Good financial planning when it comes to a business can have its challenges. There are many businesses that can fall apart from bad money management and making decisions in business that financially impact them in both the short-term and long-term.
However, regardless of its challenges, good financial planning can be valuable. It can help the business keep track and stay focused on the finances as the company continues to grow.
For new businesses in their first year or so on the market, this stage in the business can be – survive and thrive, or dive and fail.
What is financial planning?
GoodFirms found that 65.1% of surveyed business owners consider monthly expenses as the biggest hardship to solve. Financial planning can help with this and other areas of business that require finance.
As part of the business plan, a sub-section should be dedicated to the financial plan. This applies real financial data and any projections or forecasts that help the overall business plan make sense.
It’s a forward-thinking attitude that all businesses should have instead of simply estimating or making up figures that have no relevancy or data to back them.
The importance of good financial planning
What are the benefits of good financial planning? In order to provide the best chances of success for a business, budgeting and financial planning are key.
1. Provides transparent and realistic company goals.
By creating a realistic financial plan, it can help in turn, set realistic and transparent company goals. The mistake some companies can make when setting up a business or drafting up a business plan is that they can set big expectations that at this point, may be impossible to achieve.
While impossible may still be achievable, it’s good to be realistic when it comes to finances, especially in a company’s infancy on the market.
2. Improves cash flow stability and management.
Cash flow tends to be a problem for many of those SMEs, with 60% citing cash flow as a cause of failure. By having a solid financial plan in place, it can help make better-informed decisions when it comes to spending.
With so many businesses encountering cash flow as a common problem, proper forecasting and planning in finance can help greatly. It can also help when it comes to budgeting.
3. Helps with risk mitigation.
When a business is faced with financial trouble, it’s a risk that the company has unfortunately found itself holding.
For your finance team, they are responsible for helping the company avoid and navigate any risks. A well-thought-out financial plan will make accommodations for certain insurance expenses and losses due to those risks that have unfortunately led to the business getting a streak of bad luck.
Having contingency plans in place can help to minimize the impact of a risk that doesn’t go the company’s way.
4. Better success in fundraising.
When it comes to any business starting up or needing extra funding for new projects or expansion, it can be helpful to be more successful in acquiring said funds.
A great business plan will be necessary for attracting those investors who are looking to provide the company with the finance requested. As part of that business plan, they’ll, of course, want to take a look at the financial plan made.
The existence of a detailed and well-made financial plan will help entrust the investors when it comes to parting with their money. Not only that but it can help show clear projections of the money being spent and how it will benefit them when it comes to future returns.
5. Generates a company growth timeline
A good financial plan will help to assess the current financial situation and project where it is the business would expect to be in the next few months, to a year, or several years down the line.
The goals created within the business plan are backed by data that is acquired when creating the financial plan. It can help to accurately project the company’s growth and the timeline of that growth based on existing data.
That growth may be dependent on the current market the business is in, the number of employees within the business, and the products or services being sold.
Create a financial plan that works for your business
As a business, creating a financial plan can help the company garner more success. Through its realistic and accurate projections and forecasts, a financial plan is a perfect partner in crime for a company’s overall business plan. For any new company to thrive, a financial plan is a must-have.