Understand your revenue streams, expenses, assets, liabilities and outgoings. This assessment should form the basis for your financial planning decisions.
Set Financial Goals
There’s a lot that goes into running a small business, which is why it’s so important to set financial goals. Think about where you want to take the business going forward, and how you want to get there. You might want to increase your revenue and make your business more profitable, or you might want to ensure that you’re better equipped to face a financial challenge or hurdle. You might want a more reliable stream of income, or better cash flow management. Choose goals that are specific, measurable and relevant to your business. They should be achievable, and you should give yourself a deadline to get there. Having clear goals will provide direction and focus for your financial planning efforts.
Create a Budget
When you are financial planning for small businesses, you need to develop a detailed budget. List all of the business’ expected revenues and categorise your expenses, including fixed costs such as rent and bills, as well as variable costs, such as materials and marketing. A budget will help you allocate resources efficiently and monitor your financial performance. It’s a lot easier to keep on top of your small business’ finances if you know exactly what you have, what is being spent and what is coming in.
Investment and Growth Strategies
There are a lot of investment and growth opportunities for a small business, and the world really is your oyster. However, you are only likely to achieve this if you make the right decisions. Think about where you should be investing your money, with growth and efficiency in mind. Evaluate which opportunities will help to expand your business, and which investments into new equipment or technology are likely to be the most beneficial. Whatever you are investing in, always assess the potential return on investment.
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