The importance of financial planning

A well-thought-out financial plan is crucial for the success of a small business. It’s a road map, a guideline, and a reminder of what you want to accomplish in the short and long term. It sets out your potential costs and attempts to explore ways to manage them. Having a strong financial plan also puts your business in good standing for potential investors, creditors, and even customers.

This article outlines the following key aspects of financial planning:
  1. Helps you manage your cash flow
  2. Identifies good and bad business trends
  3. Helps you measure your businesses growth.
Helps you manage your cash flow

The income of most businesses tends to vary from season to season. A good financial plan accounts for these highs and lows so that there are no shortages in the long run. Having a cash cushion ensures that your business can weather a bad season and still come out on top. Tax planning, careful cash flow spending, and budgeting and forecasting can all result from thorough financial planning.

Identifies good and bad business trends

The decisions made by a small business owner can have both positive and negative consequences. A good financial plan can identify positive and negative trends that could have simply gotten lost in a sea of numbers. This will allow you to better allocate funds to areas that are profitable for your business and avoid spending that is ineffective.

Financial planning can also assist you in prioritising your expenditures. Conserving financial resources is essential in small businesses. A well-thought-out financial plan can help you prioritise which areas require immediate funding and which can wait until you have a better season.

Helps you measure your business growth

Overall, the financial plan is there to help you track your progress. How did your season go? What steps have you taken to reach your objectives? When a small business owner is knee-deep in the day-to-day operations of running their business, it is easy to lose sight of the strides they have made to grow their small business. The financial plan allows the small business owner to see exactly what is going on by reviewing and analyzing the hard data.

In short, if a small business owner wants to be successful for years to come, they must have a meticulous business plan that is updated on a regular basis.

Useful resources:
As South Africa's first online provider of business finance, we provide short-term, unsecured business funding of up to R2 million to SMEs who have been in operation for at least one year and are making a monthly turnover of R40 000.
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