The 6-step financial planning process for small businesses

Howdy, hope you have been holding up well since our last encounter. Last time I took you through financial planning and why it is a must for your business. Today I want to share with you a 6-step process guide to assist you come up with a financial plan for your business.

Step 1: Understand your financial circumstances

To start off, you should have a clear understanding of your current financial status. You should know what are your current assets and liabilities, insurance coverage, cash flow, taxes, risk tolerance, mutual funds and net worth. Understanding your financial circumstance will give you a base to build a solid financial plan.

Step 2: Review Your Business Plan

Your business plan greatly informs your financial plan. Your financial plan should be in harmony with your company’s mission, vision, and other components of your business plan.

Step 3: Develop Specific Financial Goals

To shoot or score a goal, you need to first aim. Same applies to your business’s finances. The success of your financial goal is highly dependent on your financial plan. To have an effective financial plan, your financial goals must be SMART – specific, measurable, achievable, relevant and time-bound

Document fixed expenses and anticipate your variable costs based on existing data. Create financial projections for your weekly, monthly, or annual planning process. The projection scope and timeframe you should use depends on your cash flow.

It’s a smart move to go over your financial decisions with a financial advisor or an accountant.

There are many variables to consider, so your plan needs to be flexible. But you should also be careful to remain within your risk tolerance and capabilities.

Step 4: Evaluate Risks and Plan for Contingencies

The best way to bulletproof your business against unplanned life events and potential difficulties is to gauge risks and think of solutions in advance.

As you are budgeting for estate planning, ensure you plan for an emergency fund and insurance.

Some decisions require a low level of financial risk, while others may be worth giving an extra thought.

Step 5: Develop and Implement a Financial Plan

This is the part where you turn all your goals, analysis, and evaluations into a working strategy.

In the development stage, you convert your data into a game plan. Implementation is following through on that plan to get your desired results.

You can lay out an excellent plan with or without a financial professional’s help. But it takes grit, discipline, and zeal to put it into action without procrastinating.

Even if you’ve been working through the previous steps on your own, you may need the help of a financial planning professional to help with your plan.

Step 6: Monitor, Reevaluate, and Update Your Financial Plan

As time goes by, your current course of action, perspectives, and financial circumstances will evolve.

That’s why you should never stop adjusting your financial plan. A good financial plan is highly flexible while it sticks within the limits of your risk tolerance.

There are foreseeable life events you can plan for, such as childbirth, marriage, and moving to a new city. Usually, when such events happen, they make a significant difference in your relationship with money and your business.

Re-evaluation is a crucial and infinitely repeated financial planning step. Continue to monitor and update your financial plan throughout changes in tax laws, interest rates, economic recessions, and other events beyond your control.

Regards,

Seline Awuor

Financial planning for small businesses

Low starting capital and good profit-margins make small businesses relatively easy to start. Unfortunately, the vast majority of small businesses still fail.

Two of the biggest reasons why these businesses fail is

  • Lack of proper financial planning
  • Cash flow problems

Having a solid financial planning process for your business is vital so that you can be able to keep your business a float and grow it over time.

Financial planning and analysis is the process of budgeting, evaluating, predicting, and planning the expected economic outcomes of a business to achieve its financial goals. The financial planning process assists in wealth management and business growth forecasting.

A financial plan is a document that paints a comprehensive picture of your business’s current finances, its financial goals and any strategies you've set to achieve those goals. Good financial planning should include details about your entity’s cash flow, savings, debt, investments, insurance, and any other elements of its financial life

The process of financial planning and analysis should be all-inclusive and tailored to your business’s financial goals, risk tolerance, and existing situations in your planning cycle.

Financial planning for your business will help you:

Define your financial goals

A financial plan empowers you to build a streamlined workflow that guarantees more customers, a high rate of return, and a profitable financial future. Financial planning knowledge helps in the development of strategic performance management systems.

Check the viability of your financial goals

A financial planning process prevents you from setting non-realistic financial and business goals.

Avoid a negative cash flow

Financial planning advice and strategic decisions help ensure proper money management.

You could be making a lot of sales in your business. However, if you do not have a financial plan to check cash inflow and outflow, you may be spending more than you earn. 

Create yardsticks to measure your process

With a financial plan, you can set monetary goals to measure your business’s achievements. 

Your goals serve as touchstones that let you know if you’re making progress in your online store or not. 

Reduce business-induced anxiety

When you have a financial plan in place, you get a sense of relief from financial worries. If you have done financial forecasting and strategic planning, you’ll have the confidence to get through your e-commerce website’s financial troubles.

You can decide to create an effective financial plan for your business by yourself or seek the help of a certified financial planner. As I finish off, always remember the wise words of Alexander Graham “Before anything else, preparation is key to success”. Just as you plan for other facets of your life, you should prioritize planning financially for your business.

How do you know its time to rebrand your business?

Is your image outdated, do you have new management, are you looking for rapid global expansion, or suffering a reputation crisis? These are all reasons you should consider for rebranding your business.

Quick question – why do you dress the way you do? Do you know that by looking at you, one already forms a perception of who you are and what you are like based on what they see? We live in a world largely driven by perception and that doesn’t just affect us as individuals but also our businesses as well.

A business’s branding tells the story of that business when a customer interacts with it. Subsequently, the branding should communicate exactly what the business owner wants it’s stakeholders, staff and customers to understand and perceive about the business. In a nutshell, the perceptions of these three groups are what guides a business’s branding. With that said, is your branding reflective of your values or is there a need to rebrand?

Here are a few factors to help you to determine whether your business is due for a rebrand

Your brand compass

Any comprehensive rebrand begins with solidifying your company’s purpose, vision, mission, and values. Your company’s branding should align with these tenants and a change is needed If your brand doesn’t match with:

  1. Why does the company exist?
  2. Where is it headed?
  3. How will it get there?
  4. Which values define the company’s culture?

Your brand name no longer reflects your brand vision

Your company’s branding tells your brand story. Cultural changes within the organization may also cause a need to rebrand. For instance, if a microfinance changes its vision from supporting medium business to supporting women in business, then there will be need to change the company’s image to reflect that.

Need to stand out and differentiate yourself from competitors

When a business fails to articulate its key differentiators, sales and business growth can become extremely challenging. Branding is all about competitive differentiation, you don’t want to look the same as other players in the market.

You’ve out grown your brand

A time will come where your venture has outgrown Its original iteration and then there will be a need to rebrand to accommodate growth. Rebranding to accommodate for growth doesn’t have to be completely a new look, an improvement of your old look works best as there some old brand strengths you’ll want to continue to leverage moving forward.

Mergers, acquisitions and demergers

When it comes to changes in business ownership, such as mergers, acquisitions and demergers, there will be a need to rebrand, not only to make the change visible, but also to comply with legal requirements. When it comes to demergers, the party that has split off is required by law to develop its own brand. For mergers and acquisitions, a completely new brand might be adopted or one brand may be absorbed into another hence retaining the host’s brand

These are just some of the major reasons a company might need to rebrand. When you decide to rebrand, take all the necessary precautions as rebrand comes with its own risks.

Yours faithfully

IMBA