Although many business owners are aware that financial planning is important, it is often overlooked. Without a financial plan, however, you could find your business doesn’t make the money you expected it to—or you could wind up with unanticipated expenses and no way of paying for them.
Here are some steps to take to build an effective financial plan for your business.
Understand Your Cash Flow
Understanding cash flow—including sales cycles—will help you build a plan for your business. If your business is seasonal, for example, it helps to know when sales drop and for how long, so you can plan for those periods. You can also anticipate when sales will be higher and you’ll have extra money to set aside for emergency expenses.
Remember that cash flow and profitability aren’t the same thing. Your business can be profitable, but if none of your clients are paying you on time you won’t have necessary cash flow to stay afloat.
Create a sales projection
When you forecast your sales, make sure you include the cost of goods sold so you can determine your forecasted growth margin. This information will help you determine which of your offerings are most profitable and which should be revised to increase your profits.
Talk to an expert
Experts can help you make sense of your financial situation and how to move forward—whether that’s the best use of your profits or getting yourself out of a negative cash flow situation. They can offer you effective solutions you may not have considered, or help you revise your plan so it’s more realistic
Monitor your progress
Throughout the year, take a look at your plan and your projections to ensure you’re still on track. If things are progressing as you expected, great. If not, explore how you can address the situation before financial problems become unmanageable.