Why Every Business Should Have a Financial Plan
If you're starting a new business, a small business, or growing a current business, having an established financial plan is essential. Having a financial plan is a vital consideration as it should represent the starting point of your business's financial health, growth, and sustainability. Without a financial plan in place, you may as well be flying blind.
There are a number of reasons why every business, regardless of size or industry, requires a financial plan. This article will outline the importance of a financial plan and how it can sometimes mean the difference between thriving or just surviving.
1. It provides clarity on your Business Goals and Strategy
The first benefit of having a financial plan is turning vision into enforceable goals. Via clarity of expected revenues, expenses, and profits, businesses can define specific financial targets for the company along with operational strategies. Regardless if you are introducing a new product, expanding into a current market or taking on new staff, a financial plan provides a blueprint to investigate feasibility. Whether or not any planned actions are possible is usually a matter of financial resources and time. A financial plan will help.
2. Supports Decision-Making
Every decision a businessperson makes has financial implications. Should you buy new equipment? Is now the time to increase prices or reduce expenses? Financial plans help business owners and managers make informed decisions based on data points. They set up your spending priorities, and they help you understand which investments have the potential to produce positive returns.
3. Attracts Investors and Assists Funding
Investors, lenders, and other financial institutions want to see a financial plan when considering investments. The fact that you have developed and drafted a realistic financial plan indicates that you have a reasonable understanding of the market you operate in, you have the ability to identify and manage risk and you have a logical plan to get to some reasonable level of profitability. A strong financial plan is going to help in securing funding.
4. Helps Manage Cash Flow
Cash flow issues are the number one cause of business failure. Financial planning is primarily about forecasting inflows and outflows of cash over time. Financial plans help identify slow periods, make better informed decisions and plans to deal with these lean periods as well as manage major expenses. They ensure you know where money is coming from and going to.
5. Tracks Progress and Evaluates Success
Having a financial plan enables businesses to have benchmarks and measure performance over time. Are you achieving your revenue goals? Are you tracking expenses in line with your projections? By regularly reviewing your performance in comparison to your financial plan, you can quickly identify issues and implement corrective action.
6. Plans for Risks and Unexpected Changes
No business is protected from difficulty, be it an economic downturn, a supply chain disruption, or a sudden decline in sales. A good financial plan gives a business contingency plan, which prepares your business to be resilient in times of uncertainty.
7. Helps with Long Term Growth
Growth without a financial plan can be perilous. Growing too quickly and adding complexity without the supporting financial infrastructure can quickly waste resources. Financial planning allows you to have sustainable growth by allocating resources effectively, while making preparations to face increased expenses and complexity.
Conclusion
A financial plan is more than spreadsheets and projections; it is a deliberate vehicle for clarity, discipline, and direction for your business. It's the difference between managing purposefully and guessing.
Now is the time to have a financial plan whether you are starting one or looking to elevate your company to the next level. You are not simply surviving; you are thriving.
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