9 Key Benefits Of Business Financial Planning
Business financial planning refers to the process of evaluating the capital needed, locating the obstacles, and devising strategies to reach profit targets. It is predominantly a process of formulating financial policies connected to procurement, investment, and management of finances.
Financial planning works with numerous objectives. The list includes:
- Deciding capital requirements
- Shaping capital structure
- Making monetary policies, etc.
Top 9 Benefits Of Business Financial Planning
The advantages or benefits of business financial planning are countless. Below are compiled 9 top benefits that a robust business financial plan guarantees.
Clear Company Goals
Business financial planning enables businesspersons to establish company goals, i.e. what the company is targeting to achieve in the next quarter, year, five years, and decade, and so on. Clarity regarding business finances helps enterprises/one-person companies to set the goal and expect the return accordingly.
Forecasted Profitability
Related to company goals is forecasted profitability that plays a crucial role in financial planning. Forecasted profitability is premised in a particular market condition, which helps determine the course of action and set a step-by-step goal.
Cash Flow Management
Businesses have varied revenue cycles (monthly/seasonal), explaining periods of consistent cash flow and shortage. Businesspersons can keep an eye on the working capital and efficiently manage finances during the forecasted cash shortage period through proper financial planning.
With the monetary cushion, a ready financial plan, and an account of cash in hand (difference between cash inflow and cash outflow), businesspersons can take advantage of purchasing/stocking inventory at reduced prices in unstable market situations.
Stable Fundraising
From brand new start-up to established companies, virtually every enterprise needs external financing and relies on financial products like a business loan. Most of the time, financial institutions demand a business plan as a document. Here, a well-constructed financial plan can well justify business prospects and guarantee funding without any hassle.
The fundraising process becomes even easier and simpler when one resorts to online platforms like MANDII. With minimal documentation and flexible eligibility, and end-to-end monitoring, business persons can quickly get a business loan or any other form of financial assistance easily. Further, they can select their lenders wisely and avoid the hassle of dealing with multiple PoCs from various financiers.
Prioritising Expenditure
Identifying essential expenses that can enhance a business’s productivity and efficiency immediately in the present market condition must be swapped with an investment that assures sizable returns later.
In other words, focus on the bigger picture.
Only a sound business financial plan considering all the market aspects can help to prioritise expenditure.
Cost Reduction
Backtracking the previous year’s unnecessary or over-inflated costs helps businesspersons avoid/reduce those and act accordingly in the current and coming years. Making a conscious effort to control costs and keep company expenses according to the budget (with quarterly/yearly review) can help figure out the scope of savings and utilising those amounts in areas that can generate higher profits.
Risk Mitigation
A sound financial plan helps identify and reduce an enterprise’s exposure to potential risk and provide a safety net against similar kinds of risk. Therefore, a strong strategy, including business insurance expenses, losses, and other costs, can help locate risky territories and consider both pros and cons of being involved in such areas.
Crisis management
When faced with any crisis, a company can find a way out and overcome those issues only with a well-thought-out plan. Financial planning will be reconstructed and reconsidered, depending on the crisis and market situation and may differ from a predetermined schedule. Any hasty decision can impact efficiency and take considerable years to return to a stable position.
Budget Allotment
Closely associated with cash management and cost reduction, budget allotment allows businesspersons to clearly understand the amount that needs to be segmented and spent throughout a particular period. The budget allotment can be done quarterly or yearly.
As Dave Ramsey says, “A Budget is telling your money where to go instead of wondering where it went”. Businesspersons must draw out a financial plan that can ensure money-making in a secure and consistent way.
Having clarity of business finance is quintessential to ensure a business’s overall success. Well-constructed financial planning helps shape both short- and long-term financial goals and devise a balanced roadmap to implement necessary strategies.
A robust financial plan is also necessary to make decisions regarding day-to-day operations and capitalise on opportunities, both present and prospective. Above all, financial planning acts as a guiding star, particularly for those who source their funding from financial products like a business loan.
Bottom Line
Financial planning is one of the foundations that hold together the entire cash management, working in a consistent cash flow and business growth cycle. When any of the financial components go out of order or get detached from the process, only robust financial planning can restore the business position and financial order. Moreover, a comprehensive financial plan shall also account for external financing like a business loan for efficient repayment.
