So, whether you’re a small business/startup that’s just beginning to learn all the ins and outs of running a prosperous business, or you’re an entrepreneur looking to potentially further expand her or his knowledge, we’ll try to present you with some of the benefits for creating a financial plan for your company.
Better Income and Cash Flow
Before we delve deeper into technical terminology, it’s important to realize how crucial financial planning truly is for any type of business. This plan is something that provides you with a clear picture and understanding of how much money exactly you need to cover your expenses. It can’t be simpler than this – if you don’t know or have the required resources, you won’t be able to conduct any business whatsoever.
That’s why you need to know exactly where your company financially stands at any given point in time. In order to provide your firm with better or positive cash flow, you need to do whatever it is in your power to have more money coming in than going out. The financial health of your business needs to be your top priority. If you fail to do a good job here, you simply won’t be able to have a sufficient budget in order to generate this positive cash flow. And you also won’t be able to cover your debts, your overhead, or operating expenses. Poor financial decisions will eventually lead you into bankruptcy.
Managing Overhead Expenses
It’s paramount to avoid this scenario at all costs. Speaking of expenses, there are myriad of different things you spend your money on, but in most cases, there are two main groups under which everything falls: overhead and operating expenses.
Overhead expenses are those that your company makes on things such as lease payments, utilities, insurance, and salaries. Overhead expenses are not related to labor or production and you can expect to see these regularly – it doesn’t matter how much money per month or a year your company makes, you’ll simply have to pay the overhead expenses on a regular basis.
As far as operating expenses go, these happen while you’re doing some regular business-related stuff, such as buying materials to keep the production flowing. Without these things, you wouldn’t be able to run your company normally, so you have to put them into the equation when making your financial plan.
A Good Financial Plan Always Includes Tax Obligations
While we’re on the subject of covering necessary costs, it’s also of utmost importance to ensure that you cover any tax obligations. Many business owners out there are pretty careless about these and think that they can handle their tax matters without any problems.
Unfortunately, this can’t be farther from the truth, in many cases. Preparing, lodging, and dealing with tax officers can be a rather tricky or time-consuming undertaking at times. That’s why it’s strongly advised to consult with professional tax accountants and make sure everything goes smoothly in this regard. Even if you know exactly what you’re doing, this tax preparation process can steer you away from focusing on more important tasks and projects within the company.
Calculate the Costs Properly
What many people don’t realize is that these things require a little bit of savviness and experience in finances. You can’t simply calculate how much money you’ve been spending in the last couple of months on these materials, for example, and to then set aside only that particular amount and expect everything to run smoothly indefinitely. The biggest mistake you can make is not to include some unexpected expenses into your financial plan. So, the number that you’ve had at the beginning likely needs to be enlarged, in order to provide your company with the proper cash flow.
So, the next time you start crunching numbers when trying to determine how much money you need to have at the end of the day to cover some of these expenses, it’s crucial to pay attention to these unforeseen or sudden costs as well.
Plan and Save for the Future
No good financial plan out there will disregard planning for rough times and saving the money for the future. Some business owners neglect the fact that the market can get pretty unstable. This mostly happens due to inexperience, but if you’re a seasoned veteran in this field you’ll simply know that you need to save for the rainy days. The business might be in full swing at the moment, but a month from now things could get pretty rough.
And if this happens, it doesn’t necessarily mean that you’ve done a poor job on your part, or made some bad business decisions. Things like an economic crisis can happen unexpectedly. That’s why it’s paramount to do financial forecasting on time. This will give you enough flexibility and room to operate if the market crashes or there’s a bad economic situation. Businesses that seriously count on these things are more likely to land on their feet if the market starts to change for the worse rapidly.
The Bottom Line
There are numerous advantages to creating a financial plan for your company. Although our list is in no way conclusive, in this article we tried to give you some of the examples of why financial forecasting is so crucial for any company that plans to have a bright future.
That’s why it’s so essential to hire financial consultants who know exactly what they’re doing. Even though you might think that you can manage on your own, there are some cases where it’s much better to leave that part to people who have more experience in the field – because, like with many other things in life, good financial planning also has so much to do with the proper exposure to and insights into these matters.
Alexis is a Sydney-based part-time lifestyle writer and a full-time mom of two. Her words carry the richness of her travelling and parenting adventures, offer advice and inspiration to those who desire to improve their lives. Outside of the office, she takes pleasure in spending precious time with her youngsters and absorbing the happiness they constantly radiate.