Why It’s Important For All Business Owners To Have A Financial Plan In Place
Just as marketing and sales are important, it is also important to keep financial affairs in order for any kind of business. Often, when starting out, business owners have yet to get used to separating their personal from business finances. This is, however, bad practice for the business. A financial plan must be put in place to secure efficiency and right utilization. Here are the reasons why it’s important for all business owners to have a financial plan in place:
1. Right cash management
Seasonal and monthly variations in revenues would affect your cash flows. In crafting your financial plan, take into account projections of these fluctuations, so you can make the necessary adjustments to expenditures and debt in preparation for these fluctuations in revenue.
Poor cash management may result in drastic consequences for your company. However, having a robust, well-structured financial plan can create a cushion to keep business owners sleeping better during the night. These cushions may come in the form of reduction of overhead costs, various investments, or hedging inventory purchases.
2. Execution of long-term vision
In business, you need to align your long-term vision to your financial plans. Your financial plans will be the blueprint for the growth of your business. The financial plan will push your company forward by preparing the financials for what needs to be done. Revenues, debt, expenses, and receivables will be on track to keep continual improvement and to stay ahead of all competitors.
To be able to execute your business, marketing, and sales plans, you need your financials to support them. This can only be done if all financials are carefully accounted for. Each event, campaign, project, and employee must be accounted for to ensure the successful implementation of a company’s long-term vision. Proper advice and support from a financial planner for accountants will play an important role in helping you to plan and manage your business financesfinancial planning and, in turn, help you to execute in executing your long-term visions.
3. Business insurance and assurance
Included in financial planning are business insurance and assurance. This consists of a safety net in case of death, illness, or other losses the company might experience. Succession planning will be put in place in case of death or illness of a key officer in the business. This means that even without one person, the business will continue running.
Hand in hand with succession planning, the financial plan will also include insurance in case anything happens in order to sufficiently cover business assets and land. Insurance will cost a little bit extra, but this will give you an additional provision large enough to cover all the losses in case dire circumstances occur. Having these things in order will give the business owner peace of mind while running the business.
4. Measurement of progress
When companies are being evaluated for a loan, banks often look at the financials first. This is because your financials tell a good story of how the business is doing on a very quantitative level without any kind of subjectivity or bias. This is why having an accurate record of your financials is very important and beneficial for your business, especially if you want to keep track or measure your growth.
By having accurate financials, your business can evaluate every strategy set out by the company and see if it worked well. If it was successful, it will definitely translate in your financials. You can also determine problem areas that your company can work on simply by looking at the financials to increase profitability, leverage, and liquidity of the business.
5. Tax and Estate Planning
Tax planning, which might often be forgotten, is very important since finances and tax are tied together. It is important that you have someone in your finance team that has expertise in dealing with tax affairs. Tax is a very complicated matter to consider. Mismanagement of tax might lead to several consequences that will take a toll in the expenses of a company.
Tax planning will allow you to save on money, reduce tax liabilities, and gain on rebates, deductions, and allowances that you may not know about. Moreover, tax planning also takes into account estate planning, which lessens tax liability at death. This will provide a large amount of savings for the company.
The importance of financial planning can’t be stressed enough. As you can see now, financial plans are the foundation of your business and will serve as the blueprint for your success in the future. Don’t make the mistake of missing out on financial planning because this plays a crucial role in your business.