Forming your own business can be exciting and exhausting all at once. You might experience a strong temptation to focus your efforts on polishing the products or services you provide, or on winning clients and hiring the right staff. However, time spent on securing your firm’s financial health won’t be wasted. In the next sections, we’ll explore financial planning and offer some useful tips for small business owners to keep their companies in great shape.
What does financial planning mean for small businesses?
For small businesses, financial planning is always an ongoing process. Firms must both decide what their short and long-term financial goals are and develop tactics to reach them. While small business financial plans have many similarities to the personal plans that people make, there are some key differences.
Separating personal and business goals
Blurred lines between business and personal goals can be financially compromising. Keeping these two areas separate is essential, as one can negatively impact the other. Ask yourself what are your immediate company priorities, and where do you want your business to be in the next five to 10 years? When successfully achieved, business aims can help you advance personally, but never confuse what you need as a person and what your business needs financially. This also helps you to keep cleaner accounts, with personal and business expenses clearly distinguished.
Cash flow is key
Carrying out cash flow analysis can show you how much money is currently flowing into your business and out. This information can help you plan accordingly. Regular analysis will help you build a better picture of your businesses finances and inform your plans.
Remember liquidity
While a balance sheet can show you that your firm is financially healthy, it doesn’t mean its assets are accessible. Your business aim should be to always have less liabilities than assets, so a buffer exists to help you with financial obligations in the short term.
Exploring options for funding
Protect your company by planning how it will be funded effectively. Owners of small business often self-fund. This means that personal funds are typically the business’ sole source of capital. Putting funds back into a business makes sense, however. Bootstrapping, for example, enables owners to gradually grow their business, while making sure it has a sound financial model. The downside of this is that using credit cards and savings as capital can put owners at considerable financial risk.
A wise way to offset a portion of this risk is to explore additional sources of business funding wherever possible. By diversifying the capital of a company, you can spread potential risk. Customer presales, business loans and goods or services-in-return deals are all options to raise capital and ensure funds keep flowing.
Do you need advice on financial planning?
If you’re looking to create a financial plan with help from a small business accountant in South Yorkshire, Adaptive Accountancy can help. Get in touch today for assistance with strategic financial planning to achieve your short and long-term goals.