Why is Effective Financial Planning Important for a Business?

For a business, financial planning is an incredibly important task. As well as assisting with everyday decision making, it can help reveal vital information about the health and productivity of the business, as well as allowing longer term plans to be made. From larger corporate organisations to sole traders, here’s why the advantages of financial planning in business make it a must-do activity.

Aids cashflow forecasting and budgeting

Financial planning for a business shows what cash is available to hand, what will be needed to cover upcoming short term expenses, and what will be left.

Many businesses experience peaks and troughs in terms of income, leading to times of plentiful cash and others where it could be short. Being aware of potential cash shortages allows you to plan ahead so that you can weather any shortages, perhaps by building a reserve during higher revenue periods.

On the other hand, if you are aware of being in a position of having surplus cash at hand, you will be in a position to take advantages of any opportunities that may arise, such as the chance to make a purchase at a favourable rate.

Provides the long range view

One of the benefits of financial planning in business is that it allows you to avert your attention from shorter term issues and focus more on longer term planning.

If you are eager to grow your business, then you will need to look ahead to the future to see what you will need to spend to stay on track with your growth goals. Investing in sales and marketing, taking on additional staff or purchasing new equipment or technology may be necessary to get ahead of competitors, and business financial planning will allow you forecast what you will be able to invest, and when.

Allows you to identify trends

Seeing which decisions or actions actually resulted in a good return on investment is impossible without good financial planning for a business. Did your sales increase when you invested more into certain types of marketing, for example? Or did enquiries dip when certain members of your team were focusing on other tasks, or on holiday?

Identifying trends like these will allow you to see what’s working and where you could potentially invest more, and where you might need to take action in order to avoid lulls, for example by arranging relief staff to cover busier periods or staff leave.

Makes it possible to measure progress

Effective financial planning for a business will show how well a company is actually doing in a tangible sense. Whilst overcoming everyday challenges may feel like success, and you may be making what feel like wins, on paper it may be another story.

Turnover is one thing, but profit is something very different. Business financial planning will allow you to see the true picture, in other words, whether your efforts are actually making money, and whether your profits are growing over time.

If you are in profit, you will be able to plan for future investment to fuel your growth strategy. If not, you will have the insight you need to make changes to get you into a stronger position.

The importance of effective financial planning for a business

Every business is different, and a business owner’s individual circumstances will vary too. This is precisely why taking independent financial advice is crucial when it comes to making a success of your business, and choosing an adviser with experience and expertise in both business and personal finances is vital. The adviser can also liaise with your accountant to ensure all angles are covered, and that you are optimising the tax relief opportunities that are open to you whilst effectively planning and forecasting.

Here at Partridge Muir & Warren, we have an in-house team of tax advisers, financial planners and legal specialists ready to provide you with the advice you need to help you meet your business and personal financial goals.

To learn more about how we can assist you, please get in touch.