People have always been quite worried about their budgets and their financial situations and that hasn’t changed throughout history. No matter how much money you are making on a monthly basis, you always need to do your best to plan things properly out, while taking into account all of your expenses, as well as any savings plans that you might have, so that you aren’t left broke after a few days of getting your paycheck. I know that everyone has had at least one period in their lifetime when they struggled with this, and I absolutely know that even those people who aren’t struggling anymore are certainly doing their best to plan things properly out when their finances are in question.
Just imagine how much planning you might have to do as an individual living off of paychecks. There are definitely a lot of things that you’ll have to worry about and a lot of expenses to take into account. Now, think about all the things you’ll need to take into account if you are running a business and want to be careful with your finances. It doesn’t matter how big or small your business is, the truth is that finances will always be in its focus and that you will need to do your best to ensure that the money is being spent wisely and that you aren’t driving your company towards bankruptcy with your reckless attitude towards money.
I suppose that this is something you most definitely understand already. After all, if we draw a parallel between financial planning as an individual and financial planning as a business owner, you’ll realize just how complicated things can get for all of those company owners who are trying to stay afloat. Even as an individual, you might struggle with this if you don’t have the necessary knowledge when it comes to keeping track of your finances and if you’re not responsible enough. As a business owner, though, you are bound to struggle even more unless you devote yourself completely to the idea of learning how to plan things properly.
What I am trying to say here is that financial management and planning in business is extremely important and that you shouldn’t take it for granted and assume that you can just wing it and keep your company afloat without having to worry too much about the money. This is the wrong mindset that leads to bankruptcy and various other kinds of issues, and I am completely certain that you don’t really like the sound of that and that you don’t want to have such issues while running your company. Well, if that’s the case, then you’ll need to invest some more time into understanding what financial planning really is, why you need to do it, as well as how to do it.
If you’re just joining the business world, there is a chance that you are not that familiar with this concept. Sure, the term sort of speaks for itself, but just because you understand the words that are forming the term, it doesn’t immediately mean that you understand practically everything about this concept and that you know what it is and how to properly use it when running your company. My advice here is not to make any kinds of assumptions and to, instead, take all the time you need to get properly familiar with this concept and with the entire idea of using the concept to your advantage and ensuring that the planning is done the right way.
In case you are ready to learn, and I am quite confident that you are, then here is what we are going to do. In short, I am going to answer some of those basic questions that you probably have about financial management and planning, which will help you get a much clearer picture on what it all entails, why it is so important, as well as how you can take the right steps towards planning everything. You will find the answers to those questions below, so keep on reading to get your facts straight on this entire concept and thus understand why and how to use it to your advantage.
What Is Financial Planning?
It is not a surprise that we are going to start with the most basic question here. There would be absolutely no point in answering some of those more complicated questions if you are still not entirely sure as to what financial planning really is, what it entails and what it consists of. I suppose you understand the necessity of actually explaining the concept in more details before going any further. So, let me now give you a clear idea on what this entire process actually is.
This useful source can get you properly acquainted with the term: https://en.wikipedia.org/wiki/Financial_planning_(business)
Now, we all know that preparation is the key towards success when it comes to running a business. There is absolutely no chance for you to succeed if you just start doing random things without planning anything out and without getting adequately prepared for what’s coming. And, there are certainly a lot of things coming your way when you start running a business, meaning that there are a lot of things that you need to get prepared for.
The financial aspect of doing business is certainly quite significant, and it is one of those things that preparation will help you with. If you do things randomly with your finances, you are bound to wind up without any money rather soon, which is definitely not a good thing for any business. Having a solid financial plan, on the other hand, will mean that you are properly prepared for everything and that you’ll be ready to weather any cash flow shortages, anticipate growth, as well as pitch investors and do a lot more important things.
In short, financial planning is the process of checking whether your idea is sustainable in the long run, as well as the process of keeping your business financially healthy once it starts growing. Every single business plan needs to contain a proper financial plan that will consist of three significant financial statements, i.e. the cash flow statement, the income statement and the balance sheet. Those statements will help you understand your company’s profitability, uncover how you’re actually managing costs and whether you need to make some changes and similar things.
In addition to that, these statements will also help you keep track of all the cash movements in your company, leading to you understanding the actual interactions between your actual cash flow and the operational transactions. That’s highly important when you’re looking to keep your company afloat and grow it. Of course, it’s also worth mentioning that the proper balance sheet will give you all the current information on your company in terms of how much cash there is, how much you owe, how much you are owed and similar significant things.
Read More: 5 Ways to Manage Your Startup’s Finances
Why You Need To Do It?
I am quite certain that you now have a much better understanding as to what financial planning really is, but there is a huge chance that you are slightly confused as to why it is so important for your particular business. You might think that you don’t really need to go through a process like this and that you don’t have to worry about all of those things constantly. In fact, you might even assume that things will simply come in place without you needing to be concerned about anything at all, but that’s simply not how things work here.
When you get a better understanding of business financial planning in general, which is further explained on this page, you will also realize just how important it can be for your business. For starters, it will help you set clear company goals, both long-term and short-term ones. Once you set those goals, you’ll get a better idea as to how you need to handle your finances in order to achieve them. And, of course, financial planning can also influence the goal-making process, since your current financial situation will give you a nudge into the right direction and help you set realistic and attainable goals for your company.
Every single company needs to worry about budget allocation on a regular basis. You need to know precisely how much you have to spend on, say, equipment, marketing, salaries, certain improvements, and basically anything else. Of course, if you decide to spend the money randomly when an idea pops into mind, you might easily find yourself struggling to cover certain expenses later on and basically turning your business into an unsuccessful one. Well, since that’s not what you want to happen, I’d advise you to do proper financial planning with the aim of understanding how to actually allocate your budget the smart way.
From time to time, all companies will need to work on cutting certain costs in order to be more successful. This is just the way things work in the business world and there is nothing unusual about it. The trick is, however, in knowing precisely which costs to cut and how to do it safely and without causing any kinds of problems to your company. Once again, proper financial planning will lead you towards getting a rather clear understanding as to which costs you can and should cut, which is definitely extremely important for your firm.
Whether you like it or not, and I’m sure you don’t, your company is bound to experience certain crises once in a while. Things on the market have a tendency of changing and you certainly understand that some of those changes can have quite a negative effect on the way you are doing business and on your overall financial situation. If you’ve been paying attention to what I’ve been saying, then you’ll remember this. Preparation is the key to success. That basically means that you’ll have to get properly prepared for any types of crises that might come your way, and having a great financial plan in place will certainly help you do that.
There is one more thing that I absolutely need to mention here. It might be perfectly logical to everyone already, but it is undeniably worth mentioning. In the simplest words possible, your company cannot grow without proper financial planning, which is practically the main reason why you should do this and why you should never take the process for granted and decide to skip it. Simply put, if you want your company to grow, you’ll have to keep your finances in order and you’ll achieve that through proper planning and management.
How To Do It?
You have by now probably understood just how important the concept of financial planning is for all the businesses out there, meaning that you are now not only ready, but also quite eager, to learn how you can actually do the planning the right way. Well, there are a few crucial steps that you’ll have to take in this process, but let me just remind you that you can and should revise your plan on a regular basis, because things certainly won’t be set in stone once you write them down the first time. Your goals may change and a lot of other things may change in your company, which will require you to adjust the plan accordingly.
Anyway, you should start the process of creating this plan by thinking carefully about the actual goals that you have and by setting realistic ones for your firm. When setting those goals, it is important for you to look at your current financial operations and your overall financial situation, as that will help you set realistic expectations for your company. After you are clear on all the goals, you should start proper planning and calculating with the aim of understanding how you should allocate your finances in order to actually meet those goals. Start executing your plan and, as mentioned, update it on a regular basis if you find that necessary.