Financial planning is one of the key elements in running a successful business. Today’s business world is incredibly volatile and by all indicators the repercussions of COVID0-19 will be felt for many years to come.
In such unpredictable circumstances, writing the document that will outline your income and expenses, identify possible financial needs, narrow down the best time slots for new projects and essentially act as an early warning system is gradually becoming a necessity rather than a novelty. .
Then let’s take a quick look at some of the most important elements of these documents, see how to use them to cover as much ground as possible and ensure your startup is protected against all negative trends in the economy.
Review the existing strategic plan
Financial planning is very closely related to strategic planning, so you won’t be able to write this document in any capacity without having a clear idea of what you want to accomplish by the end of the year. If you feel that your current strategic plan lacks information for comfortable financial planning, you can ask yourself additional questions such as does your business need new resources (equipment and personnel), do you want/need- you grow and will your current cash flow be able to withstand all this turbulence? Don’t be afraid to go into excruciating detail, because the more thorough you are, the less things will be left to chance.
Participate in financial projections
Of course, while doing this, you need to think about the short, medium and long term. To get started, you can use your anticipated revenue based on previous sales along with average expenses for supplies, overhead, and labor and build monthly projections for the next quarter. Use these building blocks to engage in long-term projections and address the specifics of the various projects you are currently engaged in. Also keep in mind that sales don’t immediately convert into funds you can reinvest. Consider these cash flow impediments and try to create contingencies in the form of various short-term loans or trade financing.
Don’t neglect your personal finances
Although your personal and professional finances should be separated by a great stone wall, not managing this important aspect of your life will certainly affect your startup and influence its operations. So while you’re making financial projections for your business, take this opportunity to assess how much revenue you’re getting from it, sort and prioritize expenses, and see how you’re doing in the end. As in the previous examples, you need to create a backup for yourself in the form of prime personal loans that should mend small financial divides without forcing you into long-term, high-interest alternatives.
Plan multiple scenarios
Although, when making financial plans, common sense says to go for the worst case scenario and reap even more benefits if the situation improves, these conservative policies can also discourage business growth. if things don’t turn out as bleak as you expected. This is why you need to create financial plans for different assumptions such as:
— The number of your customers is increasing month by month
— Your income and expenses remain stable throughout the quarter
— You manage to increase the average revenue per account
— Churn increases unexpectedly
All of these scenarios involve different financial responses, so be sure to cover as many as possible.
Ask quantifiable “what if” questions
Think of it as an endless cycle of assumptions, projections, and adjustments. Even when you write the financial plan, be aware that this document is neither accurate nor complete. The only way to keep it relevant is to constantly ask quantifiable “what if” questions like, say, what if the company tries to raise prices by 5%. As long as these questions have monetary value, you will be able to get new use case scenarios, test the system, get back to square one, and make your plan even more comprehensive and granular. Do it before even the most menial business moves.
Identify revenue growth catalysts
The goal of any business is to increase revenue through various revenue catalysts such as SEO, Facebook ads, corporate events, etc. All of these enablers should be outlined in your plan along with the projected revenue and KPIs you will assess for those specific channels. This is hugely important as the constantly growing number of effective marketing channels and reviewing and testing the entire system whenever some of them fail, remain stagnant or even overperform is not exactly viable. So be sure to identify these individual nodes and monitor them very closely.
We hope these few examples have given you a general idea of how you can create the financial plan that can handle all the uncertainties of today’s volatile economy and help your startup emerge a winner in the end. The times we live in are riddled with various financial difficulties and the years to come do not look any better. It is your duty to do everything in your power to enable your startup to survive all these obstacles. A financial plan seems like a good starting point.