The process of developing a financial plan is very critical in any business; more so in a small nascent business that is still growing. Financial planning for small business is important in that it does help in guiding the decision making process of a business on a daily basis. It is only by comparing numbers that were forecast with the actual numbers that an organization will fully appreciate the present financial health. Some of the key reasons why financial planning for small business is important includes the following, namely;
Financial Planning For Small Businesses
1. Cash Flow Management
A small business will most likely have some variations in revenue generation. This is usually due to a variety of reasons, maybe seasonality of product or service or just a shift in customer needs and requirements. Through financial planning a small business owner will take into consideration such fluctuations and will be able to control expenditure during both seasons; when there is a surplus the business will not overspend but rather save as it awaits the low season and when there is less cash the business owner will strive to ensure he meets the basic needs of the company like paying suppliers and employees. All these can only be achieved by putting in place a proper financial plan for guidance and comparative purposes.
2. Get a long term view
Running a small business is usually very time consuming and tedious; this is due to the fact that there is a lot of multitasking in a small business. This trend if left unchecked can lead to a situation where the organization is always on a fire fighting and survival mode. An organization may thus lose focus and concentrate on pressing issues; getting their eyes off the ball. A financial plan is always focused on the future, this will assist a small business to know what they need to do, where they need to spend, what they need to ignore and check on what their competitors are doing.
3. Check on current trends
A business owner in a small business makes numerous decisions on a day to day basis; most of these decisions are made on an ad hoc basis and require to be checked against planned strategies. Financial planning for small business will ensure that the organization is acutely aware about the market trends. By checking the actual performance against projected targets a small business will be able to notice what the current trends are. They can thus make more informed decisions on where to put more effort or where to milk out the profits.
4. Check on Progress
Just like in any other enterprise a small business needs, from time to time, to check on its progress report in terms of targets, market share, total revenues, and total costs etc. Financial planning for small business will ensure that the business owner can get hard facts in terms of figures on the well being or otherwise of the business. This affords the small business owner an opportunity to pragmatically make decisions that are based on hard facts and figures on whether the path the company has taken will steer the company to greater heights or whether it is time to go to the trenches and re-strategize.