Making Financial Plans For Your Business.

Have you ever seen a house that was built without a plan, or one in which the owner did not first sit down to plan and prepare for the cost that will be required to build the house to finish. What usually happens is that the building project gets stopped half way, and even if the manage to complete it, since it was built without a plan, the building is at risk of collapsing.

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The first lesson that most startup entrepreneurs learn is that having just a brilliant idea or a goal you want to achieve in a business is not enough to ensure the success of the business. If you do not plan effectively for your business, the growth of the business will be stunted or it may even fail. Unlike in the building of a house where the plan is needed only during the construction process, a business requires daily planning, as the business owner needs to keep watching the market trending to know what the best bet at the moment should be.

Although there are so many areas which the business owner need to plan for, areas like which new market area they need to expand to, where they should pull back a bit, is it too early to expand? Is there a need to employ more workers? and so forth, I will be emphazing more on financial planning.

Business financial planning involves lots of things. In its planning, factors like expenditure, income, loss, profit as well as other financial factors are analysed. The true measure of the health of the business can be obtained from the analysis of it's finance. It is from the result of the analysis of the business finance that he can know how best to spend the resources of the business. But to be able to that, he must be able to clearly distinguish the expenditure and income of the business.

Most businesses fail to completely separate the capital of the business from the income they make in their business, and before they know what is happening, the business has collapsed. For instance, their total sales in a day may be $2000, and since they do not seperate their capital from their income, they end up spending like $1000 with the thought that they have made reasonable profit for the day, not knowing that the expenses, they have made that day has brought the business down to a loss.

So, what should a business owner do? He must have a ledger or a book which details the inflow and outflow of money, in and out of the business. He should be able to distinguish in the record the income and the expenditure. Under expenditure, in detail he should distinguish capital expenditure, recurrent expenditure, revenue expenditure, etc. This way, he can tell exactly how money is spent in the business.

A record of one's previous month's expenditure can provide the data needed to plan efficiently or prepare the next month budget. One thing a budget does for you is that it restricts your spending. Things like impromptu spending or buying things that you don't really need, will be avoided, as your financial budget has already been mapped out.

Below is some of the things that a financial plan should include:

1. Income and expenditure analysis:

It is in this analysis that you will find all the profit and loss the business has made over a period. Some of the details you will find in it includes operational expenses, production cost (both of which are cost of running the business), revenues, net or gross profit, as well as the income made from sales.

2. Balance sheet:

The balance sheet is a document that contains all the assets of the business as well as its liabilities. You will also find the equities owned by the stakeholders. Many see the balance sheet as the fundamental financial statement of the business, as it gives an overview of the business's finance. Some other things covered in the balance sheet includes a record of those that the business owe, and what the business owes them. You can see how important the balance sheet is to the business, because without it, it is hard to really evaluate the finance of the business.

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3. Business Financial projection:

Financial projection is a statement that tries to foretell what the cash flow of the business will be in a given period in the future. It is a predictive statement. In it you will find proposed income and expenditure the business expects to incur in the future. It is more like the businesses plan for the future.

Business planning cannot be over emphasized. You don't necessarily need to own a large business for these plans to be applied, you can begin to apply them from the early days of your business. If you are not doing so already, you should begin to do so; keep business records and draft out business plans, because the growth of your business depends on it.

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