Creating a financial plan for your new small business may seem like a task you can tackle after you’ve been in business for a few years. After all, isn’t it more important to just jump in and get started than to plan out financial liabilities and goals?
While it may seem natural to put financial planning off, you could be overlooking some significant benefits that come with it. Consider that you’re going to have to deal with managing payroll, inventory, expenses, sales projections, profits, and losses anyway — you might as well have a plan to address them.
Here are a few perks of developing a smart financial plan at the start of your new endeavor.
You might already have a clear idea of your new business and why you’re starting it, but do you know the details of how it will make money and when your company will be profitable?
Mapping out your sales projections and estimated costs ahead of time will help you understand your business in a new way — beyond your product or services — and see it from a financial angle.
It’s important not to think of this as hindering your motivation to start the business. After all, if you end up loving your new business but don’t understand how to make money from it, you won’t be able to do it for long.
This may be the best perk of creating a financial plan. The average small business spends $40,000 in expenses in the first year. If you don’t have that amount sitting around in your bank account, then you’ll likely need to borrow it from a bank, tap credit cards, or get it from investors.
While using a business credit card will likely be necessary for covering some expenses, it’s not the cheapest route. Taking out a loan or convincing investors to put money toward your business could be your best option for lower repayment rates.
But they will likely want some financial projections before they open their checkbooks. Creating a clear financial plan for your business can go a long way in convincing them that you know exactly when you’ll break even, how much money you need, what you’ll use it for, and how they’ll be paid back.
Many small business owners are focused on their business’s day-to-day operations. There’s nothing wrong with that, of course, but sometimes, the intense focus on keeping the business running every day comes at the cost of considering long-term goals.
Creating a financial roadmap to follow when you start your business will help you assess whether your daily hard work is helping you meet your long-term goals. With it, you will have a metric to decide whether your current business strategy is paying off.
You may want to launch new products or services at some point, which will probably cost your business more time and money. But you will only have a clear picture of whether your new ideas will help or hurt your business if you have a financial plan in place.
For example, if you know exactly which year your new business will be profitable because you created a clear financial plan, you’ll know when you might have extra cash to spend on expanding your business.
Knowing what’s coming around the corner for your new business is impossible, but you can help yourself prepare for it with a financial plan. Understanding your business’ finances inside and out will help you manage your money when unplanned expenses arise.
Fortunately, there’s a lot of great small business software out there that can help you keep track of expenses, manage payroll, track inventory spending, and do your taxes. Taking advantage of this will help you see in real time whether you’re meeting your financial goals and give you data for where and how to make adjustments.
Starting a new business can be a fun and exciting adventure. Think of your financial plan as a compass to help guide you. It won’t tell you exactly where to go, but it will help steer you in the right direction.
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