Mastering your finances is one of the essential tasks of any entrepreneur. Yet many business owners overlook basic aspects of financial management that can give them greater control over their business and greater peace of mind. Indeed, to have financial plan is a necessary step towards avoiding business failure
Early Warning System
The financial plan differs from the financial statements in that they show what has happened, while the plan is a set of projections of revenues and expenditures for the coming months. These projections will serve as an early warning system and help you predict cash decreases, your financing needs and the best time to implement your projects. At Zoe Talent Solutions you will find more knowledge about business finances.
They will also be useful for keeping track of your finances, evaluating your progress and, if necessary, quickly getting around the difficulties. Here are six steps to create your financial plan.
#1. Review Your Strategic Plan
Financial planning must begin with your company’s strategic plan. Think about what you want to accomplish during the life of the plan. Next, determine the financial impacts over the next 12 months, including the largest expenditures (equipment purchases, moving house, website redesign and more).
#2. Make Financial Projections
Create monthly financial projections with your anticipated earnings (based on your sales forecast) and your anticipated expenses for labor, supplies, overhead, etc. (If your cash flow leaves you with little margin, it will be best to prepare weekly projections.) Then add the costs to the projects you listed in the previous step.
For that, you can use a simple electronic spreadsheet or some functions of your accounting software. Do not assume that sales will be converted to cash immediately. Integrate them into your cash flow only when you expect to be paid, depending on your experience.
Also prepare a statement of earnings (profit and loss) and a forecast balance sheet. Making projections for several scenarios (more likely, optimistic, and pessimistic) may be wise to consider the implications in each case.
#3. Plan Your Financing
Use your financial aspects to determine your financing needs for your business. Meet with your financial partners in advance to discuss your options. Formal screenings will reassure your bankers of the soundness of your financial management.
#4. Plan Emergency Measures
What will you do in case of unforeseen financial problems? It is advisable to provide – before you need it – sources of funds to use in case of emergency. It can be a cash reserve or a largely unused line of credit.
#5. Follow Up
Throughout the year, compare your projections with actual results to see if they come true or if you have to adjust your shots. Tracking helps you spot financial problems before it’s too late.
#6. Get Help
If you need expertise to develop your financial plan, call a specialist or learn few online courses.