The ultimate guide to financial planning

Financial planning in business is a way to create a roadmap that will guide just about every aspect of your business. Learn more about how this works  

A financial plan for a business is the process of taking a look at the financial state of your businesses figuring out your future goals and then deciding how to get from A to B. Business financial planning is a process, but a business financial plan is a document that acts as your roadmap. 

From keeping you on track and making sure different goals come together coherently to keeping your risk levels low, there are loads of amazing benefits that come from considering financial planning in business. Here are a few: 

Clear company-wide goals

Any project is made better by asking one key question at the start: What are we actually trying to do? Business financial plans will help you answer that question, helping you identify what the company wants to achieve and how to get there. 

Cash-flow management

Business financial planning helps you set much more realistic expectations when it comes to cash flow. You’ll be able to clearly uncover what a sensible level of expense is for the size of your business, reducing the likelihood that you overspend. This is especially useful face of financial planning for small businesses. 

Risk alleviation

You can’t avoid every risk in business, but with a solid financial business plan you can avoid some of the most painful. For example, you plan can help you put aside money for unexpected expenses or losses. One useful technique is to see how your roadmap must change if you only get 20 or 30% of your expected revenue. 

Cost reductions

On top of figuring out how much cash you have available, financial planning for business lets you spot any potential savings. You can identify key areas where there may be over-inflated costs and make informed adjustments accordingly.  

While you’re not legally required to have a business financial plan in place, so it’s not technically needed, it would be incredibly risky to move forward without one. A financial plan is your guide and reminder of what you’re trying to achieve. Imagine driving into the unknown without a map. Sure, you might be able to figure it out, but you’ve just hugely increased your risk of getting lost.

This is especially true if you’re a small business. You need that extra resilience as you can’t afford to lose out on growth.

A good and thought-out financial plan will keep you focused as the company grows. We can get so caught up in the day to day running of our businesses that we can lose track of the long-term goals we need to reach towards. That can leave you crippled when unexpected crises hit. 

So you’ve decided you need a financial plan for your business. Where on earth are you supposed to start? Here is what you need to include in your plan to make it as effective as possible. 

Sales projections

Firstly, you need to have an idea of what profits you expect to see. This will take the form of sales projections. 

The exact nature of your sales forecast will depend on what kind of business you are, but you can typically get it started by creating a spreadsheet lists out prices, units and expected profits. You can use prior sales statements to forecast any upcoming trends. 

Expenses and budgets

Now you’ll want to figure out the expenses your business needs to function.

Some of these will be variable costs that means they may vary on a day-to-day basis. This can include things like advertising, taxes, or even salaries if you use gig workers and other forms of short-term employment. 

Fixed costs will usually stay the same throughout the year. That covers things like rents and service fees. 

Profit and losses

Also referred to a cash flow statement, this is a document that will show all the money that is going to be coming into the business and out of it again. 

If you don’t have previous profit and loss statements to draw on, you can estimate your cash flow based on costs of production and how much profit you expect to see. 

If you don’t have previous profit and loss statements to draw on, you can estimate your cash flow based on costs of production and how much profit you expect to see. 

Assets and liabilities

The assets of a company are all the items that would have a value if sold. The obvious example is a building you own, but it also includes things like computers, inventory or equipment. 

Liabilities is money the company owes to people. That includes long-term debt, owed taxes and owed wages. 

Calculate these two factors and you’ll be able to see if your company is financially stable. 

If you have your own finance team in house, they can take ownership of financial planning for you. However, if you’re considering financial planning for a small business, then you may have to handle this yourself. You can also outsource to a specialist financial planning business, although the costs here will vary depending on what you’re looking for. 

Your financial plan will need to consider several factors so that you can see the most benefit possible. Otherwise, you can end up planning for the sake of it, which leads to inefficiencies.

Business goals

‘Where do you see yourself in five years?’ It’s a common interview question, but it’s a question business need to ask of themselves too. Your financial plan is your key to achieving your goals, so it’s important to set out what those are. 

Number of employees

Financial plans will look very different for a large business compared to a small one. That means considering how many employees you need to account for, and how many employees you might have in the future.

Corporate planning

The goal of corporate financial planning is to take a look at the resources you have available to you (most of which will be financial, but other resources can be considered too) and figure out the most strategic way to use those resources. 

Budgets

The goal of corporate financial planning is to take a look at the resources you have available to you (most of which will be financial, but other resources can be considered too) and figure out the most strategic way to use those resources. 

Financial wellbeing has become a huge concern for employees and employers in recent years, and having a strong financial plan in place can actually help with this. That’s because it boosts transparency, and ensures each employee knows the company has realistic expectations of them and the profits that can be made. 

Finance from MHR contains all the tools you need to centralise your finance process and make it much more efficient. Freed from sluggish legacy systems, your finance team will be able to make faster and more effective data-driven decision, boosting their ability to create financial plans that will drive growth at your business and helps you achieve your goals.