Devising a financial plan can be the trickiest part of your business. It is also one of the most crucial, especially if you are a small business and look forward to expanding soon in the future. A financial plan is unlike your financial statements as it doesn’t consider what has already happened; it is more focused on what lies ahead. It is the view of where your business stands today and forecast where it is projected to go in the coming months.
As a result, you can better manage your business and set realistic expectations for its success. Your well-laid plan is even attractive to investors and makes your enterprise less of a risk; simply because it indicates that you know your financials inside out and have a thorough track record in place to contribute to your organizations’ and partners’ growth. Plus, you get robust financial security for now and years to come.
Here are some expert-approved tips to put together a great financial plan for your business in the next year –
- Do a Sales Forecast
Sales forecasting is the process of estimating future sales. It enables firms and enterprises to make well-informed decisions and also predict their performance, both in short-term and long-term.
All businesses create a sales forecast for three years to attract investors and lenders. It is done by making a spreadsheet and designating separate columns for sales in each month. You can do it on a monthly basis for the first year, and then later set up the columns for a quarterly forecast.
- Track your Money
You cannot make your sales happen without incurring some costs. You have to take into account your fixed and variable costs to see how much money is required to produce to sell and where all the money has to come from (income).
Doing this, you can have a monthly money guidebook and a way to figure out your expenditure status in the current time and take profitable directions in the future. You can use a spreadsheet or accounting software for the purpose.
- Create a Cash Flow Statement
This report is at times overlooked by businesses but is in fact, a great way to get a snapshot on your financial statements. It helps you assess any major changes in the balance sheet and project flow of cash coming in and going out for the next twelve months.
However, these projections can be apt only if you know how you will be invoicing. You cannot think to manage with the collection of seventy percent of your invoices in the first month when you are counting on a hundred percent to pay your expenses.
- Devise a Contingency Plan
Businesses are as uncertain and abrupt as life. And, what would you do if your finances suddenly deteriorate or collapse as a result of an unexpected situation such as fire, flood, data breach, major network failure and more?
Well, in that case, a contingency plan in place would help you with emergency sources of money and sustain the business operations. So, make sure you maintain sufficient cash reserves.