To alleviate uncertainty and to create jobs and profits, this is important. This will facilitate making payroll, paying expenses and investing for growth.
There are 15 reasons to write a business plan but remember to double down on the balance sheet, cash flow statement and income statement as important parts of your financial section.
If you’re a startup, you will be making projections as educated guesses. If you’re an established business, your financial statements will include both your history and projections.
Either way, you should explain your financial strategies; especially, how you will manage your finances.
It’s one thing to generate revenue but it’s most important to create profits.
Vision and competence are vital. Whatever your reasons for writing, you need a quality business plan not a mediocre document.
So, having a defensive posture to protect your cash flow — as well as hunting for revenue and understanding your future needs — are vital to be successful.
Managing your cash flow
If cash flow is poorly managed, businesses fail sooner or later. So, there is a myriad of issues to consider, not the least of which is managing your inventory costs.
In spending your cash, you must be astutely strategizing and excellently executing initiatives. This includes planning how to pay major expenses and deciding how much money to keep in reserve.
In this way, you won’t panic when it comes time for crucial decisions in paying unexpected expenses or making time-sensitive capital expenditures.
And it’s an invaluable exercise if you’re seeking a loan or line of credit. Often, businesses need a line of credit.
For instance, if you suddenly acquire a new client or customer, you might need to invest in new technology or vehicles to provide products or services. That’s a good reason for a line of credit.
To get the line of credit, you must already have a plan in place to demonstrate competence to your financial institution in order to readily obtain the cash.
You must also know when to access the money.
Investing in your business
To grow, you will need to invest in your business. That usually means having strategies in place before spending money on big purchases.
You will need to determine which items will be paid with cash, a credit card, or with a line of credit.
So, insights in advance of certain situations are necessary.
For instance, some of your vendors might offer you special deals, such as a dealer offering zero-percent financing for a new truck.
Depending on your organizational structure and the amount, you might have to obtain higher approval from your board or a CEO.
To manage your cash flow for business sustainability, your financial section will have to plan the important elements in your invoices and how you plan to collect receivables.
Encourage a quicker turnaround by including the actual due date, not “payable upon receipt.”
Your invoices must state certain payment terms. For example, any retainers, discounts for prompt payments by your most-valued high-volume patrons, requiring deposits before delivering products or services, or late-fee charges for overdue receivables.
Slow-paying customers are a pain. But it’s best to plan to use psychology on slow-paying customers.
You will have to decide on procedures for collecting debts – whether you do it in-house or get a collection agency for overdue receivables.
Managing for growth
In an investment section, plan for scaling.
In a dynamic marketplace, you might not be able to be specific in your planning, but you should write how you’ll manage growth.
Plan for both the best-possible situations and most-challenging scenarios in which you might invest for your growth.
For instance, you might want to buy a business to grab market share but you must first study 10 financials.
Additionally, you might want to buy equipment or the latest technology, or you might want to expand into a new market.
No matter what the situation is, determine in advance how much capital or what percentage of it you’ll invest.
And again depending on your organizational structure, include guidelines about the approval process needed for investing or even eliminating investments.
From the Coach’s Corner, here are related strategies in finance:
Angel Investor: Tips for Increasing Cash Flow, Profits — A successful angel investor shares his tips for good cash flow and other profit issues.
Finance: Zero-Based Budgeting Aligns Resources with Priorities – Zero-based budgeting (ZBB) is no longer just your average budgeting technique. ZBB means all expenses must justified for all functions and analyzed for company needs and costs. Here’s how to convert to ZBB.
6 Best Practices to Capitalize on a Business Loan — Whether it’s a business loan, a cash advance against your credit-card income, equipment lease or purchase or commercial mortgage loan, don’t have stars in your eyes. Be pragmatic.
11 Tips to Negotiate Your Commercial Real Estate Lease — Depending on your locale, commercial real estate is either readily available or hard to find. Either way, it requires due diligence and skills to negotiate the best commercial real-estate lease.
Business Insurance Tips to Keep Money from Walking Away — As an entrepreneur you’ve worked long hours, scrimping, saving and planning in your fight for survival. But do you regularly take time to financially protect yourself and business?
Best Practices to Protect Yourself in a Business Partnership — Business partnerships often end in catastrophes because they’re not based on solid legal foundations. Here are five best practices in due diligence for your protection.
“By failing to prepare, you are preparing to fail.”