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
