Regardless of you’re a small business entrepreneur or owner of a corporate business, the procedure of structuring an accurate financial plan just not ensures its sustainability but vouches steady development, diversification, loyalty of investors, stakeholders and shareholders. Even in a typical small business with merely few heads or whereas the proprietor is the only investor, generation of financial plan is essential.
What is a financial plan? It is nothing but budgeting or budget preparation which is even prepared in individual life or family life. Now, you can well understand its practicality and essentiality because this works as the guide to day to day decision making and functioning of a business. As per version of Tom Colton that analyzing the predicated financial plan or business activities with actual results ensures whether a business is moving in the right way or in line with its objectives. This information is extremely vital to gain overall financial health and profitability of a business.
Cash Management
When it comes to the revenue part, majority of businesses experience variations in revenue income from month to seasonal basis. Importantly, revenue of a business depends largely on sales volume and seasonal pick up is a natural happening in many businesses. By keeping those records, a company can determine when cash flow is higher as well, period when shortage of cash occurs. By developing a financial plan, thus, a business owner can make the best uses of higher fund cycles and also, initiate necessary measures to cash control and restrictions on expenditures during revenue crisis periods.
No wonder, ineffective cash management can lead to varied depressing consequences like not being in a position to pay bank loan installments or pay salary to workers. In general, small businesses have many constrains and among them one is funding. Thereby, with the help of a financial plan, a business owner can have a better breathing space to carry on his business and gain worker’s loyalty. In the similar way, during the time of better cash flow it can consider making inventory with enhanced procurement that helps get special discounted price too.
Long term view
In business activity, Tom Colton believes it is essential to start getting a long term view helps a small business owner to focus on the issues and factors which require to be addressed on daily or weekly basis. With its forward looking nature and focusing prowess, a financial plan enables a business house to undertake various vital decisions in connection with investment, expenses, labor outsourcing and more. Thus, a financial plan is nothing but business blueprint that helps enjoy continual growth.
Spotting Potential areas
A business entrepreneur may take a number of decisions over a period of time while it would be difficult to assess which decisions have resulted fruitful or strategies taken that didn’t work. Since preparation of financial plan includes experimental targets and supported by all input database, it makes possible to find the potential area or business strategies that are found result oriented. In addition, with a planning process, a businessperson can identify the most vital area where expenditure needs to be increased and which are the unproductive or less productive areas.
