Having orderly finances is essential for the growth of any business. Have you done your projection for the New Year?
The beginning of the year can be a good time to plan the 2020 goals and make an aligned budget that allows us to foresee future expenses and determine if additional financing is necessary, among other aspects.
The financial planning is a business management tool that helps meet business goals while identifying deviations and consequently able to operate, making the most productive and profitable business.
Here we presented 7 recommendations to take into account when conducting 2020 financial planning for business:
1. Define future projection
As a starting point we must answer where we want to go. Where do we see our business in one, two or three years? What is the current context? Does it help us, does it harm us? It is important to define the direction we want to give the company, before starting to plan.
The second step is to lower the objectives to meet that projection. What goals will I set? What would be my deadlines to meet them? This practice is something we should plan annually, and re-estimate it quarterly or in more limited periods.
How am I going to achieve those goals? What is the course of action to achieve all the proposed milestones? From the definition of this point, operational planning begins to carry out the strategy, meet the objectives and achieve the projections.
4. Operational planning
This planning consists of 3 main pillars: Income estimation, Expenditure estimation and the Projected result.
What is the income that I will be able to generate next year? What opportunities do I have? How is the market responding? This point is very important in order to understand how many resources I am going to make available throughout the year.
For the calculation, it is important to consider the sales history, inflation, average ticket and other data that you consider important for business behavior.
How many resources will I allocate? Where am I going to allocate them? How will I distribute them? This point is essential for the company.
You will determine how much I am going to spend throughout the year to be able to meet my projection. For this, it is important to take into account the people that I will need, tools, raw material, to make a distinction between fixed and variable costs, what was the historical of expenses, inflation, etc.
it will determine if my course of action is viable to move forward with my projection. I will be able to understand how much money I am going to make available and if I am going to need other resources to cover any cash lag that may occur.
5. Project the cash-flow
The cash flow is one of the main indicators of the financial status of the business. It reflects the liquidity of trade and its basic utility is to ensure the best possible use of money.
It is a key tool for the management of the company. Its misuse can lead to very high financial costs. It is important to project it to know how much is going to be available in the coming months, if it is going to be missing or left over, to understand what the money is spent and how it is entering. It allows seeing many variables of how the trade is working. Not having control over cash ﬂow can represent an opportunity or cash cost of approximately 5% of the monthly invoiced.
6. Projecting different scenarios
Once the operational planning is defined, we must project different scenarios regarding the information that we are considering. What happens if I do not reach my projected billing and maintain my cost structure? What happens if my cost structure increases?
That is, asking different questions that will allow us to project different scenarios. In particular, I propose that this exercise be carried out with 3 different scenarios: Pessimistic, Medium and Optimistic; and that for each one a course of action is planned before something unexpected.
7. Incorporate technological tools in financial planning
Today there are different tools that simplify cash flow management. Some online platform allows businesses to have accurate information on how much and when they will charge each day for their card sales, what amounts they deducted for taxes and promotions and if they have rejections or charge backs they can claim.
This will allow us to optimize the operation of our business, reducing management times and placing the central focus on sales or other more important tasks for the business.