Financial planning is one of the key components of running a successful company. The present-day business world is incredibly volatile, and according to all indicators, the ripples of the COVID0-19 will be felt in many years to come.
In the circumstances that are so unpredictable, penning down the document that will outline your incomes and expenses, identify any eventual financial needs, narrow down the best time slots for new projects, and essentially act as an early alert system becomes gradually becomes a necessity rather than novelty.
Let us then take a quick look at some of the most important elements of these documents, see how to use them to cover as much ground as possible, and ensure your startup is protected against all negative trends in the economy.
Review the existing strategic plan
Financial planning is very closely tied to strategic planning so you won’t be able to write this document in any capacity without having a clear idea about what you want to accomplish by the end of the year. If you feel your existing strategic plan is lacking enough info for comfortable financial planning you can ask yourself additional questions like does your company need new resources (equipment and staff), do you want/need to expand, and will your current cash flow be able to sustain all these turbulences? Don’t be afraid to go into excruciating details since the more thorough you are, the fewer things will be left to chance.
Engage in financial projections
Of course, while doing this, you should think in short, mid, and long terms. For a start, you can use your anticipated revenue based on previous sales as well as the average expanses for supplies, overheads, and labor and set up the monthly projections for the next quarter. Use these building blocks to engage in long-term projections and address the specifics of various projects you are currently engaged in. Also, be sure to remember that sales don’t immediately convert to funds you can reinvest. Keep note of these cash flow obstacles and try to create contingencies in form of various short-term or trade finance loans.
Don’t neglect your personal finances
Although your personal and business finances should be separated by a tall stone wall, failing to manage this important aspect of your life will definitely spill over to your startup and influence its operations. So, while you are making financial projections for your company use this opportunity to assess the income you are getting out of it, sort out and prioritize the expenses, and see how you fare at the end. Like in the previous examples, you should create yourself a backup in the form of prime personal loans that should patch up the small financial rifts without obliging you to long-term high-interest alternatives.
Plan for multiple scenarios
Although when making financial plans the common sense says to go with the worst-case scenario and reap even greater benefits if the situation makes a turn for the better, these conservative policies can also discourage company growth if the situation doesn’t prove to be as grim as you have anticipated. That is why you need to create financial plans for different assumptions like:
— The number of your customers increase on a month-to-month basis
— Your revenue and expenses stay flat throughout the quarter
— You are successful at increasing the average revenue per account
— The churn rate unexpectedly increases
All these scenarios entail different financial responses so be sure to cover as much of them as possible.
Ask quantifiable ‘what if’ questions
Look at it as a never-ending cycle of assumptions, projections, and adjustments. Even when you write the financial plan down, be aware that this document is neither exact nor complete. The only way to keep it relevant is to constantly ask quantifiable ‘what if’ questions like, for instance, what if the company tries increasing the pricing by 5%. As long as these questions have a monetary value attached to them, you will be able to get new use case scenarios, test the system, go back to square one and make your plan even more comprehensive and granular. Do this even before the most menial business moves.
Identify the revenue growth catalysts
The goal of any company is to increase its revenue through various revenue catalysts like SEO, Facebook ads, corporate events, and so on. All these catalysts need to be outlined in your plan altogether with projected revenue and KPIs you are going to assess these specific channels. This is incredibly important since the number of effective marketing channels on a constant rise and overhauling and testing the entire system whenever some of them fail, remain stagnant or even over-perform is not exactly viable. Be sure then to identify these individual nodes and keep them under very close scrutiny.
We hope these few examples gave you a general idea about the ways you can create the financial plan that will be able to endure all the uncertainties of the volatile present-day economy and help your startup come out as a winner in the end. The times we live in are riddled with various financial hardships and the years ahead of us don’t look any better. It is your duty to do everything in your power to allow your startup to survive all these obstacles. A financial plan looks like a good place to start.