5 Steps to Create Your Business's Financial Plan

5 Steps to Create Your Business's Financial Plan

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Creating a financial plan is critical to the long-term health of your business. Even though there are many factors at play — most of which are in a constant state of change — a business financial plan can help keep you grounded. 

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How to Create a Financial Plan

There’s no right or wrong way to create a financial plan for your business, but there are some steps that any organization can take to get on the right track. Here are five of the most important.

1. Review Your Strategic Plan

This is where it all starts. Review your company’s strategic plan so you can answer financial questions such as:

• How much cash do you have on hand?
• Do you have business expenses, such as equipment, to plan for in the near or long term?
• Are you considering expanding your office space?
• Are you considering expanding your workforce?
• Will there come a time in the near future when you need traditional financing, such as a bank loan?
• What impact will your plan have on cashflow?

Without a thorough review of your strategic plan, you’ll struggle to make decisions that could affect many aspects of your company. 

2. Review Your Current Financial Circumstances

Now that you have a sound understanding of your strategic plan, review your current financial circumstances. This can include an in-depth study of details such as:

• The amount of cash in your business bank account.
• Year-to-date sales, revenue, and profit numbers.
• Employee costs. 
• Liabilities (and the impact on your monthly budget).
• Financial-related goals, such as saving for expansion. 

Reviewing your current financial circumstances will help you create a plan that allows you to reach all your long-term goals. It can also help you pinpoint any areas of concern, such as too many liabilities or employee costs that have grown out of control. 

3. Set Short and Long-Term Goals

It’s one thing to create a business financial plan but another thing entirely to know where you want it to take you in the future. Create a plan with the idea that it will walk you toward your goals, not away from them.

For example, if you want to move into a new office building by 2025, set short-term goals that will allow you to accomplish your long-term goal. 

Tip: Be realistic when creating both short and long-term goals. It’s okay to have big dreams, but unrealistic goals set you up for failure. 

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4. Plan for Emergencies

It’s not something you want to think about, but it’s something you need to think about. Even if you have a solid financial plan that’s designed to guide your company into the future, things can (and probably will) go wrong every now and again. 

Potential issues include losing a key client, increased cost of goods, losing an important employee, or a lawsuit. 

Your business financial plan should account for any type of emergency that could come to light. Protect your organization by keeping funds in a defined bank account and/or leaving room on your business line of credit. 

5. Focus on Cashflow

Cashflow is the lifeblood of any business. If you don’t have money flowing into your company, it’s difficult — if not impossible — to have money flowing out of your company. And when that happens, it’s challenging to pay your employees, pay your bills, and take advantage of expansion opportunities. 

Focusing on cashflow will help you answer questions such as:

• Do you have enough money flowing into your business to meet all your financial obligations?
• Do you have an issue with cashflow, such as clients who do not pay invoices on time?
• Do you spend more money than you generate each month?

Immediately address any cashflow questions and concerns. For instance, if you have slow-paying clients, it may be time to look into invoice factoring. The benefits include but are not limited to:

• Immediate cashflow: When you sell your invoices to a factoring company, you’ll receive payment on the spot. This is much better than waiting for your clients to pay, as it could take several months or longer for that to happen.
• Save time on in-house collection tasks: Your invoice factoring company will manage the collection process. This saves your accounting team time while allowing you to maintain more cordial relationships with your clients. 
• Financial flexibility: Invoices don’t have to be paid in full before you receive funds in your bank account. 
• Higher probability of approval: With a small business loan, you’re required to complete a detailed application. From there, the lender will review it — along with your company’s credit score and credit report — to make a final decision. This can take several weeks or longer, which will put more financial stress on your organization. 

A lack of cashflow is one of the quickest ways to kill your business. A focus on this while creating your financial plan is essential to your future. 

Summary

By taking the five steps above, you’re in a better position to create a financial plan that your business can lean on for years to come (with a few tweaks here and there, of course). Even if you don’t get it perfect the first time around, you’ll at least have a structure in place to guide you. 

If all of this has you thinking about invoice factoring, contact Revolution Capital online or via phone at 1-855-489-0310. We can help you decide if this is the right way for your business to improve its cashflow. 

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