How Financial Planning Can Help You Achieve Your Business Growth Goals. On-demand products and smart marketing are critical to the success of your online store, but the most successful business owners know that if the math doesn’t work, their business won’t work. Comprehensive financial treat planning lays the foundation for the company’s growth.
In fact, our data shows that high-growth businesses, or companies with above-average year-over-year growth, are more likely than their peers to have a financial plan. While this kind of vision can be invaluable in the future, especially during times of economic uncertainty, every business owner can and should have a financial plan to support their business growth.
A detailed financial plan can reveal opportunities that other companies might overlook, but it can also reveal potential constraints in a company’s growth plans that can and should be taken into account.
Here, we take a look at what financial planning entails and how it can help you grow your online business. We’ll examine exactly what financial planning is, how to do it, and other important considerations for traders of all shapes and sizes.
Financial planning is the process of documenting an individual or company’s current financial situation and setting financial goals and how the individual or company will achieve those goals.
A financial plan is a document in itself that serves as a roadmap for financial growth for an individual or business. It shows where a person or company is, where they want to go, and how they want to get there.
Some people confuse financial planning with budgeting. However, the two terms are not interchangeable. A financial plan includes a budget, but also other important information, such as personal or company assets, cash flow, income and sales forecasts, typical expenses, and a picture of personal or company finances and health.
Financial plans often also contain long-term goals, such as B. Specific growth goals, and potential obstacles that need to be overcome in order to achieve those goals.
It’s worth noting that while most financial plans contain much of the same information, there are many differences between financial plans for individuals and businesses. This is because an individual’s financial goals can be very different from a growing business.
For example, a person’s financial plan often includes retirement planning, investment strategies, and estate planning. Likewise, a person’s financial goals tend to focus more on meeting minimum annual income, reducing tax liability, and protecting property for children.
Instead, a company’s financial plan is more likely to include goals such as hiring more employees, buying more inventory, diversifying into new product lines, and expanding into brick-and-mortar stores. These goals are completely different from the goals of the people we assumed above, which means that achieving them requires a completely different strategy and financial plan.
Not every business needs a financial plan – but every business can benefit from it.
Having a financial plan forces you to consider not only where you are now, but also where you want to go and how to get there. The growth of most companies is not accidental. Growth is usually the result of hard work. However, without clear goals, you may work hard and still fall short of your goals because your efforts may not be focused on things that will help your business grow.
For example, many online retailers aim to open brick-and-mortar stores. But ambition will only get you so far. By developing a solid financial plan with specific specific goals, such as B. Opening a brick and mortar store – you can figure out how much you need to sell to meet your current financial commitments and raise the capital needed to open the business.
The same principle applies to almost any growth goal of an online retailer. Launching large marketing campaigns, hiring more employees, expanding into new product lines or service areas – all of these goals are easier to visualize and achieve when you have a detailed action plan to back them up.
If you are considering applying for business financing like a loan, the lender may expect a detailed financial plan before making a decision. If this applies to you, it may be worth consulting a licensed financial professional before submitting any loan documents. However, you can also create your own financial plan as a roadmap to success.
No matter what type of business you have (or plan to start), you need three main components to create a solid financial plan:
Let’s look at these in turn.
In a business financial plan, a balance sheet is a statement outlining all of a company’s assets, liabilities, and all shares held by its owners.
For most traders and business owners, assets tend to fall into two categories: short-term assets and fixed assets. Current assets include cash available to the company and amounts owed to the company, such as B. Unpaid invoices (also known as accounts receivable). Tangible assets are tangible assets owned by a company, such as B. land, property, and equipment. The third type of assets are known as intangible assets related to copyrights, patents and intellectual property.
Liabilities are debts owed by a company. This includes any payments owed to suppliers and companies such as suppliers, employee compensation, and in some cases unpaid taxes.
Equity is the value of your company’s assets less liabilities. Business interests also include stocks or stock options, although this may not apply to most traders.
As the name suggests, a cash flow forecast is a forecast of money flowing in and out of a business. For example, cash flow forecasts are one of the most reliable indicators of your company’s ability to repay loans and are therefore an important part of any financial plan.
This should not be confused with the cash flow statement. Cash flow forecasts only look at the amounts that are likely to flow in and out of your business for a specific period of time in the future. Instead, a cash flow statement only focuses on the amounts that actually came in and out of your business over a specific period of time in the past.
Cash flow forecasts typically focus on three main elements:
For most traders, cash income means how much your business can bring in each month. Despite the potentially misleading name, cash receipts should include payments made to your business via credit or debit cards, provided that those card payments are expected to be processed and credited to your merchant account within the specified time frame.
Cash payments are your monthly expenses. This should focus on recurring charges you pay most months, not one-time payments. This includes everything from petty cash paid for lunch and office supplies to employee payroll and commercial rent (if applicable).
Reconciliation of cash receipts to cash payments is calculated by subtracting cash payments from cash receipts. This should include any remaining balance from the previous month; this credit should be added to your total earnings.
A profit and loss statement is a detailed summary of a company’s expenses, revenue, and profits for a specific period.
Most established companies prepare income statements on a quarterly or annual basis, but many new companies prepare income statements on a monthly basis. That’s because it usually takes a while for these numbers to stabilize as a company matures in its first year or so, and monthly statements provide a more accurate picture of a company’s financial health over that period.
The income statement usually includes the following information:
As mentioned earlier, having a financial plan can be a useful tool to demonstrate your creditworthiness to potential lenders when seeking business financing. But even if you don’t want to borrow money to grow your business, sound financial planning can help you visualize the true financial health of your business and work toward specific, concrete growth goals.
Whether you’re looking to diversify your business with a new product line, expand into brick-and-mortar stores, or hire more employees, a solid financial plan can help you determine what’s realistic based on your company’s historical performance or forecast-based forecasts based on actual data.
Many business owners fail to achieve their goals because they are not actively preparing and planning for expansion. Even thriving businesses can fall into the trap of waiting for growth to “happen,” when in reality, growing a business often requires sustained, conscious effort. This is especially true in uncertain economic conditions.
Almost every entrepreneur has experienced the anxiety that comes with preparing for expansion and growth. But financial planning can be a booster, giving you the confidence to pursue opportunities you may not have considered.