Financial planning is at the heart of every successful business. A financial plan, which includes detailed financial statements and projections, forms the core of your overall business plan.
Financial planning should be completed at least once a year and revised monthly to incorporate actual results. It has two main purposes
- It enables you to make sound business decisions about what financial resources your company actually needs, and about what financial moves your company needs to make, to be successful.
- It helps you plan for and obtain the necessary financing to establish your business, continue its operation, and help it grow.
Solid financial planning demonstrates to potential investors and lenders that you are planning for success and that you are serious, thorough, knowledgeable and realistic.
In addition to impressing upon investors and lenders that you have done your homework and thought through your financial plan, the actual plan allows them to quickly evaluate the following:
- The short and long term prospects for your business
- Your company’s profit potential
- Your company’s strengths and weaknesses
- Future opportunities and challenges
- The amount and type of financing your business will need to be successful
The immediate gains of a good financial plan
- Guide you to work with a budget always as it is designed keeping in view the firm’s cash flows, growth prospects, stages of business entity,& constraints.
- Enables you to borrow fair amount of loan and select right loan products suitable to your business needs.
- It helps you to segregate your personal finance from business finance that will increase the visibility of cash flow.
- Facilitate to reinvest your savings back into your business to strengthen the fundamentals.
- To avoid temptation to spend in unproductive items.
- Compel you to practice a discipline of upkeep of basic financial records- primary risk guard to save you from manipulators, fraudsters,etc.
- Act as bridge to eliminate disconnect between banker and the entrepreneur by helping your bank to understand your needs properly.
- Eliminate irrational decision making/ blind faith in others- a major curse many SMEs suffer from.
- Ring fencing family from risks of business