The Importance of Financial Planning for Small Businesses
One of the driving factors in ensuring your business is successful is whether you have a strong financial plan. The plan you create should control how you operate your business over a set period that depends on its projections. Financial planning is a process through which you assess the competitive environment, the goals you have for your business, the resources you need, your budget, and the risks that could arise. In other words, your financial plan helps to prepare you for the future. Regardless of the industry in which your business operates, financial planning is essential. The accounting team at TMD Accounting is prepared to assist you with the process no matter your business type.
How a Financial Plan Can Benefit Your Business
There are multiple benefits of financial planning for small businesses. Below are some of the key advantages planning can offer.
1. Helps to Define Your Goals
Having clearly defined goals can help you understand what your business wants to achieve over the next year or more. For example, if you are trying to create a product to fill a market need, you use your plan to create benchmarks to ensure you are on target. No matter what the goals for your business might be, having them clearly defined in your financial plan can help to provide a roadmap to guide your actions.
2. Helps to Manage Cash Flow
In your financial plan, you will include information about your business’s expected cash flow. While you’ll likely initially spend more than you have coming in, you will have to determine the expense level that is acceptable and establish ways to keep your business on track by easily measuring its cash flow.
3. Assist You With Setting Your Budget
During the financial planning process, you will set your business’s budget. Starting with your overall budget for the quarter or year, you will then break it down into specific, smaller budgets for different areas of your business while ensuring that how much you allocate to each is ordered in importance. A budget helps each team to understand its constraints and the resources it has available to meet its goals. Setting individual budgets for different teams can also help you to track the progress of your company and its spending overall.
4. Identifying Areas for Cost Reduction
Financial planning helps you identify areas in which you can save money. If you’ve been in business for a while, you can first review what you’ve spent and how quickly your business is growing. Identify unnecessary expenses and those that are over-inflated, and trim them accordingly in your budget for the upcoming year.
5. Mitigating Risks
A great aspect of financial planning is that it helps you to identify and mitigate risks that your company could face. You should include controls for inefficiencies, losses that can be covered with insurance, and protection against internal theft or fraud. A part of financial planning involves identifying the risks that apply to your particular type of business, ordering them in their order of priority, and determining strategies to implement to mitigate risks to help to reduce your chance of losses.
6. Managing Crises
Having a plan in place can be helpful whenever your company faces a crisis. During a crisis, you should review and rework your financial plan accordingly to include your response and which strategies to employ.
7. Easier Fundraising
If you need capital funding from an investor or bank, one of the first things you will be asked for is a copy of your business plan. Investors want to know what your plan is for growing your business, the risks you face, and how you will use your money wisely.
Your financial plan should provide all of these types of information to prospective investors so that they can get a clear idea of your business goals and the projections you have about the future. Even if you are not currently looking for funds, having a plan can come in handy if and when you are.
8. Serving as a Roadmap for Growth
Your financial plan helps you assess your business’s current situation and project where you see your business going in the future. Your larger business plan will accomplish these goals on a broad level and discuss information about your target markets, how many employees you need, and the services or products you plan to offer.
The financial section of your plan should include data showing how you will work to reach your goals and what you will need to invest to get there. Determine how much you expect your business to grow, the expenses you’ll have, and how much revenue you project to come in.
9. Building Trust Through Transparency
The financial planning process can help your company to build trust with both investors and your staff. When you are transparent with your employees, it helps to build their trust in you and your business. Employees want to know that the company they work for is managed effectively and working to be successful. You can share your financial plan with your employees in meetings so that they can also offer input from their experiences.
Talk to a South Jersey Accountant for My Small Business
If you are searching for small business accounting services and help with your financial planning, speak to the professionals at TMD Accounting. We are a full-service accounting firm that serves companies in many industries. Call us today to schedule an appointment at 1-856-228-2205.