5 reasons startups need a financial plan in 2022

Founding a start-up business can be the most exhilarating and difficult journey any entrepreneur will take, with considerable time spent growing and successful in your business. However, what many startups fail to implement is a financial plan that they can follow and follow along their journey.

From conceptualizing the dream of having a business, to launching it and getting the necessary results you need, there are many things that can go wrong – if you don’t plan ahead.

Did you know that 82% of businesses fail because of poor financial management?

Often times, tech business owners are brilliant, but financial management is left out. It doesn’t matter how smart you are and / or a genius in your field – if you don’t have financial skills it will sink the whole business.

Imagine investing the time in learning the financial literacy necessary to keep yourself and your business ahead of the curve and cruising for the long haul. I’m not suggesting that you understand accounting skills, but rather what it means to have “financial literacy” in your business.

A great tool for managing your business finances is to create a financial plan. A financial plan, also known as an operating forecast, helps create business growth strategies. A financial plan also creates a roadmap for effectively managing your money. A financial plan can keep you from spending money that your business might not be able to cover.

Fractional CFOs help you run your business and provide strategic advice and direction. Still, it would be best to always understand the financial implications of every business decision you make. Successful multi-million dollar fundraisers can make a startup feel financially secure, but the early years of business are the toughest.

Not having a financial plan could make or break your business. Whether you have a capital injection or a business start-up, knowing your business numbers and having a financial plan will help you increase the profits your business can generate.

Here are 5 reasons why a business financial plan will help you keep your startup profitable:

1. It will provide your business with a roadmap to financial success

A financial plan details what your business will do, month by month for the next 12 months. Specifically, it plans the number of sales you need to make, as well as your business expenses, to ensure that you are hitting the target profit margin within your business.

Creating an operating forecast for the coming year helps you plan your business and clearly define the goals you want to achieve over the next 12 months.

Not only are you setting your goals, but you can also see how tight profit margins you can make. Sales are essential to business, but without profit you will not be able to grow and increase the size of your business without the profit to be reinvested in your business.

2. He will keep you and hold you accountable

When you have a financial plan, it helps you stay accountable for your goals. You need to compare what your business has done with what you planned for sales and expenses, determining if you haven’t met or exceeded your goals. In turn, this information can then be used as feedback on areas where you can improve your business performance, while also capitalizing on what is going well.

The feedback you receive, when used, helps you build a stronger, more profitable business. When you take the emotion out of looking at your numbers and recognize that they are comments to help you achieve your goals, you will continually strive to improve your business every month. As a business owner, responsibility also means observing continuous growth and information processing.

3. It will help you make profitable trading decisions

Financial planning for your business describes how your business becomes profitable. As the leader of your business, you are either the primary decision maker or very close to whoever holds that authority.

It is up to you to decide which decision or decisions you make, so understanding how and why those decisions will affect your profit margin when making those decisions. When you create this plan and understand what drives profitability, it will be easier to make business decisions that positively impact your bottom line.

4. It will reduce your waste and overspending

When you monitor your financial activity, you’ll be quicker to plug the money leaks that wreak havoc on your bottom line. By regularly monitoring your spending, you will know where costs are paying off and where they are hurting you.

It is important to establish, implement, and monitor Key Performance Indicators (KPIs) that you can measure in your business to ensure that you are getting a good return on your investment for these expenses.

Uncontrollable costs can be better managed with proper planning.

5. It will help you understand your cash flow

When you learn about the financial activity of your business, you will understand how cash flows in and out of your business.

Positive cash flow is vital for a business because money is the lifeline. Having a cash management system in your business helps keep money flowing in and out easily.

It is recommended that you plan your cash flow at least six to eight weeks in advance. Ultimately, managing your finances in your business will go a long way towards financial success.

Yes, there are many moving parts in a business, but financial management should be high on your list for long term success. Managing money doesn’t have to be difficult, and when you have someone to show you the steps you need to take to protect your business, the easier it gets.

Louis R. Hancock