Having a small business is challenging, and COVID had made it even more difficult for local companies to stay afloat. It has increasingly become important for small businesses to have financial plans in place to be able to survive long-term. You likely already have to deal with weekly payrolls, budgets, taxes, and other financial matters with your business, but having a financial plan is necessary to ensure you’re your business is around for decades and generations. Financial planning can allow you to think ahead, expand your company, bring others into your business and build wealth over your lifetime.
Thinking Ahead
Financial planning will allow you to have a vision for your business in the upcoming years. How far ahead you plan depends on what stage your business is in at the time. The more profitable you are, the more you can afford to think 5 or 10 years down the line. When you are starting out, you will likely want to focus on the first few months or years. Your financial planning should involve different types of documents, such as balance sheets and income statements to help you keep better track of how your business’s money situation looks. These documents will help you to get a sense of your profits, debts, operating expenses, and assets. Knowing what you have coming in and what you are spending can allow you to make decisions for the near and distant future. It will also ensure you can make contingency plans, should an emergency arise.
Another important thing to keep track of when doing your financial planning is your cash flow. Your cash flow can be one of the most important aspects of financial planning simply because you need to know how much money you have coming in and going out on a regular basis. This will help you to make decisions about what you can afford and what you need to cut back on. It is also essential for budgeting purposes. Financial planning should also involve creating a budget. This will help you to track your spending and ensure that you are not overspending in any one area.
Expansion
With a financial plan, you can set long-term goals for where you would like your business to go as it has time to grow. When your company is bigger, you may want to add to your building or expand into a new space since you’ll likely have the people to justify it. You could even have plans to create a chain or open up another location. Having a financial plan on hand will give you a sense of whether this will be possible in the near future because you can make predictions based on the money you have in reserve and the money you are spending for your business.
There are of course different elements involved in an expansion, including having to hire more employees, purchase new supplies and equipment and do construction on a new addition to your existing building or building a new one. When you have a financial plan, you have what you need to help you easily make educated predictions for different expenses and ideas.
Partnerships
If you want to bring others into your business, a financial plan is important. Anyone who invests in your company is going to want to know the amount you will need to start or expand your business. It helps to have a sense of your company’s net worth, taxes, debts, and other important financial information. If you would like to include your employees in your company, a financial plan can help you to determine how you will do this. They may want to invest in your company or have a certain amount of their salaries go into your business. Any partnerships, of course, will be long-term relationships, so you want to make sure that the people you work with are committed to a similar mission and values and are willing to put money or physical labor into the business in order to help it grow.
Wealth
Building wealth doesn’t happen overnight. It takes time for your business to make a profit, let alone help you to build wealth. It is important to start with cash reserves and to develop a plan for how you want to distribute your business income. You need to determine how much you want to put into your business, salaries, and cash reserves. A common model is the 40-30-30, which means investing 40 percent into your business, 30 percent into salaries, and 30 percent into cash reserves. If you aren’t experienced in managing your money over a long period of time and building wealth, a wealth management group, someone like Libertas Wealth Management Group, may be able to assist you with financial planning. Usually, this type of company will expert who is committed to educating small business owners and helping them to develop sound financial plans.
Building a respected small business that is ingrained in your community and a go-to for their needs will take a lot of time and effort. A financial plan can help you to make short and long-term predictions, but putting in the work, offering a good product or service, and engaging with your customers and clients are also essential to growing your company. If you start with a financial plan, you will likely be able to think long term, expand on your company, bring in partners and build wealth over time.
