When it comes to financial planning, businesses often fly blind into the future. While it's common for owners to stumble along with little financial planning, an unplanned path could eventually lead your business to financial doom.
If you're unhappy with the profits or cash flow of your business, it's time to draw up a plan. This requires more than vague, ad-hoc goals. Financial planning means constant vigilance, tracking, and implementation of changes. Although it may seem like a lot of work, developing a financial plan can change the financial future of your business. Planning not only helps with everyday costs, but it also helps measure progress and makes it easier to identify possible course corrections.
Supercharge your financial plan by setting goals and then incentivizing your employees to meet and then beat their targets. Write down your goals and be clear about them so everyone understands their role. If an employee is responsible for a key performance indicator, give them insight into their progress, because feedback is necessary for success. Remember to fend off any temptation to make vague financial targets. Goals should be specific and measurable.
Track Your Progress
Although you can't control everything that impacts your business, you definitely can't control what you don't track. Take control of your finances by determining what the most important metrics are, and then track these key performance indicators each month. One metric to focus on carefully is cash flow. It's imperative that you establish a cash flow plan to forecast cash flows, both in and out of your business. The goal here is to either generate cash or to control your burn rate to achieve a particular purpose.
As you track your key performance indicators look for places to increase efficiency and cut costs by shopping around for the lowest prices. If an expense doesn't have a return on investment, cut it out of your plan altogether.
Review & Adjust
Examine the previous twelve months of your financial data to learn valuable lessons from the past. Is revenue growing? Are the costs of revenue increasing as a percentage of revenue? Are your overhead expenses growing at a faster or slower rate than revenue? Take the time to understand your financial data, this is the key to financial planning. While financial experts have different opinions about what to include in a financial plan, here are some tools that you can utilize:
- Sales Forecast
- Profit & Loss Statement
- Break Even Analysis
- Balance Sheet
- Cash Flow Statement
If you're not comfortable with financial statements, either get comfortable or seek external help. Sound financial planning is key to securing the financial future of your business. Make it a priority!