Building a financial plan can be one of the most intimidating part of writing your business plan. Businesses that have a full financial plan in place are more prepared to pitch to investors, receive funding & achieve long-term goals. It’s also one of the vital parts of smooth functioning of a business.
Let’s understand what is a financial plan. A financial plan is simply an overview of your business financials and projections for growth. A document that represents the current monetary situation of your business and long-term monetary goals & future expectations.
It helps you, as a business owner, set realistic expectations regarding the success of your business. A financial plan documents an individual’s long-term goals and creates strategy for accomplishing them. A financial plan is a comprehensive picture of your current finances, your financial goals and any strategies you’ve set to achieve those goals. Good financial planning should include details about your cash flow, savings, debt, investments, insurance and any other elements of your financial life.
For existing businesses, the pandemic has impacted plans, targets and finances. This is just the time for Company Founders and Proprietors to review the financial plan and make realistic changes to their numbers and projections that are based on the current market situation. Hence it is called a Remedial Financial Plan.
The following six roles illustrating why remedial of financial plan is often necessary tool for businesses:
1.Cash Management –
Many businesses have monthly or seasonal variations in revenues, which translate into periods when cash is plentiful and times when cash shortages occur. In building the financial plan, the business owner takes these cycles into account to keep a tight restraint on expenditures during the forecast low revenue periods. Poor cash management can result in negative consequences such as not being able to make payroll. Having a financial plan that is structured so there is always a cash cushion helps the business owners to keep the monetary function stable. The liquidated cash allows the business owners to take advantage of opportunities that arise, such as the chance to purchase inventory from a supplier at temporarily reduced prices.
- Long-Term Perspective –
In a business it is easy to become focused on the crises or issues that must be dealt with on a daily basis. The price for being too short-term oriented is that the owner may not spend enough time planning what needs to be done to grow the business long-term. The financial plan, with its forward- looking focus, allows the business owner to better see what expenditures need to be made to keep the company on a growth track and to stay ahead of competitors. The financial plan is a blueprint for continual improvement to the company’s performance. Financial plan can used as a tool for forecasting expenses and sales to avoid any extra expenditure.
- Recognizing Trends –
A business owner makes so many decisions over the course of a month that it can be difficult to tell which decisions resulted in success and which ideas or strategies did not work. Preparing the financial plan involves setting quantifiable targets that can be compared to actual results during the year. The business owners can see, for example, whether an increase in advertising expenditures led to the jump in sales. Trends in the sales of individual products & services help the owner make decisions about how to allocate marketing dollars.
- Calculate Expenditures –
Conserving financial resources in a SME is a critical element of success. The financial planning process helps a business owner identify the most important expenditures, those that bring about direct improvements in productivity, efficiency, or market penetration, versus those that can be postponed until cash is more overflowing. Even the largest, most well-capitalized business owners go through this prioritization process, comparing the cost to the benefits of each proposed expenditure.
- Measuring Progress –
Especially in the early stages of their ventures, SME’s work long hours and deal with numerous challenges. It can be difficult to tell whether progress is being made or whether the business is suffering. Seeing that actual results are better than forecast provides the small business owner needed encouragement. If a chart or statistics showing steady growth in revenues month by month, or a rising cash balance is a great motivating factor. The financial plan helps the owner see, with the clarity of hard data, that the business is on its way to being a success.
- Marketing Strategy –
Business marketing strategies give well-framed tasks for a business, starting with strategizing, executing and implementing. Planning your finances well will help your business to identify the important strategies that need to be implemented. The actions that you plan for your business should be measurable and should be able to generate more business.
As marketing team of your business work at creating campaigns and understanding areas of marketing well. The same way, it all comes down to the financial advisors who does the research and use real time statistics and reports to analyse, if investing such amount in a particular project or strategy is beneficial.
While drafting a business plan or marketing strategy, business owners needs to see the ratio of expense and profits on every strategy that is formulated for business. This gives you a brief idea as to which strategy is worth implementing financially.
A Remedial Financial Plan can be developed inhouse or through an external professional or business consultant. It is important this exercise is done to get business back on track. Centurion Consulting LLC., a leading business consulting firm has a special offer; please visit www.centurionconsulting.ae
