Did you know that 45% of new businesses fail within their first five years? The number one reason for the high rate of business failure is financial issues, as 82% of small businesses close down because of cash-flow problems.
If you want your business to celebrate more birthdays, you need to have a solid financial plan. Business financial planning will help you keep track of your finances. It’ll help you define your financial goals and the level of investment you need to make to achieve them.
But how do you go about creating a financial plan that works for your business? Below is an overview of what financial planning entails and a few tips to help you get started to avoid business financial issues.
What Is Business Financial Planning?
Business financial planning involves allocating resources, setting financial goals, and tracking actual results to make informed business decisions. Financial planning aims to ensure that your business has the resources it needs to achieve its objectives.
A business financial plan includes:
- A sales forecast
- An expense budget
- Cash flow projections
- A balance sheet
- Break-even analysis
These components make up the foundation of your business’s financial planning. They provide critical insights into how your business is performing and where it’s headed.
Why Is Financial Planning Important for Businesses?
Financial planning will help you make informed decisions about resource allocation. A financial business plan will also provide you with a roadmap to follow to achieve your business financial goals.
Financial planning will help you monitor your progress towards your financial goals. You can track actual results and compare them to budgeted or forecasted amounts using the plan.
It’ll also help you identify potential financial pitfalls and take steps to avoid them. The plan will ensure that you have enough business finances to meet your business’s needs.
Tips for Creating a Financial Plan
Now that you know what financial planning is and why it’s important for businesses, you need to know how to create one. Follow the following financial planning tips for your business:
Define Your Financial Goals
Defining your financial goals is essential in creating a business financial plan. Without a clear goal, it can be difficult to make sound decisions about allocating your resources.
Start by defining what you want to achieve financially. Do you want to grow your business? What level of profit do you want to earn?
Your financial goals should be specific, measurable, achievable, relevant, and timely. Once you have defined your goals, you can begin developing a plan to achieve them.
Develop a Sales Forecast
A sales forecast is an estimate of future sales. It’s based on past sales data, trends, and assumptions about the future. Forecasting will help you estimate how much revenue your business will bring in and when.
To develop a sales forecast, start by reviewing your past sales data. Look for any trends or seasonal patterns. Use this information to develop assumptions about future sales.
Next, create a sales forecast for each month of the year. Include a column for the expected sales quantity and another for the expected revenue.
Create an Expense Budget
An expense budget is a tool businesses use to track and control spending. The budget will help you estimate how much money your business will need to spend in the future and track actual spending.
To create an expense budget, start by reviewing your past expenses, including business taxes. Look for any trends or patterns.
You can use the data to create a budget for each month of the year. You can also include a column for actual expenses and costs to make it easy to track your progress against your budget.
Project Your Cash Flow
Cash flow is the movement of money in and out of your business. It’s crucial to track your cash flow to ensure that your business has enough money to meet its obligations.
In a cash flow projection, you’ll need to understand your business’s income and expenses clearly. Start by estimating your sales and expenses for each month of the year. Use your sales forecast and expense budget to do this.
Next, subtract your estimated expenses from your sales to calculate your net cash flow. Finally, add up your net cash flows for each month to get a total for the year. This way, you’ll have a more realistic projection of your future cash flow.
Monitor Your Progress
As any successful business owner knows, a key part of ensuring long-term success is monitoring your progress along the way. This means regularly evaluating your income and expenses. In this step, you can regularly review your sales data and expense reports to track your actual sales and expenses.
You also need to compare your actual results to your projections and adjust your business model as needed. As a business owner, this may seem like a daunting task. However, monitoring your progress can help you avoid making costly mistakes down the line.
It will give you a better understanding of your business’s financial health. This will allow you to make more informed decisions about allocating resources. Monitoring will help you ensure that your business is on track to achieve its financial goals.
Get Professional Help
One of the most important steps in creating a business financial plan is to get professional help. There are many aspects of a business financial plan that can be difficult to understand and properly execute without the help of an experienced expert.
So, it would help to bring a financial advisor on board. A professional can help you understand the different components of a business financial plan and how they work together. They can also offer guidance on resource allocation and help you reduce your business taxes.
Working with a financial advisor will be essential in ensuring that your business financial plan is effective and well-rounded. The experts will help you develop a financial plan tailored to your specific business needs.
Invest in Business Financial Planning to Avoid Financial Issues
Business financial planning is an important process that can help you avoid common financial issues. Following the above tips will help you create a sound financial plan to ensure that your business is on track to achieve its financial goals. You’ll avoid financial pitfalls and set your business up for long-term success.
If you want a business financial plan to help your business thrive, you should consider working with Bennett Financials. Our team understands the best way to ensure that your business has a consistent cash flow to prevent failure.
Contact us today to learn how we can help.
