Financial Planning for Small Businesses
1. Cash Flow
While this may seem trivial, you need to have a clearly defined layout of where your money will be coming from. Identify your market and create a projection to follow along as closely as possible to hit your year-end goal. Then, plan out ways to raise capital. Whether it is investors, fundraising, buying stocks, or any of the many other methods to choose from. You may need the help of an outside adviser for this part.
When mapping out your business, it may be easy to attain starting funds. But within your plan you need to prepare for downfalls. Do this by setting up your business to be self-sufficient. It needs to be able to generate enough revenue to follow along your aforementioned cash flow projection within a decent margin. You don’t want to be just spending money forever, you need to make it.
Funds may be tight at the inception of your company. However, if you don’t properly set up your employees with benefits, you could find yourself paying much more dealing with employee turnover. Simple incentive rewards like bringing in a treat on Fridays, company activities, and smaller gestures can keep the costs low. Plus, it makes your employees feel appreciated. This will encourage them to stay with you through the ups and downs.
A major oversight that often proves to be a detriment to companies is not factoring in liability. This needs to be set in your financial plan, and make sure to account for interest rates as well, if you end up owing too much, you’ll find it difficult or impossible to get your head back above water. As the leader of a company, you are responsible for source deductions.
You can’t get too excited when money comes in. You may have found a cash cow client, bringing in more revenue than you had planned for, however you need to stick to your budget. Save that money for the bad times, there may not be any for a while, but it will come. That extra funding could be the difference between another active year and bankruptcy.
Even if you follow your plan to the letter, revenue is good, and all of your employees are happy; there’s one external factor that not enough companies are considering; Global Warming. While you may be rolling your eyes picturing the author of this as a madman in a tinfoil hat, just listen.
Climate change is already affecting the agricultural world, tourism is affected when sudden weather changes prohibit air or sea travel which is a huge money blow to the countries that rely on their tourism. You may be thinking that you aren’t involved in those areas of business, but take California for example; their endless fires and flooding have destroyed towns which housed a variety of business types. They may not have been prepared for the toll that this would take on them. The rebuilding of their wares and offices will take time to do, and all that time means lost revenue. This is where keeping that rainy day fund comes in handy.
When starting out your business, you need to keep the internal and external factors right at the surface of your awareness. While you can easily prepare for the internal factors, our world is constantly shifting from what we are used to, so we need to be as flexible as possible. Financial planning is more important than ever, you are building the foundation on which your company, and all the employees livelihoods will rest on, no pressure. Be cautious and tedious when planning out your company, leave no area unexplored and cover all of your options to secure a safe position in the world of business.