You have always dreamt of starting a business of your own and finally, you got the right business idea which you are very enthusiastic and pumped up about. What’s the next step after this? What do all successful entrepreneurs have in common that makes them turn their small startup businesses into multi-million dollar companies? Well, one common advice that all these entrepreneurs would suggest is to have a sound financial plan for your business.
Planning is bringing the future into the present so that you can do something about it now.
What Does Financial Plan Mean?
In layman terms, financial planning means to decide in advance how much money you need to spend, things to spend on, depending on the funds you have at your disposal. A financial plan provides you with the numbers to back the growth strategy of your business. Thus helps in laying down the overall outline of the company.
Your business plan is only a concept until you fill in with the relevant terms and numbers. A financial plan helps you turn that conceptual business idea into a practical one.
“Financial planning is the process of meeting your short term and long term goals through the proper management of your finances.”
Importance of Having a Financial Plan for Your Business
Before we dive deep into the importance of having a financial plan for your business, it’s important to understand that financial planning is not necessarily same as that of accounting. Many entrepreneurs often confuse a financial plan with accounting as it deals with common terms such as profit/loss, cash flow, and balance sheets.
Accounting deals with having a historical view of your account statements that starts from today and goes back in time. On the other hand, having a financial plan for your business deals with having a futuristic outlook that starts from today and looks into the future. Unlike business accounting, a financial plan doesn’t deal with tax reporting, it’s more of an elaborate educated guess looking at the past projections and results.
Now coming back to the importance of having a financial for your business. The need to have a financial plan for your business is to serve two important purposes –
1) To Seek Investment For Your Business
The first purpose of having a financial plan is pretty straightforward. It’s to seek investment from angel investors, venture capitalists, financial banks, ledgers etc. The investors you will be presenting your business idea would want you to back it up with the right numbers that show how quickly you expect your business to grow and make profits.
One of the most common question that investors ask is – How will your company make money now and in the future? The thing about business is that creating it is the easy part but creating a business that is sustainable in the long run requires a sound financial planning and vision for investors to back it up and invest in.
Similarly, in the case of financial banks and ledgers, they would want to have a look at the numbers as well as your plan for repaying the loan.
2) For Short-term and Long-term Business Projection
This is the most important reason to have a financial plan for your business in the first place. It is for your own benefit as it will help you to understand your short term and long term projections. It’s a living, ongoing document that will serve as your personal business guide in running your company.
Anytime you feel the need of getting your business funded or financed, this document will be readily available at your disposal to provide you with the necessary forecasting and projections.
The financial plan for your business will only be significant when it’s also credible in nature. One needs to be realistic while filling in the relevant numbers. The ideal way to do that would be to break the numbers in terms of components, sales channel or target market segment catering to your niche, and also by providing realistic estimates and goals for sales and revenue.
Going forward we’ll be doing a series of blog posts on ‘Financial planning’ with in-depth insights into the various components needed to make a sound financial plan for your business.
In this new age of technology, why should accounting and financial planning be cumbersome and boring? IntegraBooks is a modern and effective way of managing your finances as a business. We use a combination of technology and human expertise to make sure you get the best financial services for your business. Talk to our experts today to know more!