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The importance of financial planning for small businesses

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Most people would agree that financial planning is even more critical for small companies because one mistake can be exceptionally costly. The survival rates regarding start-up businesses do not make great reading. A recent study from indicates that 90% of start-ups fail. One reason for this is because they run out of funds. With that in mind, let’s take a look at why financial planning is so critical for small companies, as well as providing some helpful advice.

Why is financial planning important for small businesses?

Small businesses tend to have smaller budgets. One wrong move for a small business can lead to disaster. Not only is this because big businesses have bigger budgets but it is also because they have diversified too. Therefore, if one of their products or services fails, their other revenue streams protect them from financial ruin. Most small companies do not have this luxury.

Planning financially allows small companies to manage their cash effectively and make better decisions, i.e. whether to buy a generator as a back-up or go for generator hire as and when needed to protect the continuity of your business. It can be easy for businesses to become too focused on short-term goals – this is especially the case for small companies. However, finance planning considers both short and long-term goals. You can also use data to easily spot trends that can help you to ruin your business more effectively and make better decisions. Furthermore, you can measure progress and prioritise expenditure effectively.

What are some financial planning tips for small business?

Before you do anything, you need to establish how much money you have available to you, your incomings, your fixed and variable costs, and anything else that impacts your financial standing. You can’t put together an effective plan without doing this first. Moreover, your financial position is something that needs to be constantly addressed. Changes occur regularly in business, and one small change could have a big impact on the overall picture.

Another important part of financial planning is meeting all of your tax deadlines. Failure to do this can be extremely costly. You also must chase debts. Unfortunately, not everyone is going to pay you on time. Follow up your debts with a first reminder letter and then a final demands letter. Another part of financial planning and management is inventory management. Too much stock can be extremely costly, and running out means opportunities missed and money lost. Furthermore, finding the right kind of funding is important. From overdrafts to loans, the choices are endless. You need to make sure the one you select is right for your business specifically. Don’t rush into decisions like this because they have a long-term impact on the success of your business.

One of the most important things you need to do is make sure you seek professional aid. This will put your mind at ease and will guarantee that you are doing all in your power to run your finances efficiently and maximise your returns.

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