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Why Every SME Needs A Solid Financial Plan

  • Highlights

  • The importance of proper financial planning

  • Reasons to have a financial plan in place

  • What happens when your business lacks a financial plan

  • The need to measure progress regularly

Very often, small and medium-sized business (SME) owners are so occupied with their day-to-day expenses and working, that they forget to plan for long-term growth. While trying to expand, finances are essential. Thus, if they do not have a solid financial plan in place, their growth prospects can be affected.

A financial plan is the foundation to build and grow a business. Without it, the SME owner won’t know whether whatever they are doing is profitable and what are the economic prospects of his business. There are several reasons why an SME owner needs to spend time creating a financial plan. Here are our top 5:

1.Cash Management

Without a financial plan, an SME owner is likely to either fall short on revenue or run out of cash, both of which have negative consequences. Moreover, within a financial year, there will be periods of plentiful revenue, while at other times, revenue will be low. Having a financial plan that takes all these factors into account will help the SME owner to ride out the bad periods with ease by getting a business loan.

Moreover, they can even create a safety cushion,which they can use to take

advantage of opportunities that arise, e.g., a chance to purchase inventory during a period of low cost, such as the holiday season.

2.Long-Term View

When business owners become stuck on the day-to-day working of their company, they often lose focus on where they want their company to go. A financial plan usually contains the long-term goals of the company, thereby reminding the business owner of where they’re going, and highlighting periods when external business finance is needed.

The financial plan is, thus, the blueprint of the company. With it, SME owners will know their budget and how much money needs to be spent (and on what) for the overall growth of the company.

3.Spotting Trends

A financial plan can help SME owners spot trends in their sales and marketing. It will tell them if the money they spent on advertising created sales. It will also tell them if certain products or services are doing better than others, giving them an opportunity to market those more.

Moreover, a financial plan can also help spot a financial downturn in advance. Since it tells the SME owner when their sales are down or when their overheads are too high, they can take the necessary steps to address these issues right away.

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Financial Habits that will help you get a business loan

As a small business owner, you need to stay on top of your business’s finances, in order to ensure that your business keeps running smoothly and never runs out of working capital for its day-to-day operations. Additionally, you need to ensure that you are able to obtain external financing for your business when the time comes for your business to grow, or take on a large project. Here, we give you a few financial habits that every small business owner should have, that help you get a business loan easily when the time comes for you to apply for a loan.

4.Prioritizing Expenditures

Small businesses require ready cash to succeed. It is therefore extremely important that they do not spend money on anything they do not absolutely need. That is, they must learn to prioritize their expenses. A financial plan can help SME owners do just that.

When the SME owner creates their plan, they will be required to know what their most important expenditures are. Thus, they will be able to prioritize accordingly, and know when to apply for a business loan. Even the largest, most successful corporations need to go through this procedure.

5.Measures Progress

In the beginning stages of a company, SME owners are likely to work long hours and so may find it difficult to keep track of any progress. However, having a financial plan can help with this, because it will measure (in quantifiable data) how far a company has come since its inception.

Additionally, since the financial plan contains the short-term goals along with the long-term ones, it becomes easy to tick them off the checklist when they’ve been achieved. This gives the business owner some much-needed motivation to continue with their work and finally achieve their long-term goals.

Thus, it is necessary for SME owners to spend time creating their financial plan, preferably before starting off. However, it is important to review these plans regularly and be sure of some ready cash always for success.

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