Are you thinking about taking the plunge and starting a business? Or do you already have a business and want it to become financially independent? You need a good financial plan to support your business strategy that you can use to focus on reaching your strategic goals and make accurate decisions in all areas of your business.
Before we look at how to do plan correctly, lets discuss financial planning.
What is financial planning?
It’s about budgeting and preparing your finances to support any plans you have for your business. You can plan your operations, set business goals, create a marketing plan etc. But don’t forget you need to create the financial plan that will drive those goals! With a financial plan, you can work out how you’re going to fund your operations. It will show you where you’ll get the money and when you’ll need it. So use the info in the financial plan to manage your company’s capital needs, income, assets, liabilities and related risks.
And best of all, your financial plan will give you the edge over your competition. It will flag monthly and seasonal fluctuations of cash inflows well in advance. It predicts when to find external financial support, or when you have excess cash. So it positions you to take advantage of opportunities in your sector. But as the old adage goes ‘if you fail to plan, you plan to fail…‘ So you need to make financial planning a habit in your business!
Three steps to linking your business goals and financial plans
Every goal you set for your business should be rooted in your financial planning. You should get the right type of funding for each goal. Then finance procurements, investments and borrowings seamlessly.
1. Set up your short-term goals
These are for a maximum of one year. Design these goals to take care of your working capital needs. Then link this with your short-term financial planning by creating a short-term cash-flow budget. For example fund your operational activities with your own working capital or an overdraft. Click here for a cash-flow budget template.
2. Set up your medium-term goals
Aim these goals at replacing and maintaining your fixed assets. So link them with your medium-term financial planning. Use a five year cash-flow budget. And come up with a list of sources you can use to finance your goals and add this to your plan.
3. Set up your long-term goals
Your long-term goals should focus on expansion and capital structure. So they’ll be more than five years. Link them with your long-term financial planning with a long-term cash flow budget. Now look for ideas to raise enough money to fund the goals, such as selling shares or getting a loan. For example, fund your fixed assets with long-term borrowings.
And to help you link your business goals with realistic financial plans, why not try out the Master Budget Series. It has ten budget templates to forecast and manage your costs. You’ll draw figures from these budgets so you can keep control of costs and maximise your profit!
There you have it. Now you can become financially independent with sound financial planning.