What is Financial Planning?
Financial planning for a business is simply that – planning the finances of the business. It is where the financial statements of the business will reflect its financial condition and thus help it to identify its strengths and weaknesses.
Financial planning will enable the owner of the business to use projections and other financial performance criteria to plan for the capital, assets and personnel requirements of the business in order to maximise its return.
Financial planning is central to the business plan. It is the basis on which business decisions are made in order to secure the financial future of the operation.
Basics of Financial Planning
Financial planning is the foundation of every successful business. The planning should be carried out once a year and revised monthly. This planning will include comparing financial projections with actual results.
Financial planning has 2 main objectives.
- It helps the business owner make business decisions about the financial resources, financial needs and the financial direction that the business needs to follow in order to be successful.
- Where the business requires funding, it helps you put together the necessary information to secure funding that is needed to set up your business, run it and help it grow.
Sound financial planning will be able to confirm to potential investors and lending institutions that you are looking to succeed and that you are serious with a sound business plan to meet your goals.
A financial plan will allow potential investors or lenders to quickly evaluate the following:
- The short and long term prospects of your business.
- Your company’s strengths and weaknesses.
- Your company’s success potential.
- Any future opportunities and challenges.
- The amount of funding that you will need to run successfully.
Financial Planning Equals Business Strength
Your business is only as good as your financial plan.
Your plan should include the following:
- Cost required to start up the business.
- Finance required to run the business.
- Cash flow projections.
- Projected revenue statements.
- Projected balance sheet.
- Revenue statements and balance sheets for the previous three years.
- Break even analysis.
- A full income, cost and profit analysis. (if your business is already in operation).
Your current financial statements will reflect the results of your business over the previous few years. Financial planning involves projections which look into the future and attempt to arrive at realistic projections of the potential future performance of your business.
You may find that the services of your accountant or business adviser will be necessary to help you prepare a good financial plan.