Steps for Developing a Financial Plan
Today, small businesses benefit from having an effective financial plan, allowing them to set objectives, and think through the strategies for achieving them. Unfortunately, many small business owners don’t think about their financial plan until it’s too late. They usually wait until they experience a financial Emergency to seek professional help.
Financial planning is actually one of the most important aspects of running a small business. Without it, the business will lack direction and run the risk of having a financial crisis. If you’re just getting started or already running a small business, here are some important steps for creating an effective financial plan.
1. Set Financial Goals
Your financial plan needs to be based on goals that are realistic and attainable. Ask yourself: What are your big-picture plans for your business? How much revenue do you need to make in order to be profitable?
Your goals should be concise and measurable. Break them down into smaller, more attainable objectives and establish deadlines. This will help you stay on track and identify progress.
2. Devise Strategies
Once you have set your financial goals for your small business, it’s time to come up with strategies on how to get there. Brainstorm different ideas, and research to help you determine which one will be most effective. Be sure to take into account any potential pitfalls or risks that may arise when implementing your strategies.
Think through any investments that may be necessary. For example, if you plan to launch a new product, you’ll need to think about research and development costs, production costs and marketing costs.
3. Establish Revenue Streams
Your financial plan should consider different sources of revenue, such as investments and business loans. Consider how you can bring in more income and look for creative ways to make money.
Revenue streams are especially important if your business has seasonal fluctuations. For example, a Christmas decorator may need additional income during peak periods to make up for slow months.
4. Make Smart Investments
Making wise investments is essential when creating a financial plan. Take stock of your existing investments and determine which investments you need to make to reach your goals.
Consider the cost-benefit of each investment. How much will it cost? What about the expected return? You should never invest in something unless you know the potential risk and can justify the expense.
5. Track Your Progress
Finally, it’s important to track your progress along the way. This will help you see how your business is doing and determine where adjustments are needed. Use tools like QuickBooks or Microsoft Excel to help you stay on top of your finances.
These tools can also help you create financial statements, so you can easily check up on the health of your small business. This information can be used to create a budget and determine how much you should be allocating to each area of your business.
Creating a financial plan for your small business is an important part of setting yourself up for success. With a good plan in place, you can set realistic objectives, stay on top of your finances, and make sound investments. Start by setting financial goals, devising strategies, and establishing revenue streams. From there, make sure to track your progress, so you can adjust your plan accordingly. With these steps, small business owners can take the steps necessary to create an effective financial plan.