In this post, we are talking about the 5 most important reasons why your business needs a great financial plan and what the potential impact will be if you don’t have one that is constantly used and updated. We also talk about some of the practical ideas of how you can create a plan that works for you and your business right now.
So here are 5 reasons.
- A lack of financial planning is the main cause for business failure.
- Proper financial planning will help you manage and measure your progress towards success.
- It will help you to spot trends.
- A financial plan gives you a great platform for all of your marketing decisions.
- It will help you understand when you will need to raise capital for growth or other projects.
While I have given you 5 reasons why you need an excellent financial plan, there are 10 or 20 more very good reasons, but I am not an accountant or financial planner, but a business coach. So talk with your accountant and get your plans in place.
However, if you do want to begin the process or want to work out the numbers yourself, here are some things to think about as you design your financial plan. Again, because of the importance of having a financial plan that works and is accurate, I encourage you to work with your accountant as an extra set of experienced eyes will make your plans so much more valuable.
Start with the end in mind.
Start with the end in mind. We spoke a few weeks ago about planning your business over the next 3, 5 and 10 years. And that is where you should start with your financial planning. What are the numbers you want to hit in terms of turnover and profitability. Make your profitability number a percentage of turnover.
Remember these are the long term aiming points, which are likely to change as time goes on, but knowing where you are going will make planning what you need to know and do now, so much easier.
Then work backward to this year and eventually to this month and this week.
Include all of the costs and the timing of those costs in the near and long term.
For example, if you project your business growth at say 20% per year, what new staffing requirements will you have and when will those changes become effective. What are the financial implications of those appointment in terms of the costs and when will those costs be mitigated by an increase in revenue?
What I have most often found is that very little thought is given by most business owners to the impact new staff will have and what that impact will be. On many occasions, resulting in disaster.
You should also include other factors such as the total cost of acquiring a new clients and the total cost of losing an existing client. The cost and timing of new product development and the revenue timing of that new product or service.
Financial planning is not just about the numbers as numbers. Anyone can suck on their thumb, draw up something that looks impressive and say they have a financial plan for their business. Happy days, move on. But that is the wrong way to think about planning and in specific financial planning.
All of your planning for business growth must, not should, work together with every other part of your business planning and execution. None of this stuff can be successful if it is done in isolation. A practical, workable plan for the financial security of your business should be thoughtful and should consider all the factors involved. Don’t leave anything out!
If you want to know more about how I can help you grow your business, please call or email me.