Small businesses have been the driving force behind many economies across the globe. Most of the world’s largest businesses today started out small. Their owners invested their own personal time and resources to build them from the ground up.
Their success is commendable, but financial advisors warn that without a clear financial plan, most businesses may end up failing after operating for a while. A financial plan is often part of the overall business plan. Your business plan may not hold much water if it cannot justify the business with some good figures.
A well-prepared financial plan will have you winning investors and being eligible for bank loans. In addition, it will help you know how to steer your business in order for it to be successful. A typical financial plan includes profit and loss statements, cash flow statements, sales forecasts, an expense budget, income projections, and a balance sheet.
Many might confuse a financial plan for an accounting statement. The two are different in that accounting takes a historical view that starts from today going back in time while a financial plan looks towards the future. The purpose of a financial plan is to have figures that will provide a guideline for growth for your small business.
To come up with a successful financial plan for your small business, here are tips to consider:
- Balance Personal Goals and Business Goals
The most important tip for a small business owner is to first identify and distinguish between short and long-term financial goals. While at it, draw the line between those that are business-related and those that are not. Business goals may clash and interfere with your personal goals. Personal goals include things such as paying for college for your children and going on vacation. Business goals include things such as deciding to enter into a new market or buying a new premise for your business. Always strive to maintain a balance. Choosing one over the other may interfere with the overall success of your long-term financial goals.
- Look for alternative financial options
For most entrepreneurs, getting funds for their small businesses is a major hurdle. The majority often turn to friends and family, their credit cards, and savings. Every business requires capital to start and operate. If the owner isn’t able to secure funding, he may opt for external sources. Financial advisors urge small business owners to explore different options such as offering equity for a service or securing loans. Subscription services and pre-sales are also a viable alternative. Clients that love your product or service may be willing to subscribe, pay in advance or make service and product exchanges.
- Generate Enough Revenue
The revenue generated from a small business should be higher than the costs incurred. Even the best ideas fail when the venture is unable to generate adequate revenue to cover all expenses. Business owners must always stay ahead of their costs at all times. This can be done through thorough cost control where each expense is tracked and analyzed extensively. Some of the most common expenses that business owners incur include legal, payroll, office supplies, insurance, office equipment, and marketing. Owners should also strive to increase productivity by looking out for economies of scale, operational overlaps and deficiencies, and result-based compensation.
- Maintain Liquidity
Having cash is important for healthy growth. Even with enough assets, a business may not be able to carry out its operations effectively if it’s not liquid. When enough cash flow is generated, businesses are able to pay their employees, attract investors, pay vendors and creditors, and handle unforeseen expenses in case of emergencies.
- Manage Your Business Taxes
Depending on the law, paying and filing your business taxes can be a painful and long process. Your requirements will highly depend on the legal structure of your business. Sole proprietorships have different tax requirements compared to partnerships and companies. Consult a financial advisor to find out the legal status of your business. A rule of thumb is to always prepare for the taxation process early to avoid missed chances and last-minute rush. Experts urge business owners to make good use of bookkeeping software to track their filing dates, local fees, and permits, as well as other federal taxes.
- Plan for Retirement
It’s highly recommended that business owners set aside some money for their company retirement plan. Contributions to your pension could help reduce taxes and improve loyalty among employees. Consult your financial expert to find out what account alternatives are available for you. The best option is the one with the highest contribution allowance and return. In the long-run, you will have a secured future once your retirement plan is up and running.
- Create an Estate Plan
An estate plan includes a family trust or a will that ensures that your personal and business property is properly disposed of in the event of death. Creating one can affect your business and medical plans, taxes, as well as finances. Those involved in the plan could be your family members, business partners, or charitable organizations. Having an estate plan helps to eliminate any uncertainties that may arise concerning the administration of your property. It also helps to reduce unnecessary expenses and taxes. Estate planning is highly dependent on the business owner’s overall goals and needs and, maybe a simple or complicated process.
- Succession Plan
A succession plan is important where the business owner would like to discontinue running the business at some point. It helps determine the fate of all those involved with the business such as your suppliers, employees, vendors, contractors, and landlord. It ensures that their interests are met should the owner decide to pass the business over to someone else. A succession plan will depend on the industry, legal status, and size of the business.
Having a financial plan helps to determine where your business is heading in terms of growth and sustainability. Once you have it set up, you’ll have more guidance on how to create better products, how to outsource, and how to engage with your customers in a way that leads to your goals. To find out more about financial planning, visit Australian Growth Financial for more insights and financial advice.
