Financial planning is essential for businesses seeking long-term growth and sustainability. Whether you're a startup or an established company, creating a solid financial plan ensures stability and provides a roadmap for the future. The start of a new year is a great incentive to make sure your financial plans are on track to meet your current and future growth plans for the business.
Boost Scale to Thrive business adviser Joe Twigg provides a practical guide to help you develop an effective financial plan for your business.
Many business owners are focused on daily operations including generating sales, managing staff and keeping customers satisfied. While these activities are critical, planning for the future is just as important. A well-structured financial plan enables you to:
Building an effective financial plan requires a structured approach. Here are key steps to ensure your plan sets you up for success:
Step 1: Set clear business goals
Start by defining both short-term and long-term objectives. Do you aim to grow revenue by 20 per cent next year, or expand into new markets within five years? Having clear goals gives your financial plan direction and purpose.
Step 2: Analyse your current financial situation
Understanding where you stand is crucial. Review your income statements, balance sheets, and cash flow statements. This analysis helps you identify areas for improvement and reveals patterns in your financial history.
Step 3: Create financial projections
Develop realistic projections for your revenues, expenses, and cash flow. Use market research, historical data, and industry trends to create scenarios that account for best-case, worst-case, and most likely outcomes. Financial projections form the basis for many business decisions, so accuracy is key.
Step 4: Develop a budget
Your budget acts as a guide for managing financial resources. Be conservative in your revenue estimates and thorough in projecting costs. This will help prevent overspending and keep your finances under control.
Step 5: Prepare for contingencies
Unexpected challenges can threaten even the most profitable businesses. Developing multiple scenarios – optimistic, realistic, and pessimistic – ensures you’re prepared for any situation. An emergency fund and backup plans can provide a financial cushion during tough times.
Step 6: Monitor cash flow
Maintaining a healthy cash flow is essential for business sustainability. Regularly review your accounts receivable and payable and consider building a cash reserve to cover unforeseen expenses.
Step 7: Explore funding options
If you need external financing, consider loans, lines of credit, or equity investment. Make sure you have a clear repayment plan in place to maintain your financial health.
Financial planning can be complicated, and there are several common mistakes to watch out for:
Implementing a strategic financial plan offers numerous benefits:
Financial planning is not just about setting targets; it’s about building a roadmap for the future. By setting clear goals, monitoring cash flow, preparing for contingencies, and regularly updating your plan, you ensure that your business is well-equipped to handle challenges and seize growth opportunities. With a robust financial plan in place, you can drive your business toward long-term success.
About the author
With over 12 years' experience of running a diverse business, Joe Twigg has developed a knowledge base across operations and sales, mergers, acquisitions and integrations, transformation and change projects and continuous improvement.
As a Boost business adviser, Joe advises businesses on Boost's Scale to Thrive programme. He helps businesses recognise and remove obstacles that may stifle future growth and enjoys guiding businesses to help maximise their potential through unpicking what makes them special and understanding their challenges.
If you’re looking to grow, scale or start your business, use Boost; Lancashire’s Business Growth Hub. We offer a range of funded business support services. Call our Business Support Helpdesk on 0800 488 0057 to find out more or complete our enquiry form.
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