Why do I need a financial plan?
Success always starts on paper, no matter what industry your business is in. Careful planning is always necessary at any stage and will help inform your decisions and the course you want your business to take. Crucially, growth doesn’t just happen overnight – it needs to be planned and as part of this process you will need to involve your accountant who can assess the impact of any given business decision on the financial health of your business, but in many cases small growth business have not yet reached the size where they have a full time Finance Director : but this should not prevent you from getting a financial check on your plans. If you don’t have a financial director in house then check out our recent blog about how a virtual-FD can add value to your business.
People can underestimate the importance of a solid strategic and financial plan. Throughout the years, we have worked with clients to helped them construct a financial strategy that work alongside the overall business strategy. That’s why we want to share the main reasons why a financial plan is so important, and why a good strategy is invaluable in achieving sustainable business growth.
Why should I put numbers to what I’m doing with my business?
If you don’t apply numbers to your decisions, then you are probably just following a gut instinct. Every successful business owner will tell you that’s no way to grow – you’ll always need to make sure that your financial situation is suited to the decisions you make. However, many business owners simply don’t have the time and expertise to assess decisions from this perspective. This is where your accountant comes into play. They will help you make sure that your decisions don’t come back to haunt you, and that your business doesn’t take unnecessary risks. Let’s face it: if you don’t have the right credit score for a business loan or aren’t making enough profit to justify certain investments, then you’ll need someone to tell you that.
Here are just a few of the key benefits of having a financial plan:
- Understanding what drives your business and what revenue figures you need to achieve.
- Strategies for managing your working capital and setting budgets
- Tax planning and projections
- Financial forecasting and setting realistic targets
- Identifying potential risks to your business and industry trends.
- Monitoring performance and setting Key Performance Indicators.
- Real time assessment of your financial situation – i.e. what if I don’t meet my expected monthly sales? How do I cut expenses and move forward without getting into financial trouble?
- Maximising profits and understanding what aspects of your business are most profitable.
- Assessing whether your business is ready for certain investments, loans, or whether you have the resources available to take on additional staff.
- Using your resources in the most profitable way possible.
- The ability to identify and resolve cashflow issues as soon as possible.
Constructing a Strategic Financial Plan
The first key step in creating a financial plan is finding the right person to do so. Usually this is a task for a Finance Director, who will possess all the necessary skills to construct a detailed financial plan. Don’t worry if you’re struggling to find the funds to hire a costly in-house finance director, as you can always choose to hire a virtual-FD. That way, you only pay for the specialist services and advice when you need them, which means you’ll still have access to the right tools and financial resources.
This plan should recognise the unique challenges your business will face, painting an accurate picture of what success looks like and how it can be achieved. This involves a short-term and a long-term vision, which could change depending on how your business shapes up in comparison to sales predictions. Lastly, you want to be able to assess the impact that your business decisions will have on the financial health of your company. A good plan helps with this, as it gives you the blueprint you need to take confident decisions without fearing the financial consequences.
The financial plan is just the beginning
Once the plan is in place, it needs to be executed. There’s no point in coming up with a great financial plan if you’re not going to stick to it. Every single decision needs to be carefully considered so that the ramifications, whether positive or negative, can be fully assessed. This is why we always communicate extensively with our clients, making sure that they feel comfortable picking up the phone and asking us questions.
Financial expertise and support throughout the year
Defacto-FD provides a service that gives you access to specialist advice whenever you need it. We often get calls from clients who want to know whether their plans and decisions are feasible, and whether they have got the numbers to back up those decisions. Get in touch with us if you need a financial plan or whether you want specialist financial advice tailor-made to your business.