Building a business plan is never easy. It requires effort, good data and a great amount of imagination. A good financial plan helps in determining how the organization will be able to achieve its strategic goals. It helps in keeping the employees focused and on track. Usually, a firm’s financial plan is created after their vision and objectives have been determined. The said plan describes each of the activities, resources, equipment and materials that would be required to achieve the organization's objectives in the given time.
Financial planning is essential to build a successful business. It dictates how your business will work over the next month, quarter, year or longer, depending on how far out you plan. While it is true, that you cannot guarantee, if everything will work out as planned, this exercise of financial planning keeps an organization prepared for the future.
The benefits of financial planning
1. The whole starting point of a financial plan is to have a clear goal. When establishing a business, it is important to establish that there is an essential need for your business, while at the same time working on how you will fulfil this need. This practice is called “product/market fit”. During the initial years of a start-up, their main devotion is towards building a product and establishing in the market.
Hence, this will be your prime goal for the initial years, and during this time, you firm’s aim will not be to set lofty sales target or huge marketing KPIs.
2. During the initial stages of a business, it is a fact that you will spend more than you earn. But even during this stage, it is important to strategize what the acceptable amount of expense is, and how the company plans to stay on track. Therefore, a financial plan also determines the cash flow of an organization, the amount coming in and out of the company.
3. Budget allocation is closely related to cash flow management. Once an understanding is made, on how much amount of funding an organization has to spend, then they need to figure out how they will actually spend that amount.
Every company has its overall budget. It is better that you break down this overall budget into specific teams. For instance, product development, customer support, marketing, etc, and then ensure that the amounts dedicated to each vertical reflects to their importance. A budget helps each vertical to work within the given amount. Through this, they can plan out campaigns and personal or product development, as required.
4.Cost reductions also play an important role during the process of budget allocation. Financial plans not only determine on how much to spend, but also lets you sport savings ahead of time. For people who have been in business for a few years, might be aware of how financial planning occur. It involves first looking back at what you’ve already spent, including the unnecessary or over-inflated costs which comes along the way, and on basis of those expenses you conclude how you are currently growing. Then for the next year, you plan accordingly.
This practice is a part of “spend control”, a conscious effort to keep the company’s spending in line and within the expectations of the company.
5. COVID-19 has proved to be a great example of how, at times, it can be difficult to avoid economic crisis. It was the risk that nobody saw coming. But nevertheless, a financial plan helps companies to avoid and navigate risks of financial fraud and economic crisis. Financial plans should make room for certain business insurance expenses, losses through risky inefficiencies and also set aside resources for unexpected expenses.
6. The event of company crisis, calls for reviewing and re-building of plans. In other words, improvising your business plans. The economic and health crisis of 2020, hit the companies very hard, irrespective of the zones they lied in. Such times called for financial teams, to do whatever that would keep their heads above water. It implied on creating models, monitoring cash flow, and managing budgets. But it also requires clear communication, great interpersonal skills, and a renewed focus on health and wellbeing.
Starting from scratch is not always a great option, and companies have realised that. Therefore, during the crisis, they relied on creating new financial plans that would help in identifying the risks and make processes easier.
7. Funds are something, which every business needs. Whether you’re a business giant or a brand-new start-up, or are looking for a significant series-level development, at some points you’ll require funds.
It is important to keep in mind that the first thing every investor is likely to ask you, is about your business plan. They need to know how you intend to grow your business, what your strategies are, how you plan on meeting risks etc. In short words, they want to know how you will put their money to good use.
A business financial plan that speaks to investors is critical, and is more likely to gain the investor’s trust, provided that your history of planning is also promising. Therefore, we can conclude that a business financial plan is an important tool that helps companies in attracting investors.
8. A financial plan not only helps in analyzing the current situation of a company, but also projects the future needs of a business. The inclusion of finance in your overall business plan, adds data to your goals. It plugs in the level of investment you are making along the way.
9. While we’ve already discussed about investors, and their role in planning, the same stands true for the working staff too. Maintaining transparency between the staff and investors of a company is important. The modern employees want to see that the company is in good hands, and is on the road to success. When executives share financial plans during the meetings by presenting data, fact, figures etc., it brings a sense of honesty and openness within the employees.
Finances play an important role in establishing a business plan. Without it, it become difficult for companies to project their growth. Financial plans are difficult to exercise, as a company cannot just rely on the numbers that are reflecting in its system today. By following apt practice and considering all potential outcomes, they can walk away with a clear roadmap to get their business on the road to success.
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