Why financial planning is an essential part of a business growth?

Financial planning is a key growth factor for small businesses. Financial planning includes budget planning, cash-flow management, Income & expense management, investment planning etc.

As we know “A penny saved is a penny earned”.  A better financial planning escalates business growth.

Here are some key points to take into account while framing a financial plan:

Cash Flow Management

Cash flow management is very crucial for a startup and small business as its mismanagement can lead to a massive business failure. Cash flow management is a part of financial planning.

Cash-flow management can be done manually also through cloud software. What are the things a business owner looks for in a cash-flow management tool? For example:

  • When was the last time you paid someone?
  • Do you need to pay someone?
  • How much money you got from certain marketing channel or advertisement etc?
  • How much money or cash in hand you need to meet next month’s office or operational expenses?

If a business owner can get answers of above then he would be able to manage a steady cash reserve for his business, which will be helpful to make a better financial planning.

Inventory Management

For large scale inventory business, manufacturing & retail business it’s very necessary to always track inventory status to avoid any money wastage.

To prevent any money or item waste a business owner needs to update himself with:

1-Real-tie item status. For example how much items left in a stock in a specific date?

2- Item availability to fulfill purchase order within given period

3- Stock status in every warehouse for better warehouse management

But why inventory management is considered as a key factor in better financial growth.  It’s because a proper inventory management can help a business to find out the customer demand and recent buying trend in the market for its products. Through which he would be able to make a better marketing decision to increase profit margin and ultimately better financial growth.

Investment Planning

Investment planning is an unavoidable part of financial planning. For small business & startups, it’s vital to find out the key areas in business to invest more in order to earn more profit.

For example, A web-design company runs his business nationally. It’s a startups company and marked a presence over social media. In a performance review, the owner of this business found out more projects are coming from social media and paid marketing. So, he decided to invest more money in that part to generate more leads.

This turns out to be the best decision for this company as it generated more leads and did more conversions. So, without investment planning, financial planning can’t be done.

For, finance or investment companies, investment planning works differently. Investment companies always do a full research on startups to find out which startup can give them more ROI. Investment companies mostly generate profit form various investments in businesses, bonds, equity, and properties. So, for them, business product or service demand is most important.

Loan Advisor 

For a startup, it’s imperative to always maintain a cash balance in order to meet any uncertain expenses. In the case of startups & small businesses, it’s not always possible to maintain a cash reserve out of profit. A loan is another alternative to have the cash to meet operating as well as unseen expenses.

Get onboard a financial advisor, who can analyze the business health and can advise when to opt for a loan and how much. The loan will help to increase the cash reserve but the business needs to have the ability to pay EMIs every month. Profit is the only way to have the cash to pat loan EMIs as loan money shouldn’t be used in these kinds of small expenses. Loan money generally used to increase the rate of profit by making an investment in certain areas.

A best & experienced financial advisor can suggest whether to opt for a loan, when and how much?

Budget planning

Budgeting is the process of allocating or segregating money or budget in a proper way to meet all expenses in a month or year. Budget is the total amount a business or an individual fixed or set for a month.

This budgeting plan helps business owners to give more focus and set a budget for most important spending than least important.

Budgeting is also called budget planning. In the beginning of every financial year or every month, a business owner needs to set a budget for each individual activity. It helps to check the revenue percentage earned from each spending also to check the variance between planned expense & income and actual spending & revenue earned.

Budgeting also helps to understand the cash flow status in real time. The best way to do a perfect budget planning is by using a budgeting tool. A budgeting tool helps a business owner to know the current cash/capital available, estimate expenditures and forecast revenue.

Here are some key reasons for why budgeting is important?

  • To curb expenses
  • Brace for any future & uncertain expenses
  • Oversee growth of set goals
  • Forecast future profits

All the above key factors are plays important role in financial planning.

 

Leave a Reply

Your email address will not be published. Required fields are marked *