How to Achieve Your Business Goals: The Role of Financial Planning
You need to have solid financial planning to ensure your company’s long-term success and survival. It enables business owners to set realistic growth goals and attain them through the proper execution of their financial plan. A good financial plan will help you build a revenue model, ensure the company’s growth, facilitate decision making, and reduce risk factors by providing adequate funds.
It’s actually a guideline and roadmap that will constantly remind you of your business goals and push you to manage a smooth cash flow throughout every season of the year. It’s quite obvious that financial planning can help you achieve your business goals more efficiently. How? That’s what I am going to tell you in this article. Read on…
Definition of Financial Planning
Financial planning is the method of measuring the required capital and framing effective financial policies in terms of procurement, cash flow, loans, investments, and other administrative funds. A financial plan refers to the documentation comprising an individual’s or business’s present money situation and long-term financial goals. It will guide you to implement effective strategies to achieve these monetary goals. It creates a bridge between the current financial state of a company and its future expectations.
The Role of Financial Planning in Your Business Growth
If you can develop a well-crafted financial plan, you will be able to visualize the future of your business. It will help you understand which resources are more critical to achieving your business growth goals. It includes all aspects of a business, including marketing, inventory management, business expansion, product development, etc. This sort of vision helps people have great insights into their business. Let’s learn how else financial planning can help you attain your business goals.
Specific Business Goals
Every business owner aims at developing more and more each day. But without having specific goals, it’s not possible to achieve them. A financial plan will help you set clear business goals such as hiring more manpower, introducing new items, enriching the inventory, and expanding your business. All these strategies are directly related to the amount of capital you have. Only a proper financial plan can guide you to focus on tangible goals and achieve them consequently.
You must have a vision of your business to succeed in the long run. Fix quarterly, half-yearly, yearly, three-yearly, etc. goals of different lengths. For most startups, it takes the first few years to build a brand and establish their products in the market. So, you need to have specific goals considering the struggling phases. Financial planning addresses all these crucial factors and makes decision making easier.
Uninterrupted Cash Flow
A balanced cash flow is one of the prerequisites for seamless business operations. A financial plan can forecast the amount of money that comes in and goes out of your business. A well-estimated cash flow projection can predict if you can afford to take a loan and repay it timely. After analyzing your financial plan, you will know the nature of your cash flow and what amount of money is expected to flow into your business over a period of time.
At the start of your business, you surely need to invest more while making nominal profits. Keeping track of the money that you are receiving and spending is a necessity to manage uninterrupted cash flow. You must make the required money to run your business smoothly. Financial planning will explicitly describe the acceptable level of cost and how you will survive to stay in business.
Perfect Budget Distribution
Budget allocation plays a vital role in business operations. It shares a close relationship with cash flow and cost reduction. You’ll have funds mainly from two sources - investments or sales income. To exist as a successful business, you need to determine how you will reap the benefits by spending your money in the right place.
Consider the burn rate that is expected to be spent over a specific time period. My suggestion is to allocate the budget on the basis of projects, teams, new initiatives, etc. as it’s way easier to track the money spent on a specific sector than monitoring the total budget. Don’t think of the whole budget when planning your expenses. Break the fund into small fragments such as cost for marketing, product development, customer support, business expansion, opening an online store or a brick and mortar store, etc.
Efficient Cost Reduction
The more expenses you’ll incur, it will place the more pressure on the capital and income. So, a business owner must emphasize cost reduction to help the business run efficiently. A financial plan will guide you to figure out how you can save money from the current cash flow. It helps analyze the past investments and foresee future expenditures, thus creates room for savings. You will be able to figure out unnecessary expenses, over-inflated costs, and discrepancies (if any). You should review the nature of expenditures at least once a year.
Fundraising activities are an integral part of opening a startup. Even established companies also need loans or investors to attain business growth goals. Without a proper financial plan, no bank or financial institution, or investor will feel compelled to lend you money. You need to come up with realistic financial planning with proven records to gain their trust and get the funds approved.
Risk & Crisis Management
Every business associates a few risk factors. Some of them are unavoidable and hard to forecast while you can see some of them coming and prepare for them or avoid them. For example, nobody knew that something like COVID-19 will affect the entire world to this extreme extent. Financial planning allows you to incorporate business insurances, and create backup resources to bear unexpected expenses and manage crisis moments. Tough time will come in a business, but crisis management and risk mitigation are important. And, proper financial planning can minimize the risk to a great extent.
One useful tip from me, never invest all your money into one business. It’s a standard practice to invest money across different industries, so that if one attempt fails, all your money doesn’t go in vain. Save some money in an emergency fund. If you ever need that, use that, if not, your money remains yours.
A Realistic Roadmap
Projecting a company’s growth and cash flow is impossible without financial planning. If you can set a future destination and know how to reach there, you’re likely to reach it just in time. A financial plan enables business owners to set realistic goals and show them ways of achieving these goals. For example, if you want to recruit ten more employees for your company, at first, consider the revenue you’re making in light of the investment. Is it a practical idea to hire more people? If you can afford it, go for it, if not, rethink. Reevaluate your investment plans and redesign the roadmap.
Credibility & Transparency
The investors like to see where their money is being spent, and the staff wants to see how their hard work is transformed into profits. You can't give them credible information without maintaining a financial plan. You need to convince both investors and staff that the company is in safe hands and on its way to achieving all business growth goals. As financial planning includes data about total revenue, expenditures, growth rate, and overall condition of the company, it will help you gain the trust of investors and stakeholders.
Personal Financial Planning
Your company's financial plans may differ from your personal goals. We recommend that you should take a monthly salary from the company for the hard work you put in. It’s also important to have retirement plans. Keep track of your personal expenses and aim at securing a financially sound future for yourself. Besides, you should focus on earning a minimum yearly income, securing estate for your family, and minimizing tax liabilities. All these issues are impossible to address without a financial plan.
The growth of a business comes with a lot of anxieties. Sales projections, cost, budget, profit, loss, asset, liabilities, new recruitment, etc. every component of a business is relevant to the money that goes out and comes in. Financial planning is a documentation of these key factors. There’s no way one can attain their business growth goals without an efficient financial plan.
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