It’s no doubt that any business needs finances to operate. So, whether you’re running a small or large business firm, you’ll need money to make money. For instance, you need initial capital even before you launch your business.
You also need finances to meet all your operational expenses and scale up your operations, even when you want to launch a new product line.
It, therefore, makes sense to say that finances are the engine for every business enterprise. However, for any business to succeed and outshine other firms in the market, it must manage its finances effectively.
So, if you’re looking to manage your business resources and stay afloat, stick here for a few minutes. Why? Because you’re going to learn how you can plan for your business finances effectively. But before that, it’d be a good idea first to understand what financial planning is. Read on!
Financial Planning Defined
Financial planning is the practice of determining the business capital requirement and needs. In other words, these are steps followed by a business organization to meet its short-term and long-term financial goals. That said, a financial plan is a document that explains your current business finances, your future financial goals, and how you intend to achieve them.
Tips For Business Financial Planning
When running your business, sometimes you might forget some important aspects like financial planning. However, if you want to succeed in your business operations, it’d be a good idea to create budgets, prepare business plans and regularly review your financial performance.
That said, here are strategies for successful business financial planning:
- Have Risk Management Strategies In Place
One of the best strategies to plan your business finances is to develop risk management strategies well in advance. Even if you run your business, you also need to take care of yourself. For instance, it’d be a good idea to plan for your health and retirement plans. So, if you’re not careful, this can affect your business’s financial goals. That’s why you need to have risk management strategies in place.
That said, you can discuss with your financial advisor what risks your business is likely to encounter then take the necessary measures. For instance, you can decide to have term life insurance to protect your business finances if one of your family members dies. It is possible because your insurance company can cater to all the expenses of the deceased person, including hospital bills and any other related expenses. So, in case of a death of a loved one, your business finances will remain intact or untouched.
- Build An Annual Budget
Developing an annual budget is another most essential step in business financial planning. A budget is a guide or a snapshot of how you intend to raise and utilize your finances within a specific period.
Besides, a budget guiding tool that allows you to make certain business decisions in advance. It is possible because, through a budget, you can know whether or not you’ve got a surplus or deficit in your finances. So, if you’ve got a shortage, for instance, you can arrange where to get the extra funding ahead of time.
- Separate Business And Personal Finances
Though you can fund your startup business through your savings, it reaches a time when your business needs to stand alone. In other words, after a short while, your business should be able to generate its own money and pay for its expenses. That’s where you need to keep business and personal finances in different bank accounts.
Separating finances is important because businesses always go through unpredicted cycles. For instance, you can find a business generating high sales for one year, and then it starts going down. Such situations can risk your finances, especially when your business becomes liable for debts. Therefore, the best deal could be to separate your business and personal finances.
- Pay Yourself A Salary
Paying yourself a salary is another effective strategy for managing and planning your business finances. It helps avoid taking business finances for private use. Note that using business finances to handle personal matters increases your business costs. And if you’re not careful, your business might not succeed. So, to protect your business from unnecessary expenses, it’d be a good idea to pay yourself a reasonable salary.
- Determine Your Funding Options
As earlier noted, finances are the engines of any business enterprise. However, you must determine where to source your business funds.
That said, there are several sources of business finance. For instance, you can decide to finance your business through personal savings, taking loans, factoring, credit cards, merchant cash advance, finance lease, and much more. However, any option you select should enable you to meet your business objectives.
Besides, you must be sure to identify the cheapest source of business finance. It helps minimize your finance cost, thus boosting your overall business cash flow.
- Consider Your Business Cash Flow
Cash flow is a financial concept that explains how money flows into and out of business. In other words, cash flow is how you receive and spend money in your business. For that reason, you need to ensure your cash inflow is more than your cash outflow. You can achieve this by finding more streams of income and minimizing your costs. Doing this allows your business to remain afloat, thus minimizing its chances of being liquidated.
Apart from that, the knowledge of cash flow analysis enables you to plan for your finances accordingly. For instance, it can allow you to know which areas of your business attract more costs or expenses. It enables you to put effective measures to reduce your overall expenses.
- Diversify Your Portfolio
In the modern competitive world, diversification plays a significant role in the success of any business enterprise. Here, diversification means investing your capital in different securities or assets.
That said, it is essential because it ensures that not all your funds are at risk, especially when some of your investments fail to bring returns. So, in a layman language, portfolio diversification means not putting all your eggs in one basket.
However, you must research to determine the best opportunities where you can invest your money. It helps plan for your finances bearing in mind the amounts of risks you’re ready to endure.
- Manage Your Business Taxes
Managing your taxes is another strategy for planning for your finances. It is because you might not want to pay a lot of taxes, which could reduce your business profit margins.
Although you can manage your business taxes yourself, you can reap more benefits by working with an expert. Here, working with an expert means entrusting your tax functions to a tax consulting agency.
There are several benefits of outsourcing your tax functions. For instance, individuals working in these firms understand all the tax laws surrounding your industry. Therefore, they can be able to advise you accordingly. It helps ensure you’re paying the right amount of tax to the government. Besides, they can help ensure you’re submitting your taxes on time, thus avoiding paying penalties that could affect your business finances.
Apart from that, tax consultants are qualified and experienced individuals who can help you save on your taxes. For instance, depending on your industry and the state you’re in, they can be able to advise you on some of the legally accepted ways of evading tax. It helps minimize your tax liability, thus boosting your cash flow.
- Keep Up-To-Date Accounting Records
Last but not least, it’d be a good idea to keep your accounts records up-to-date to help plan for your finances. That said, accounting is collecting, recording, sorting, analyzing, and interpreting financial transactions. It’s one of the basic steps in repairing financial statements, including the cash flow.
So, it means that you can’t have a clear picture of your business cashflows without proper accounting. That’s why you need to keep updating your accounting records regularly.
Although maintaining proper books of accounts can be an overwhelming task, you can overcome it by automating your accounting system. Automating an accounting system is using accounting software to carry out financial transactions instead of using manual spreadsheets.
Not only does automating your accounting system help keep your financial records up-to-date, but it also helps avoid errors in your accounting system. It enables you to generate accurate accounting figures, thus allowing you to plan for your business finances adequately.
Planning for finances is an integral part of any business enterprise. It helps budget for the available funds to help achieve your financial goals. Besides, financial planning can enable you to boost your cash flows, allowing your business to stay afloat.
As you’ve seen above, there are several strategies to ensure successful business financial planning. These include developing risk management strategies, creating an annual budget, separating business and personal finances, and paying yourself a salary.
Also, you can plan for your business finances by determining your funding options, managing your cash flow, diversifying your portfolio, managing your taxes, and keeping your accounting records up-to-date.
Warren is a content marketer. He has been in the sector for more than 15 years, writing and sharing helpful content online. His educational background in digital marketing enables him to tackle different topics. During his free time, he reads novels and plays piano.