A financial plan helps create a roadmap for managing your money to achieve short and long-term financial goals. Financial planning is a critical component of wealth management and extremely useful when making decisions in all aspects of your life, be it education and savings to taxes and retirement.
If you are a business owner, we understand it is easy to get carried away with meetings and work deadlines while completely forgetting about an integral aspect of owning a business, that is financial planning. Often overlooked by small businesses, having a well-crafted financial plan is essential for maintaining a positive cash flow and growing your wealth.
If you want to plan for a secure financial future but do not know where to begin, here are six steps that will make financial planning easier and achieve financial security for yourself or your organization.
Define Your Goals
A good financial plan should base upon your financial goals. Your goals must be inspirational but realistic at the same time. Ask yourself what your ultimate financial objectives are. Do you need to pay off hefty loans? Want to buy a car or property? Do you aim to retire before 50? Or perhaps you are a business owner and need help managing your budgets, investments, insurance more effectively?
That will help set up a foundation for the planning process and determine how to manage your expenses more efficiently. If you do not have clarity regarding your financial destination, you can hire a certified financial planner (CFP) to help determine your financial goals organize your finances.
Review Your Strategic Plan
In conjunction with a financial planner, a strategic plan will help set goals for the growth of your business. It utilizes forecasts and projections to determine the direction of your business and what changes you can make to maximize your profits.
To make it simpler for you to follow, here’s a list of questions that you can ask yourself:
- Do I need to expand my operations?
- Do I need to upgrade my equipment?
- Should I increase my workforce?
- How should I adjust the new changes with my financial goals?
- Will I need external investment to fund new changes?
A strategic plan will help you track down the areas you need to target during the expansion process.
Make Use Of Financial Projections
Financial projections use the available or estimated financial data to forecast your business’s future revenues and expenses. They include different scenarios which allow you to see how a change to one aspect of your finances, such as higher sales or lower operating expenses, could affect your profitability.
As a business owner, you can create monthly or even weekly projections to record your anticipated cash flow based on the general sales pattern and regular expenses like labor, supplies, etc. Once you have combined all your expected expenses, you can then figure out where the rest of the money goes.
Not many organizations can be consistently profitable and achieve growth without meticulous financial planning and cash flow management. To support your organization’s financial health, the professionals behind fp&a heavily recommend enlisting the aid of people who are trained in this matter to handle this crucial element of a successful business. A team of dedicated financial experts can provide you with the analysis and information you need to make vital operational and strategic decisions.
The team would support the annual budgeting process and produce regular forecasts that will reveal the expected future performance of the business. They will advise on how company performance can be enhanced while exploring potential growth scenarios.
Organize Your Data
To help you keep a tab on the cash influx and outflow, you can use simple spreadsheet tools like MS Excel. An important thing to keep in mind is that you should not enter the sales that have not been paid for in your database. Only add them to your records once you have been reimbursed for that sale.
Another pro-tip is to create an income statement and balance sheet based on financial projections for your business. A smart approach is to set up two different projection streams that include various scenarios, both positive and negative. That will help prepare you for the best and the worst outcomes.
You should also go over the company’s financial plan with your accountant and get his thoughts on how you can further improve it. Keep in mind that you will need to be well-versed with the financial jargon when pitching to different bankers and investors.
Plan For Emergencies
Certain events may be beyond the scope of your control that could adversely affect your financial situation. The current pandemic has taught us so much regarding financial planning and using projections to secure ourselves from uncertain financial climates. While there are various ways to regain financial stability, you must ensure that an emergency does not turn into a disaster.
It would be a good idea to set up an emergency fund covering three to six months of your living expenses and one you can depend on during contingencies. It is better to have a cash reserve for such situations rather than relying on a credit line.
Keep Track Of Your Plan
Financial planning is a dynamic process and does not end once you have created a financial plan. Your goals and financial standing are not stagnant, and your financial plan should not be either. Changing personal or economic situations such as inflation, a change in income, or the loss of certain assets or investments will call for your financial plans to be revised regularly.
As the days pass by, analyze and compare the projections with your company’s actual performance. See if you are on the right track or if you need to make some adjustments. That is the most effective way to identify your weak areas and work towards improving them.
Whether you are an independent business owner, a freelancer, or even a self-employed contractor, creating a solid financial plan will help you manage your money wisely. A financial plan would evaluate where you or your organization stands money-wise and where you want to be in the future.
A comprehensive financial plan will help enhance the quality of your life by reducing uncertainty about your future and potentially eliminate stress and anxiety related to your financial position. You will have increased control over your financial situation by avoiding excessive debt, bankruptcy, or even dependence on others for economic security.