A financial plan is a necessary tool for the growth of your small business. It can help predict the future performance of your business. It can also give you insights into how you can mobilize resources efficiently to overcome potential challenges and ensure you end the year profitably.
Hence, it’s crucial for every business to draft a feasible annual financial plan. After all, finances are a vital aspect of running your company. And as a business owner, knowing how to manage them properly can guarantee favorable outcomes for your business. Moreover, failure to ensure your company’s financial health may result in unanticipated losses and even potential closure.
In this article, we’ll outline a quick guide to annual financial planning as a small business. Read on to learn more.
Audit Your Finances
Every cook follows a specific recipe to make a delicious meal. In business, one of the formulas you’ll need is your financial plan. A financial plan contains all the current business financials and projections for growth. Essentially, it can help you distinguish potential shortfalls and allow you to capitalize on your business’s strengths.
As you prepare for annual financial planning, one of the critical tasks you should do is an audit of your company’s finances, from your profits and assets to recurring operating expenses and even debts. This can give you an overview of your company’s financial health, which can then allow you to make well-informed business decisions.
An excellent approach to this is to use financial planning and analysis software. While conventional solutions like spreadsheets could work, they can be tedious and time-consuming. Moreover, since it involves manual inputs, it can be prone to human errors, which can affect the overall analysis and projection of your business’s finances.
In addition, financial data is typically enormous and you’d want a sophisticated tool with intricate algorithms to help you conduct audits efficiently and automate tasks like generating critical financial reports such as the following.
- Profit and loss statement
- Balance sheet
- Business ratios
- Break-even analysis
- Cashflow statement
- Sales forecast
By conducting a comprehensive audit of your small business’s finances, you can gain better insights into how your business is performing financially and you can set realistic expectations and make the necessary changes in your organization for your company’s growth.
Secure a Strategic Source of Revenue
Small businesses often face financial shortages before they gain momentum. You can beat that by having a strategic source of revenue for your business. From your business plan, you can more or less determine your financial needs for the year.
Alternatively, you can sit with your business stakeholders and agree on ways to raise capital for your business. Generally, there are many financing options that you can use to raise enough funds for your small business’s operations. Some of these include loans, crowdfunding, grants, working with investors, and friends and family contributions.
Project Your Revenue and Expenses
Part of your business’s financial planning should also include projecting expected earnings. You can do so by analyzing the insights you’ve collected from your audits and financial reports. But, you don’t have to do this alone, especially if you’re pressed with time or the task is beyond your skill level. Have a certified accountant plan it for you and then go through it together to ensure the numbers are realistic.
From there, you can decide whether to cut costs on your operations or raise unit prices of your products or rates of your services based on the projections.
Monitor Progress
There’s no better way to keep tabs on your business’s financial health than monitoring the performance metrics. You can track your company’s milestones with the help of an annual financial plan.
For instance, if your sales take a nosedive from the previous year, it’ll reflect on your profit and loss statements, which can give you a quick overview of how stable your finances are.
This can then allow you to come up with solutions to address why your sales are dropping and determine what needs to be modified to generate the desired results to grow your company.
Final Words
A solid financial plan can lead to the long-term success of your small business. However, having one in place isn’t enough as you also need to update it annually. This way, you can review and assess your company’s financial health and make the necessary updates to ensure your business remains afloat.
That said, consider using financial analysis tools and software for more guaranteed results, convenience, and accuracy. Equally important, delegate the technical aspects of financial planning to industry professionals if the task is beyond your skills and knowledge or if other core business functions take up most of your time.
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