The financial plan and budget helps as a guide for making day to day decisions for business. Even one Person Company needs to have a financial plan.
Managing cash is very important for business because the cash cushion allows the business to take advantage of opportunities that arise, such as the chance to purchase inventory from a supplier at temporarily reduced prices.
Poor cash management can result in negative consequences such as not being able to make payroll. It’s good to manage the cash so that you can run your business easily.
Long- range view
In business it’s very easy to become focused on the crises or issues that must be dealt with on a daily basis. The price for being too short-term oriented is that the owner may not spend enough time planning what needs to be done to grow the business long-term.
The financial plan, allows the business owner better to see what expenditures need to be made to keep the company on a growth track and to stay ahead of competitors. It’s a blueprint for continual improvement in the company performance.
A business owner makes so many decisions over the course of a month that it can be difficult to tell which decisions resulted in success and which ideas or strategies didn’t work.
Preparing the financial plan involves setting quantifiable targets that can be compared to actual results during the year. Trends in the sales of individual products help the owner make decisions about how to allocate marketing dollars.
Conserving financial resources in a small business is a critical element of success. The financial planning process helps a business owner identify the most important expenditures.
Those that bring about immediate improvements in productivity, efficiency, or market penetration, versus those that can be postponed until cash is more plentiful.
Even the largest, most well-capitalized corporations go through this prioritization process, comparing the cost to the benefits of expenditure.
A chart showing steady growth in revenues month by month, or a rising cash balance is a great motivating factor. The financial plan helps the owner see, with the clarity of hard data, that the business is on its way to being a success.