Do you have a business plan and financial forecast?
A business plan and financial forecast are vital for any business in any industry. You should be writing one each financial year. But if you've never set one up before, then it can be daunting. You might not know where to start or what all the fuss is about.
Operating a business without a plan is like flying a plane blind. It will show you what you need to do, by when by who and importantly provide a measure of future success.
Don't worry, we're here to help! Read on for these eight reasons you need to set up a business plan and financial forecast today.
1. Allocation of business funds
Businesses have limited or scarce funds to allocate across its operations, marketing activities and investments.
Following a professional approach to setting your forecasts and budgets will ensure funds are allocated according to your financial position, with a view to investing in activities that will provide your business with the greatest returns.
You can also single out any that will be an improvement in efficiency and productivity. Or increase your market penetration. Even the biggest, most well-funded corporations have a prioritizing process for their spending.
Keep Up with Trends
A common mistake is continuing to operate your business based on the information that was known upon inception. A business plan will ensure you keep up to date with ever-changing trends and importantly make sure you are not the last to move in line with these trends.
Gives You Confidence in Your Decisions
As your business continues to grow, you'll encounter problems along the way. These will be things like:
- whether you can afford the needed infrastructure upgrade
- if you need to move offices
- if you should expand into new locations/markets
- when you need to hire more employees
These are significant spending decisions. However, with a proper plans and scenario analysis you can make business decisions with a higher degree of confidence.
Helps You Track Performance Against Set Goals
To survive in business, you need to know exactly how well you are doing. And that requires having a plan to compare against. If you don't have a plan, your month on month numbers are almost meaningless.
Tracking your results against your budget will reveal any issues that need correcting. It won't always be bad. If a few major deals close early, your cash flow could change for the better.
This information lets you adjust your financial plan as your situation changes. These changes will help improve your end of year forecast.
Improved Management Reporting and Decision Making
Accurate management decisions rely on your plans and knowledge of your current financial position and performance.
You can make more informed choices now, and further down the line. It removes a lot of guesswork.
When you work with accurate forecasts, past data can help you predict future trends. It also keeps you looking ahead and driving forward. You're more likely to spot market changes and competition. It's your warning alarm.
Spot Critical Cash Flow Problems Early
On the flip side of spending decisions comes watching your cash flow. A cash flow statement is one of the three vital documents you put together in your business plan. The others being your financial position and performance (Balance Sheet and Profit Loss Statements).
Regular checks to your cash flow statement as part of your reviews will help keep you on top of money matters. In theory, you're in a better position to spot cash flow early enough to limit the damage. Or cut it off completely. It could be the difference between keeping the lights on or shutting up shop for good.
You'll Need One to Secure Investments or Loans
If you're looking to an investor, venture capitalist, or bank for funding, you need a business plan. They'll want to know that you've got a firm grip on your trajectory and know where you're going.
This doesn't need to be a 200-page manuscript, but it needs to be comprehensive. It has to prove you have a market for the problem you're solving and that it's a profitable one. So you'll need to include your forecasts and financials.
This plan needs to be clear and easy to understand. It's a huge plus if you can present your data with visual aids like graphs and charts. Potential investors shouldn't struggle to understand your model or financials.
It's an Asset if You Ever Sell Up
Life is full of changes and uncertainties. Further down the line, you may decide you want to sell up. Or you might be in a position for acquisition. A solid business plan will help make a case for the highest value estimate of your business' worth.
It comes down to the simplicity of your business information. Your business is likely worth more to someone if they can understand it with ease. They'll want to understand:
- business model
- what you offer
- target market
- potential growth & scalability
Make it easy for them to get their questions answered. You do this by providing a thorough, in-depth business plan and financial forecast.
Don't Neglect Your Business Plan
So, there you have it! Now you know why having a business plan and financial forecast is so important to your success. Your financial forecast is essential to setting targets and assessing the health of your business. It gives you the information you need to make changes throughout the year to deal with changing circumstances.
If you feel your business could benefit from hiring a business consultant, contact us today at TR consulting. We break down your business model to your core assumptions to produce the best possible financial model for your business.