Financial planning is an essential pillar to the success of every business. As a small business owner, running the business effectively and also possessing the requisite skills for financial planning can be daunting. However, having your finances under control is non-negotiable if you want to grow your business.
In this article, we’ll demonstrate why managing your finances is critical to the survival of your business. Besides, we’ll show you ways to organize your finances and point out tools to help you manage your business finances. You may employ tools as simple as some business loan calculators to more complex bookkeeping software.
Let’s delve in.
The Importance Of Managing Your Business Finances
1. Makes clear the goals of your business
A well-laid plan to manage your business finances will naturally tie in with your organization’s objectives. A financial plan spells out how you intend to raise and spend money in a manner that achieves the goals of your business. It will illustrate critical milestones, financial targets, and KPIs that will help you check if the company is on course.
2. Effective fundraising
Whether you’re a new business owner or run a vibrant entity that’s rapidly expanding, you’ll likely need financing to run the business. Prospective lenders and investors will want to interact with your business financial plan to understand your business better.
You’ll find it easier to qualify for financing if you’ve had a history of making financial plans.
3. Proper utilization of funds
A business financial plan helps a business utilize its financial resources effectively. Budgets guide the allocation of the company’s resources. A review of previous budgets helps to bring to the fore cost-cutting opportunities. Such opportunities include instances of cost overestimation from a year earlier. These are adjusted in the current year.
4. Improving organizational efficiency
When any business manages its finances well, there’s improved organizational efficiency. By instituting financing planning in your business, you allocate resources to areas where they’re most required. Besides, you’re able to enhance a cost-cutting culture. Consequently, you lower the cost of production and become more competitive in the market. Lower production costs lead to higher profits for the business.
5. Risk mitigation
Anticipating and mitigating risks is an integral part of financial planning. Businesses face multiple risks that may range from a sharp dip in sales, economic crisis, unforeseen expenses to the loss of key employees or partners. Whatever the risk, financial planning involves being prepared for these risks through insurance, business contingency plans, and succession planning.
6. Creating a blueprint for future growth
When you have a business financial plan, you’re able to appreciate your current position and create a road map to the future of your business. A clear vision of the future can be a crucial rallying point for organizational success. Business owners and employees who are part of an entity with a well-drawn-out lot are inspired and motivated to fulfill that goal. You also begin to plan how you’ll build capacity to accommodate the projected growth.
Effective Ways To Organize The Financial Aspects Of Your Business
When making a financial plan for your business, there are vital financial aspects that you need to take into account. We’ll consider the most essential to ensure your business finances are under control.
1. Financial projections
The most paramount projections are sales projections and cash flow projections. When it comes to sales projections, you projected the expected sales in the coming month, quarter, or year noting the cost of sales. A more beneficial projection may have a breakdown per product if you deal in multiple items.
2. Budgets and expenses
You need to track where every coin in the business goes. Categorize your expenses into fixed and variable costs. Write a budget to ensure you operate within your means. This stops unnecessary debt and streamlines growth. Moreover, you can tell when there’s a justifiable need for a loan. Use some business loan calculators to ensure you borrow loans that you can service comfortably.
3. A profit and loss statement
A profit and loss projection enables you to sneak a peek into the future profitability of your business. You can draft a three-year forecast to create a picture of where you’ll want to see your business.
4. Break-even analysis
With this, you can tell when your business will begin to return a profit from your investment. A vital metric for start-ups.
5. A balance sheet showing assets and liabilities
An assets and liabilities sheet shows what your company owns and projects to own. It also forecasts what your company owes and is projected to owe in the future.
Tools That Can Help You With Your Business Finances
- Accounting tools: Sage 50 Premium, Zoho Books, FreshBooks,
- Cash flow analysis: Cash Analytics, Invoiced, Scoro
- Business loan calculators: Nerdwallet, Camino Financial
- Inventory management systems: Upserve, Megaventory
- Billing software tools: Invoicera, Wave Invoicing, Zola Suite, Quickbooks Online.
- Budgeting tools: Xero, Free Agent
- Expense tracking tools: Rydoo, Expensify, SAP Concur,
Take your business to the next level by embracing sound financial planning and management practices. If you fail to plan for the future of your business, your business might have no future. Automate your financial planning today by using a suite of software that makes planning possible even for the entrepreneur who may not be an accountant.