02 Nov 2020 Ankit Chadha

5 Critical Elements of a Successful Financial Plan for Small Businesses

Financial Planning Services | TRC Corporate Consulting

Small business owners should create a financial plan annually, ideally at the beginning of the calendar or fiscal year, to ensure they have a clear and accurate picture of their business’s finances, as well as a realistic view on future growth or expansion.

Having a strategy for financial planning and analysis in place that a finance advisor drafts let the company leaders make educated decisions for the coming year regarding acquisitions, debt, recruiting, management of spending, and overall operations. Suppose a business owner is looking to sell their company, attract investors, or enter into a partnership with another business. In that case, a business financial plan is also necessary.

To help you understand the importance of the financial planning process, we have listed five critical elements of the financial planning process for small businesses.

  1. Sales forecasting

For each month, quarter and year, you should have an estimation of your sales revenue for formulating. Identifying any trends in your sales cycles lets you better understand your company; as you prepare marketing campaigns and growth strategies, it is also invaluable for your financial planning and analysis.

In order to become a year-round venture, a seasonal company may seek to raise revenues in the former offseason. In contrast, another company may become better prepared by recognizing the connexion between upticks and downturns in business due to factors such as the weather or economy. Sales forecasting is also the basis for setting targets for company growth. For example, over each previous year, strive to increase your revenue by 10 percent.

  1. Expenditure outlay

A comprehensive expense plan consists of a daily, expected future, and associated expenditures. The current ongoing costs of your company, including operating expenses such as rent, utilities, and payroll, are daily expenses. Daily expenditures relate to regular business events each year, such as attending conferences, spending on advertisements and promotions, or the workplace’s celebratory party.

A comprehensive list of daily expenditures in the financial planning process would make it easier to differentiate main expenditures from expenses that, if necessary, can be reduced or removed.

Known future costs, such as tax rate changes, increased minimum wage, or maintenance requirements, are planned future expenses. In general, the financial planning and analysis budget should also be reserved for unforeseen future expenditures, such as damage caused by fire, flood, or other unexpected disasters to your sector. Planning for future costs ensures that the organization is financially prepared by budget cuts, sales increases, or financial assistance.

The projected costs of various projects, such as the cost of recruiting and educating a recruit, opening a new shop, or extending distribution to a new territory, are related expenses. A reliable estimation of relevant costs included in the financial planning and analysis process lets you handle development properly and prevents your organization from exceeding your expense capabilities.

Understanding how much capital is needed to meet different growth targets, as with planned future expenditures, lets you make the best decision about funding choices.

  1. Cash flow projection

A smart company owner should be able to forecast their cash flow on a weekly, quarterly, and yearly basis, equivalent to forecasting the expenses. Projecting full-year cash flow in the financial planning and analysis helps you get ahead of any economic struggles or obstacles.

Before it adversely impacts your business, it can also help you recognize a cash flow issue. The most suitable payment terms can be set, such as how much you charge upfront or how many days you expect payment after invoicing.

At the end of each month, a cash flow forecast formulated by a finance advisor gives you a good look at what cash is expected to be left, helping you to prepare a potential expansion or other investment. It also enables you to formulate your budget more intelligently, such as spending less than one month on another month’s projected cash needs.

  1. Break-even analysis

This segment of financial planning and analysis includes fixed costs relative to each additional unit you generate and sell for the benefit gained. This is important for understanding your organization’s income and future expenses versus benefiting from the expansion or development of your production. As mentioned above, getting your expenditures wholly fleshed out in the financial planning and analysis process makes your break-even analysis more precise and useful.

Often, break-even analysis is the best way to evaluate the price. A break-even analysis will tell you how many units you need to sell at different price points to cover your expenses. It would help if you tried to set a price that gives you a comfortable margin over your costs while helping your company stay competitive.

  1. Operations plan

Build a comprehensive description of your operational requirements in the financial planning and analysis function in order to operate your company as effectively as possible. Understanding what tasks are needed to run your company at different production volumes, how much production or work each worker can manage, and the costs of and stage of your supply chain help you make educated decisions about the growth and productivity of your company.

To achieve growth, it is necessary to manage expenses, such as payroll or supply chain closely. An operations’ financial planning and analysis by a finance advisor will also make it easier to decide whether there is space for automation, new technologies, or superior supply chain vendors to maximize the operations or supply chain.

For this purpose, before acquiring an account, the business owner must perform due diligence and become informed about merchant services. It cannot be reversed until the owner signs a contract - unless the business owner breaks the agreement and acquires a new account with a new provider of merchant services.

In conclusion, the business owner should undertake steps to formulate a financial planning process in order to derive maximum profits from accepting credit cards for products and services.

How TRC Corporate Consulting Helps?

Our finance advisors at TRC Corporate Consulting have extensive knowledge and experience in handling financial planning and analysis for many organizations across industries. We have provided innovative solutions to fulfill the financial advisory requirements of many renowned companies and brands. Our ideology is to understand the needs of our clients and prioritize, delivering suitable solutions.

So, if you are looking to boost your business growth, having our vigorous financial planning and analysis team as your partner ensures sustainable development. Choose us as your financial planning services to achieve success while positively impacting your business’s financial health. For queries of our financial planning services, contact us!

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