Getting a business off the ground is a huge undertaking – one that’s often undertaken on a wing and a prayer and not much forward planning at all. Now that you’ve made a start, it’s important that your business continues to thrive in the coming years.
One way to do this is by utilising financial planning. Big businesses dive deep into forecasts and previous market trends to plot out a detailed map for what to expect over the next 1,5, and 10 years. You don’t have to go that deep, but smart financial planning will help drive your success over the next few years.
Here’s how to use smart financial planning to improve cash flow in your small business.
People come to business for different reasons and with unique experiences. This means that you might not have a good idea of what to expect in terms of costs over the coming months and years. That’s why it’s a good idea to sit down and attempt to calculate how much money your business is going to spend.
How do you do this? Look at the costs you currently have. You’ll be able to estimate future costs based on some of those. For example, you power bill is likely to remain more or less the same. You know how much inventory costs or your contractors charge. So estimating these costs for the year should be pretty easy.
Think about growth costs over the next year. Do you expect to be employing new staff or expanding to a new location? What are you planning to spend on marketing?
Also, try as much as possible to account for seasonal costs and variations. Will you be bringing in extra stock before Christmas? Account for this in your yearly costs.
You can use the financials supplied through Xero or the Change app to account for costs
Set financial goals for the year
Where do you want the company to be by the end of the financial year? Set goals to strive toward. Make them sensible, but also goals you’ll need to stretch for. Create a step-by-step plan for how you’re going to reach those goals (for example, by increasing spend on sales and marketing) and make sure you’ve accounted for those costs in your forecasts.
Estimate your revenue
In the same way you estimate your costs, look at your numbers and try to figure out a forecast for how much revenue you can expect in the year. You can do this by understanding the cost-of-acquisition (how much it costs you to acquire a new customer), how long the customers remain with you, their average spend, and which products or services bring in the most profit.
All these numbers can be worked out based on the data in your Xero account and Change app.
Once you’ve got these estimates, compare them both to come up with monthly, quarterly, and yearly targets. You can use these targets to track your progress.
Get expert advice
Your bookkeeper can help you understand how to create forecasts and formulate a financial plan. With their help, you can understand which months will have tight cash flow, and where you experience times of plenty and should put away money to help you survive the lean times. Talk to your bookkeeper and your financial plan today.
Financial planning is sensible business – with a plan in place you’ll be able to understand how your business is tracking and whether you’ll be able to meet your goals.
Here at Change, we’re all about positive changes to improve your business. We can provide you with that year-round visibility that’s so key to being successful in business, all while taking a stressful job off your hands. Go on, book a meeting to talk to the team at Change about your business needs.