A financial plan is very important for the long term growth of a business. The small and medium enterprises are usually occupied with day-to-day expenses and they rarely get time for planning long term goals. However, for expansion, finances are the most important thing. And so, a financial plan and analysis are imperative as well. Thus, if there is no solid financial plan, the growth of the business can be hampered.
A financial plan is a foundation on which the business starts and grow. Without a financial plan, the business owner would not be able to reckon if his business is profitable or not. In addition, there are several other reasons as well why the business owner must spend some time in planning finances. Let’s take a look at the 5 main points:
Table of Contents
Cash Management
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With proper financial planning, an SME is not likely to fall short of revenues or run out of funds. A financial plan will help in taking all the factors into account in advance. And it will help the business sail out easily during bad periods with ease and not much stress on working capital.
Moreover, the SME owner can create a safety cushion which can be effectively used to take the advantage of opportunities at the right time. For instance, the SME owner can take a chance to buy inventory when it is available at low cost.
Long-term View
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A financial plan contains the long-term goals of a business. As said earlier, the business owner is stuck with the everyday working of the business and gives less time to long-term planning. In this situation, the financial plan helps the business owner. It reminds him where the business is going and also highlight the external financing needs.
A financial plan is the blueprint of the business. The SME owners would know the budget with it and know how much money to spend on the overall growth of the business.
Spotting Trends
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Financial planning will also help in knowing the outgoing trends in sales and marketing. It will help in deciding the money to be spent on advertising, Public Relation, and marketing. Ongoing trends will also help in understanding the products and services that are doing better in the market. This, in turn, will help in using the opportunity to market your products better than them.
A financial plan will also help in addressing the financial downturn. In situations where sales or overhead on the MSME owner is higher, the owner can take necessary steps in advance to address the issue at the right time.
Measuring Progress
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At the beginning stage of the business, the SME owner gives all his attention to setting business. And for this, he works for extra hours in order to keep a track of progress. However, a financial plan will help in measuring the progress in quantifiable data – how far the business has come since its inception.
Also, while planning the finances, make a checklist of short and long-term goals. Then the business owner can tick off against the goals achieved. This will give motivation to him to continue working and achieve more.
Prioritizing Expenditure
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Ready to use cash is of most importance for a business. Therefore, it is extremely useful for the business owner to not to make unnecessary expenses. In a nutshell, he must learn to prioritize expenses. A financial plan will help in just the same.
A plan will help in identifying the expenses which are important. Thus, the MSME owner would be able to prioritize expenses accordingly. And he would also be able to determine the right time to avail a business loan.
Thus, it is absolutely imperative to spend time in creating a financial plan. However, the business owner is also suggested to review the plans at regular intervals and always be sure of having the ready cash to run a business successfully.
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