What is Financial Planning?

August 18, 2021

Are you a business owner?

You’ll know everything about your chosen industry.

Perhaps you studied at college or university, or you trained by learning from others before you set up on your own.

Have you considered what learning needs to be done to own your own business?

Running a business can be challenging, but it’s also one of the most rewarding experiences you’ll ever do. But it can be extremely stressful if you don’t understand all the legalities and procedures.

Financial planning for business isn’t easy but it’s of paramount importance.  There’ll always be an element of financial risk with any business but with good financial planning your business WILL grow. A good financial plan keeps you focused and on track as the company grows, when new challenges arise, and when unexpected crises hit. It helps you communicate clearly with staff and investors, and build a modern, transparent business. 

A good financial plan will look at your business goals and define the level of investment you’re willing to make to achieve each of these. It will help you win over investors and/or obtain a bank loan. How many times have you seen people fail on Dragons Den because the financial component of the business plan has not been thoroughly documented? In short, a financial forecast help you successfully steer your business in the direction you want it to go, and we can help you along the way.

To start with you need to set goals. What is the company supposed to achieve in the next quarter, year, three years, and so on? If you’re just starting up, your goal setting will be devoted to building a product and establishing that product/market fit, you won’t set lofty sales targets or huge marketing goals.

Your financial plan should also set clear expectations for cash flow – the amount coming in and out of the company. In the beginning, you’ll of course spend more than you make. But what is an acceptable level of expense, and how will you stay on track? As part of this plan, you also need to figure out how you’ll measure cash flow easily and efficiently keep track of where your money’s going. By making your plan now, you can anticipate challenges both in receiving money and spending it and identify ways to do both more effectively.  That’s our task with you.  Our monthly reporting will highlight all of these areas and our regular check-in’s will highlight which areas you need to concentrate on. Once you’ve a clear understanding of the amount of funding you have to spend – whether through sales income or investments – you need to figure out how you’ll actually spend it!

From the above, you’ll now have your overall budget which can be broken down into specific team/area budgets. Each team in your company should know what resources are available to them and can plan out campaigns and personal or product development accordingly. Once you break each budget down, it’s relatively straightforward to keep an eye on who’s spending what. 

Aside from setting out how much you can afford to spend (and on what), a financial plan also lets you spot savings. As you set out your budget(s) for next year, you’ll refer back to past spending and identify unnecessary or over-inflated costs along the way.  Regular meetings with us will have ironed these out and you’ll be fully aware of those bumps in the road so that you can just adjust next year’s budget. It’s all part of spend control, the practice of keeping company spending in line with your expectations. Our regular reviews almost always unearth areas where you can save money and put your resources to better use. 

Your financial plan should make room for certain business insurance expenses, losses through risky inefficiencies, and perhaps set aside resources for unexpected expenses. Particularly during turbulent times.  The Covid-19 pandemic certainly highlighted the need for this. You might create several financial forecasts which show different outcomes for the business: one where revenue is easy to come by, and one or two others where times are tougher. Again, the point is to have contingency plans in place, and to attempt to determine how your roadmap changes. As the pandemic unfolds, what we’ve heard from finance leaders is the need to reforecast constantly. Nobody knows when the crisis will truly end, or how it will have impacted their business. So, those companies are creating new financial plans on a monthly or quarterly basis, at least and those with robust and well thought out financial plans will find this process easier. Between us we’ve already identified obvious risks and the key levers to respond to. 

If you need help say with a loan or grant the first thing any prospective investor or bank will ask you for is your business plan. They want to see how you intend to grow the business, what risks and uncertainties are involved, and how you’ll put their money to good use. A financial plan that speaks to investors is critical, and the better your history of planning is, the more likely they’ll trust your projections. Staff like to know how successful the company is so they need to see the expected growth to reassure them.  We will help you pull your proposal together and we’ll even come to the meetings with you, to ask the questions that you might forget to!

Finally, your financial plan helps you analyse your current situation, and project where you want the business to be in the future. You need to set out how large you expect the company to be, your expenses with a larger company, and the amount of revenue coming in to compensate. This will need to be evaluated regularly.

A three-year financial plan is most common. But whatever the period in question is, your plan should include: 

Sales projections: Project your expected sales growth for the near future, as well as the cost of sales. You can break these down in different pricing groups, products, and other important factors.

Expenses & budgets: Most important here are costs – separated into fixed and variable expenses. (Lower fixed costs usually mean lower risk for the business).

Profit & loss statement: Alternatively, you can create a cash flow statement, which achieves a similar outcome. You essentially want to project money in and money out over the next three years.

Assets & liabilities: These will usually be separated from your P&L statement and will certainly include start-up costs and assets for new businesses. 

You need to create a business plan otherwise you will continue to do the same for the next 20 years getting the same outcome and no growth!

It’s not easy, is it?

And that’s what Aspire Accounts can offer you.  A Virtual FD if you like. A sounding board and a way forward for you to concentrate on working on your business and not in.

Get in touch – there’s always coffee in the pot!