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Financial Planning for Businesses – What’s the Point?

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 5 minutes

Sometimes, despite your best efforts at making a long-term, comprehensive plan for your business, something comes “out of the blue” and throws everything into disarray.

Circumstances beyond your control, like a financial crisis, bad debts, a fall in sales, or the lack of commercial finance available. These problems can leave many businesses that were previously in good standing, in a weaker position. Consequently, instead of reaching business milestones and moving forward as you might have planned – you end up firefighting.

It can be very easy to panic in these circumstances. But thankfully there are things you can do to get yourselves back in order. Aside from looking at different commercial finance options, or repayment plans, creating a financial plan with a strong cash flow forecast, provides you with the best platform to move the business forward.

Make a plan, and stick to it

Planning is important even when the going is good, so having an idea where you’re heading during and when coming out of financial trouble is essential. Having a five-year financial plan and considering all the potential variations in terms of incomings and outgoings is critical.

However, you should balance your enthusiasm with realism and not get carried away by pipe dreams. While there’s nothing wrong with aspiring to be something greater, acting on unrealistic plans will take your business down a path that could ultimately cause more harm than good, and distract you from solving the real issues.

Concentrate on getting your business onto a sound financial base. Once there, you can move forward and plan for the following:

  • Marketing – while in financial trouble, it may be tempting to cut back all overheads or outgoings deemed unnecessary, but this is the time you need to undertake market research and explore ways of jumping on trends. It’s the perfect opportunity to drop poor-selling product lines or those that aren’t bringing in revenue, introduce new ones, diversify, and potentially reach new audiences.
  • Goals – Before you start making elaborate plans for too far in the future, you should make sure that the business can survive in the long-term. Once you’ve assessed this, you can think about growth. Set goals and targets and outline how you are going to achieve these in realistic timeframes. Figure out how much achieving each of these goals will cost, and whether they’re practical.
  • Monitoring – Take a look at where things stand; which of your products or services are selling and which are making a loss? What are your competitors doing? Where do you want the business to be in five years? Collate the results and use what you find to progress towards your targets. Re-assess things at regular intervals, these could be monthly or every six months, but make sure you keep your eye on what is and isn’t working.
  • Cash flow – Remember that “cash is king”, so make sure your company has enough working capital to fund your plans, and if not, amend them so they stay within your budget. One of your first jobs should be producing a cash flow forecast containing all your income and outgoings for five years. Doing so will demonstrate how the business will get by if takings are lower than expected, and help you budget for when investment or recruiting is needed. Putting together a cash flow forecast can give you an early warning to potential financial pitfalls, and help you correct things; essential when trying to pull your business out of a hole. It can also indicate when you might have to be firm and assertive with late-paying clients; doing so can be a step towards improving relationships with suppliers when you pay their invoices consistently on time.
  • Planning for the worst – for if something goes wrong. Though it may seem pessimistic, you should be prepared for the worst; say a key member of staff leaves, or you encounter an unplanned financial hurdle. Doing so should reduce any damage that the obstacle may cause. Whether it’s having a member of staff trained to step into an absent employee’s shoes, or taking out a specific type of finance, be ready should disaster strike.

Again, be sure that you have the existing financial strength, and that the structure of your business is sound before you embark on any new, ambitious plans.

Do you need to raise finance?

While you’re making plans for your business’ future, you might have to consider raising finance. You should ask yourself whether it would be feasible, or desirable to attract private investors to your business and if you did opt to apply for commercial finance, which type would be most beneficial?

What repayment options have I got?

We will do everything possible to help turnaround your business, whether that’s via a payment plan such as a Company Voluntary Arrangement (CVA), or restructuring via administration. Our staff are approachable and will explain the options available and how they are likely to affect your business.

In summary

Having a financial plan for your business is essential for smooth running. However, sometimes even the best of plans can go astray either due to unplanned financial difficulties or circumstances out of your control. You must be prepared if you encounter these problems, and have a plan to get yourself out of the red. If you need to, take professional advice from a licensed firm of insolvency practitioners, and decide how to move on from your troubles and take the business forward.

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