Reality check – Is your financial plan measuring and delivering the results you need?
A financial plan is a document containing the current cash situation and long-term goals of your business and the strategies for achieving the goals. A financial plan can be done independently or outsourced.
It provides a clear picture of current finances and how they can be utilised to achieve your goals. This is also a process that will reduce the amount of stress about money and help you to set a long-term goal. It is imperative as it shows how to use your assets in an orderly manner.
The primary purpose of financial planning is to allow you to make business decisions about the resources that the company requires and what strategies the company needs to be successful. In addition, it helps to obtain necessary financing, thus helping it grow.
It's all very well putting the numbers together, but now it's time for a reality check. Are you reaching your goals, or have costs risen beyond your expectations?
Review the balance sheet
- How much debt the company has relative to equity
- How liquid the business is in the short term (less than one year)
- What percentage of assets are tangible, and what percentage comes from financial transactions
- How long does it take to receive outstanding payments from customers and repay suppliers?
- How long does it take to sell inventory the business keeps on hand?
Review the income statement
- How much revenue is growing over specific accounting periods
- The gross profit margin for goods sold
- What percentage of revenue results in net profit after all expenses
- If the business can cover its interest repayments on debt
- How much the business repays to shareholders versus how much it reinvests
Review your cashflow
- The liquidity situation of the company
- The company's sources of cash
- The free cash flow the company generates to further invest in assets or operations
- Whether overall cash has increased or decreased
Understanding a company's financial health is critical for all professionals: business owners, entrepreneurs, employees, and investors. By analysing the information in financial statements, you can learn about your company's fiscal health and turn insights gleaned from data into actions that benefit your business and career.
take action; achieve more
- We are in an unprecedented time; prices are rising, suppliers are struggling to source materials, and the cost of living is increasing. Your financial plan is a fluid plan that needs to be regularly updated to accommodate these changes
- Negotiate with suppliers to try and reduce costs, shop around for better deals but do not scrimp on quality
- Reducing costs in your business and creating processes that will cost you less money over time doesn't have to take much time or effort. In many cases, it's about making smarter choices when deciding where to put your small business funds.