Growing a business is a fun task. But it can also be a daunting task. While it may be tempting to just “go with the flow” when building your business, this is not advisable.
Focusing your energy on business planning is crucial to the success of your business. And among the various aspects of business planning, one is routinely ignored: managing your company’s finances.
In this comprehensive guide, we will show you how to properly manage your company’s finances this year.
The Only Guide for Effective Business Planning
Of the different aspects of business planning, we strongly recommend that you find expert advice on Financial Planning.
Managing your company’s finances and the proposed budget is a surefire way to success. The only way to do this is to have a detailed and effective business plan.
Let us make this year the best year for your company’s financial success.
Here are the steps to take:
1. Prepare Your Business Plan – Why You Need One
The first step is to prepare a business plan and understand why you need one. A business plan will outline the objectives of your business. The ideal business plan will also have set deadlines to meet these objectives.
These set deadlines are what can help you determine your budget and your spending allowance. Calculating your business allowance is the same procedure as if you were calculating an allowance for your personal use.
For example, you can choose to launch a marketing campaign within three months of launching your business. Maybe this will be a huge marketing campaign to introduce your business and its products and/or services. Research what the costs of this marketing campaign will be.
Once you have determined the costs – or at least an estimated cost – you will be able to budget accordingly. Each step of your business plan will allow you to decide how much to save and spend.
Next, we will look into the details of each business plan.
2. What Your Business Offers
Once you have begun your business plan and prepared an executive summary, you are ready for the next step in the plan.
The next step is to outline what your business offers. Analyze if there is a “gap in the market” and how your business can fill this gap. Ask yourself what the value of your products and/or services is to fill this gap.
Determine how much you would charge for what your business offers. While it may be tempting to first analyze your expenses and then raise the price accordingly, it is best to research what the value of what your business offers currently is on the market.
If you sell luxury goods, for example, what is the going price for these goods? How much do consumers already pay for this? Can you raise or lower the price and still be successful? Researching what already works is how you determine what you will charge.
This section can be brief. All it needs is a quick overview of who your customers are and how much they would pay (or are already paying) for what your business offers.
3. Target Market
This continues with what we discussed in the previous point. You need to identify your target market. Who is the specific audience that your business is targeting?
By determining your target market you will also understand the financial planning that is required to communicate to them. For example, if your audience consists of senior citizens who prefer traditional methods of communication, you may have to use your budget to make cold calls or even send brochures through snail mail.
If your audience consists of millennials or a younger generation then they will likely prefer digital communication. Much of this may not cost a penny – you can use social media platforms to market your products and/or services.
But to be effective with social media marketing, your business may need to hire a social media consultant or a team of social media marketers. You may need to invest in Facebook and Instagram Ads.
Researching the best ways to communicate with your target market will also help you determine what your expenses are and how to budget accordingly.
This is a crucial step that must be planned in detail before moving forward.
4. Executing Your Company’s Goals
Now how do you execute your company’s goals? This has to be well thought through and is a major factor in determining your company’s finances.
This section of your business plan needs to outline how much a process will cost and what the process is.
For example, continuing with the luxury goods example, if you have to sell a luxury purse held in the USA to a customer in Hong Kong, how would you go about this?
You will have to determine how much international shipping will cost and how much to charge the customer accordingly. You will have to determine what the return policy would be – or whether you want one at all for sending a product to the other side of the world!
How much will you charge for the product? If you are sending it to an advanced economy such as Hong Kong you could sell it for a high price. If you were to send it to a developing economy such as India, you may want to slightly lower the price to ensure a sale.
Additional costs may include postage insurance, as well as the cost of the mailing equipment (boxes, bubble wrap, etc.) These all should factor in how much you would charge for your product. These also factor in how much your expenses would be.
If the expense for purchasing the luxury purse from a wholesaler for $50 and all additional costs also add up to $50, you already have incurred an expense of $100. How much would you charge above this $100 to make a decent profit without it being overpriced for your consumer?
Once you have determined the cost of execution, you are ready to move on to the next step in the business plan.
5. The Management and The Staff
Now we come to the big one! You must manage the finances to be allocated toward the company’s management and the staff. In other words, you need to have the money to pay their salaries.
There must be a section of your business plan that identifies the senior management team as well as the staff members and what their respective roles are. This will outline the hierarchy of your business – determining who is a senior member and who is a junior member. This will also discuss how much experience they have in their respective positions.
You will use this portion of the business plan to determine how much each employee is to be paid. You should explicitly state how much each employee will be paid. Make sure you budget for any paid leave, holiday bonuses, commission pay that may be applied.
Once you have the accurate amount of expenses that go toward paying your employees, you will have an easier time to determine additional costs for other aspects of the business.
Make sure that you have a surplus in your budget for paying your employees. This is one aspect of your business that will seriously backfire if you do not have enough funds!
6. The Financial Plan – Basics
Now you are going to prepare a section which is a detailed financial plan. In this section, you will detail the total amount of funds that your business currently has.
Afterward, you will provide estimates on what you forecast your budget will be.
As a first step, you should include your projected sales forecast – how much you plan on selling and what you expect your revenue and profit will be.
Secondly, you must record estimations of loss. For example, if we go back to a previous example, supposing your customer in Hong Kong returns the luxury purse. How much will you refund? What will your loss be? With each product, you must estimate a loss. Also, what if you never sell a product and/or service? What will the expenses incurred be? Your estimated loss statement will help you determine what the worst-case scenario will be.
Thirdly, what is your cash flow situation? How much cash comes into your business? Based on an estimation of how much funds come to your business, you will be able to determine how much can be allocated to the various expenses.
7. The Financial Plan – Intermediate
We would like you to break your financial plan into three sections. The first was the basic covered in the previous point. We now move on to the intermediate section.
In the advanced section, you must include your balance sheet. Your balance sheet will summarize your assets, liabilities, and equity. This is a summary of what your business owns, what it makes (including investments), and what it owes.
This is a crucial step that cannot be ignored. Failure to prepare a detailed balance sheet will hurt your company’s finances in the long run.
The advanced section of the financial plan should also contain business ratios. These determine the success and failures of your financial planning. How often do you hit your financial goals? Have you ever failed to pay an employee – or have you had to forgo giving a holiday bonus or raise?
Business ratios can also include how often you can meet any necessary tax obligations. You can also include a break-even analysis. If you ever have difficulty in making a profit and end up breaking even, this needs to be analyzed. If it is too high, there needs to be a change in your strategy.
Once this has been finalized, we move on to the final part of the financial plan.
8. The Financial Plan – Advanced
Now we are at the advanced portion of the financial plan. This section is usually shorter but just as important as the other two. This is to detail how well the company is doing.
What are your overall profit margins? Are they high or insignificant? What is the profit-to-loss ratio? This should be determined regularly to see how the company is faring. If your profits are low and your losses are greater than your profits, it means there must be a change in strategy.
This portion can also help you determine where to cut costs. It may include choosing an alternate marketing strategy to save costs or even cutting back on pay, or even firing staff to keep the company going.
It can be an uncomfortable process in preparing this portion of your financial plan but you must always prepare for the worst-case scenario.
Writing The Business Plan
The steps outlined in this article may seem overwhelming, so we advise you to save this article and use it as a constant reference.
The business plan does not have to be written in a hurry and does not have to be concise. Be as detailed as you see fit.
Focus on writing the executive summary first and outlining the goals of your company. Then move on to each step one-by-one. You may find yourself having to make alterations to the business plan.
For example, you may notice that paying your staff is so costly that you would have to revise your marketing strategy. You may find that one portion of your target market may be expensive to reach and you may have to focus your efforts on another portion of your target market.
Do not worry. The business plan does not have to be set in stone. You can keep revising it and making changes as you see fit. You must have a blueprint so that you have an idea of how to run your business. You can always come back and make edits to the blueprint as your company continues to grow.
Now that you know about the fundamentals of business planning, it is time to prepare your business plan! By following the steps in this guide your business is sure to see success! We wish you good luck!
Be sure to continue reading great articles on managing and growing a business!