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Why Does A Business Need Financial Planning? How To Create An Effective Plan That Yields Results

Financial Planning for Business Need

“A goal is a dream with a plan and a deadline” – Harvey Mackay

Financial planning is an essential factor in any business that cannot be skipped or traded for anything. If you are a startup brand or even a well-established company a financial plan is necessary. It is the foundation of a company for growing a business that will make them achieve their financial goal for the year.

Here, we have mentioned everything that you need to know about financial planning in business. Starting from what it is, its importance, key factors and even the common misconceptions. Read the whole article to get a clear picture.

What is Financial Planning?

For any business or brand to succeed, a perfectly chalked-out plan is very necessary.

A financial plan in simple words is a plan made by a business where they document all the information regarding the company’s financial situation, their future financial goals and information regarding the process through which they can achieve their goal.

Because through this process you can determine your goals, the budget for the project and what it takes for you to achieve the goal. It includes all the important information including the resources, manpower, equipment, materials needed, duration and everything that is needed in your business to meet your goals.

If asked why it is necessarily needed. It’s because it will give you a clear picture and make your work a lot easier. The financial plan helps you to manage everything and make you aware of the cash and always will help you be prepared for the toughest of situations like cash shortage.

Learn more about – Cash Management For Small Businesses: 7 Effective Tactics Which You Can Execute Right Now

So at that time, you don’t have to stress out as your plan will help you out to come up with a quick solution. You can compare the financial plan you have made to the actual expense and turnover and look at the areas where you can improve or the expenses you can cut down.

In short, it helps in –

  • Assessment of current financial situation.
  • Forecasts future financial results
  • Requirements and usage of financial resources.
  • Data based decision making
  • Creative yet analytical

Having a goal and making plans to achieve it always works wonders. A business without a financial plan is a caste in stone. Now let’s look at the elements that must be included in it.

Elements of a Financial Plan

While starting a business one must have a holistic plan to prevent any complications. So the key components of a financial plan include.

  1. Company goals and objectives
  2. Budget target setting
  3. Key performance indicators and milestones
  4. Cash flow estimation
  5. MIS navigate future
  6. Assessment of risks and managements ways
  7. A proper investment plan

With all the key elements in hand, you can determine your financial plan and goals. And you can easily strategize your work to meet these goals. This financial plan will tell you whether you are going in the right direction and whether your actions will yield you the desired result.

Now let’s look at the key factors that play a major role before and after determining the financial plan.

Key Factors in Financial Planning

The two main key factors in financial planning will always be your mindset and the measures and actions you take to reach your desired profit. So how can you possibly do that?

Learn more about – Financial Planning Checklist (Business) – A Complete Guide To Key Factors & Elements Of A Financial Plan in Business

Mindset

  • Prepare a financial plan by yourself keeping all the elements in mind.
  • Own the financial plan and work towards it.
  • Use the financial plan to drive the business and to operate more sales.

Action

  • A proper plan should be created. A write-up or printed copy works great.
  • Make plans for 2 years preferably.
  • Know all assumptions behind the plan and collect backup data.
  • Track the progress and revise financial plans regularly.
  • Follow a standard format of the plan to achieve the desired results.

Key Performance Indicators

Key performance indicators tell whether your company is going in the right direction or is struggling financially. These performance indicators will help you set a number that indicates success and numbers that act as red flags to warn you from spending more and to let you know that your business is not doing well financially. Some key performance indicators in financial planning include Revenue expenses, Net income, Cash flow, Working capital and Profit margin ratio.

Misconceptions are common in every field and business. We have mentioned a few common misconceptions that are stopping businesses from making a financial plan. Which they don’t know will increase their business profit.

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Common Misconceptions About Financial Planning

When it comes to financial planning in business there are certain common misconceptions about it. They are,

  • Financial planning is relevant only for large organizations: Be it small or large or a company led by a single person a financial plan is a must-have.
  • It is a one-time exercise: It is not, a financial plan should be reviewed and made changes to every month.
  • Financial plans are just made-up plans: They are never made-up plans. A financial plan is an actionable plan that tells you what your next move is.
  • A financial plan is just required for funding: A financial plan is not clearly meant for funding. It is created to lead your team and to guide them on what they should do next and let them know what your goals are.
  • It is a book of accounts related to past data: It is not about the past but the future. It includes how you can make use of your present for the future of the company.

Learn more about – Key Factors Of Financial Planning In Business – Financial KPI Examples, Common Misconceptions & Importance Of Financial Plan

Now let’s look at the importance of financial planning and how it helps your business.

Importance of Financial Planning

  1. It helps you to know the feasibility of business
  2. To get to know the fund requirement
  3. To track the progress of your business
  4. For better resource management
  5. To attain a business valuation
  6. For the management
  7. For better planning and categorizing your expenditure

These are a few among the numerous advantages and benefits you will get if you have a financial plan.

If you are still wondering how to start and want to learn more about financial planning in a business and need some expert advice to create a plan that yields results. Then,

Meet the Experts for More Support

MSMEx is an MSME education and advisory platform where you can connect with experienced and professional financial advisors, management consultants, taxation experts, and fundraising experts. You can reach out for expert advisory & consultation at www.msmex.in/contact or write us at hello@msmex.in

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We are a team of serial entrepreneurs, corporate professionals and business experts, at MSMEx.in