The Importance of Financial Planning for the Growth of Startups and Small Businesses

Starting your own business is an extremely risky, but ultimately exciting and rewarding adventure. The act of transferring business ideas from a piece of paper into the real world is a completely different ball game then, let’s say, being an employee and doing someone else’s bidding.

Starting your own company is not only preceded but also followed by a specific set of guidelines that ensure a sustainable growth and development, steady income and setting up the necessary funds in case the whole thing goes south. That said, there’s a number of ways you can use financial planning to develop and maintain a profitable startup.

Measuring progress

Keeping track of progress is crucial for small businesses, especially during the first few months of their startup. Having a properly devised financial plan allows business owners to know exactly when and where to invest and properly distribute the funding. Once the funding has been adequately distributed, measuring success becomes easy, as you know exactly how much has been spent on the business and how much profit the business is actually generating.

The cost-profit ratio

Every business owner knows that the profit margins need to be higher than the expenses. But the practical use of this knowledge is often a completely different matter than that described by the leading business theories. In truth, business owners need to prepare themselves for times when they will have to make hard and unpleasant decisions. Giving your employees a raise when the business is doing well is perfectly normal and understandable, but so is cutting down the budget expenses when the business is struggling.

Expenditure management

No matter what business you’re working in, all the industries experience seasonal variations regarding their streams of revenue. With a well-thought-out financial plan, business owners are presented with an opportunity to predict any future expenditures their businesses might have. This is extremely important, as it allows you to know exactly how much resources you’ll need when dealing with various costs and it may be a wise idea to hire the best company specialized in financial services Sydney has to offer.

Setting up emergency funding

One of the most important aspects of setting up a business is setting up an emergency funding in case anything goes wrong with your business. Not only that, but more often than not, startup owners tend to spend too much cash when they start earning a lot, which completely ruins the already set financial plan and leads to additional funding being spent on keeping the business afloat. A good financial plan takes this kind of situations into the account and helps business owners save company money for real emergencies.

Long-term planning

Running a successful startup would be virtually impossible without a long-term financial plan. The problem is that most business owners focus only on the short-term goals, which results in business growing at a very slow pace and failing to reach its full potential. However, with a long-term financial plan, figuring out where to invest in the long run becomes a piece of well-calculated and planned-out financial cake.

Besides progress measurements, finding the optimal cost-profit ratio and setting up long-term plans and emergency funding, a properly devised financial plan provides the structure needed to run your business successfully. Financial planning might seem overwhelming at times and looking at all those numbers and financial formulas will most definitely haunt your dreams at some point or the other, but it does provide clear and measurable benefits. In case you know absolutely nothing regarding financial planning, it may be best to hire a professional company or outsource a season planner to help you set up and run your very own startup efficiently.

About: Dan Radak

Dan Radak is a Cloud Computing security professional. Currently employed as a consultant in couple of Web Hosting companies. Lately, he has been interested in web design. In his free time he likes travelling. You can reach him on Twitter.

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