We’re not going to tell you that failing to plan, is planning to fail. We’re also not going to tell you that a goal without a plan, is just a wish. We’re also not going to tell you that making sense of cents is your first step towards growth. We’re also not going to scare you with the facts that, on average, 40% of new businesses actually see a profit, 30% break even and the rest continually lose money.
We’re not going to tell you all that, because you probably already know all of this.
But what we are going to tell you is that continuing to ignore the reason to plan financially for your business could mean the death of any hope you have at succeeding. And here are 8 reasons why.
1. Controlling your Costs
One of the most important parts to financial planning for any business, is the ability to control your costs. This doesn’t always just mean how much you’re spending, but, more so, how well you manage your internal cost centres operationally – from your suppliers to your people, your level of waste output and your hidden revenue streams. Creating an annual budget helps you to priorities that which is most important to your business. It helps you see a larger view of what’s ahead and what you’re unsure of. But financial planning also means that you start to open up critical areas within your business operation that is at risk of failure, attack, and loss.
Accurate planning means you are able to measure your progress against where you hope to be – giving you the time and headspace to make critical adjustments where needed. You cannot plan against a key supplier going bankrupt overnight, you cannot plan against for a crippling cyber-attack, you cannot plan against a competitor springing up overnight and taking 60% of your customer base. What you can do is create a contingency plan that mitigates if (and when) this happens – meaning that your business is not brought to its knees, but is able to change course or brave the storm – in whatever shape that may be.
2. Cash Flow Management
Probably the most significant aspect of accurate cash-flow management stems from the fact that because you’re aware of your cash flow, you can sufficiently prioritise spending. Just because the cash is coming in, doesn’t mean it will always be there when you need to spend it. And when you haven’t planned to spend it, and it’s not there anymore, well – that’s when things become problematic. The critical part of cash flow management is knowing, at the start of every month, how much you will be spending in that month – regardless of how much cash you make. Customers who are slow to pay, or debt that is becoming more cumbersome thanks to rising interest rates or even changing suppliers who now charge higher rates can all be things that cripple a business – merely because they’ve been overlooked (or haven’t been planned for). A good cash flow budget will usually reflect anticipated expenses every month plotted against anticipated revenues – in order for leadership teams to gauge progress of the business plan as a whole.
3. Objective decision-making
Not too dissimilar to prioritising your spending, accurate planning means that you are presented with a transparent, clear, objective view of your business prospects, and chances of success at reaching your goals. But for every business leader, there comes a time (many, in fact) when decision-making takes a leading role in any type of business success. And this is where things get complicated. For business owners who have grown their organisations from seed to successful, profitable businesses, they are often faced with conflict – especially when having to make decisions that are in the interest of the long-term success of the business, but directly affect the people that work in the business, the people that have invested in your business, your own personal views on your business. Accurate financial planning means that it takes the sting out of having to make a tough decision which is being made to build the growth and success of that business. And provides a more strategic, compelling, and objective motivation to looking forward.
4. Accurate compliance
Ever been caught out with a hefty tax bill? If you have, you’ll know what we’re talking about. Unfortunately, one of the biggest pitfalls associated with a failure to plan financially, is not complying to accurate tax planning – meaning that because you’re not estimating and adjusting your taxes accurately, your business will be falling short of expectations. The result? Unnecessary fines and penalties placed against your business. Working closely with your financial team means that you are aware of due dates of payments, amounts required – and you’re accurately saving what you expect to be paying – without having it eat into your bottom line – giving you a false sense of success.
5. Future investment
If business growth is in your long-term plan, and business investment is the tool to help you get there – then you it’s important to realise that any investor who aims to put cash into your business, will expect to see proof of accurate planning (both past, present and long-term future). They are looking for a sense of confidence that their investment will yield reward. If you have been unable to do that, simply because you don’t plan financially, you can kiss any hope of investment or funding goodbye. Planning to grow sometimes requires a cash injection of some sort. And to successfully capture that opportunity, you will need to demonstrate how you plan to use it.
6. Mitigating risk
There is a scary statistic in the US currently – 60% of all small businesses who suffer a cyber-attack, are out of business within 6 months. But before you think that this statistic doesn’t apply to you (you’re either a much bigger business, or you’re in the UK), don’t get too comfortable yet. Unfortunately, new figures show that nearly 50% of all UK businesses suffered a cyber-attack or security breach in 2017.
Planning failure (or when things go horribly wrong) doesn’t make you negative or paranoid, it makes you smart. It keeps you objective and it helps to keep your head above water when things do get rocky. In a great article written by Jerry Jao, he discusses why planning for failure is the way to protect yourself against loss. Planning for risk and potential loss keeps you on your toes, keeps your spending objective, keeps your cash flow on point, and helps you to move on quicker, and more successfully, after disaster. Whether you call it your “Rainy Day Fund”, or your “Plan B Purse”, financially planning opens up risk areas throughout your business where you are exposed – and gives you an opportunity, long before they happen, to tighten up operationally – and reduce the potential impacting loss that may result.
7. Healthy debt management
It is not uncommon for growing businesses to be in debt, at some point of their growth curve. More likely earlier, than later (at least, that’s how it should be!). And while the concept of business debt is often one that is looked down upon, there is a positive side to debt management – and that’s accurately planning and improving the way that the debt is handled. For example, the interest rates on loans, credit cards and credit facilities is often a hidden cost that many business owners don’t often see. It’s not enough to simply add debt repayments to a balance sheet, while the interest of that loan adds up behind the scenes. Build a plan that supports risk areas like interest rates and hidden charges associated with administration of debts and facilities – and make sure that your financial plan is a transparent, insight-giving exercise that removes any uncertainty or concern.
If you’re ready to review your operational growth – and plan for success – then we’d love to hear from you. We’re growth experts – and we’re ready to work with you to take your already-growing business, forward.