Top 10 Financial Planning Tips for Small Businesses

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Financial planning needs to be closely aligned to your business plan’s goals. We examine the best financial planning tips you can adopt and what tools you will need in order for successful financial and business planning, growth and increased profits.

There are four key components to why financial business planning is so important:

  • Outlining the scope of your business
  • Identifying potential funding problems
  • Setting out your financial goals
  • Measuring success.

Without clearly identifying and exploring these components your business will find it difficult to secure investment or funding from either a bank or an alternative lender.

Financial Planning Tips

By far the most important part of your business plan will be the financial planning section. You need to know what these financial tips mean as outlined by

1. Have a Plan – Have a clear understanding of what you want your business to achieve and what the most important aspects of it are.

2. Business Goals vs Personal Goals – Your business goals might be at odds with your personal ones; growth and expansion means borrowing more, a polar opposite to your personal goals of saving. Calibrating a balance between the two isn’t always possible, but realising and understanding the need for business finance can counter that opposing force of personal wealth to work best for you, your family and your business.

3. Explore Borrowing Options – At some time you are going to need capital and/or investment. Seek out your options; secured/unsecured business loans, start-up finance, invoice finance, private equity funding, personal savings etc., as these will allow you to strategise your financial planning accordingly. If your business is scalable, allow for self-funding but if you need to look at external sources of finance, ensure you know what they are, where you can get them and how much they will cost you.

4. Stay in Control of Costs – If you are aware of your costs, sales and product demand, you can ensure that you are well-positioned to make a profit. A clear picture of your revenue against your costs will make you more dynamic in changing things if you start to lose money and position you better in order to take advantage of growth opportunities.

5. Monitor Cash Flow – Without cash flow your business cannot stay healthy. Without it, it cannot pay suppliers. pay employees or manage its overheads. Controlling your accounts payable and closely monitoring creditors and debtors is vital to ensure your cash flow stays in control and keeps flowing.

6. Your Tax Liability – This is often the most painful of financial planning tips, but if you don’t understand what your tax liabilities and status are then you might find yourself in serious financial trouble from the HMRC. Always ensure your accountant is aware of all your business activities and can monitor when and how much your tax bill will be. This includes PAYE, Corporation Tax, VAT and Income Tax. Click here [LINK: How To Avoid A Shock VAT Bill] for more information on how to manage your tax bills.

7. Workplace Pension – If you employ more than just yourself, you will now need to ensure that you can provide a workplace pension. Make sure you are registered and able to meet the demands and regulations of the Workplace Pension Scheme.

8. Your Exit Plan – What happens to your business if you decide not to be a part of it anymore? And before you say you’ll never leave the business, consider unforeseen events like ill health, divorce, economic changes or even death. An unexpected event can change the entire direction of your business and put jobs, services and income streams at risk. Having a robust plan for your exit, whether planned or unplanned, can ensure the future security of the business and those within it.

9. A Financial Safety Net – Business owners often have a sizeable percentage of their personal assets tied to the business. This can have a pretty big impact on them if anything adversely affects their business. Removing personal assets, or transferring them can help alleviate this potential financial conflict.

10. Inheritance – Hopefully your business will have proved such a success that it results in many years residing in tropical paradises before your passing. However, this isn’t always the case. Have you ensured that when you die your personal assets, including your business, is transferred as you wish?

To put it into day-to-day business planning terms Invest Northern Ireland outlines the same financial planning tips as above but in a sharper focus:

1. Have a clear business plan
2. Monitor your financial position
3. Ensure customers pay you on time
4. Know your day-to-day costs
5. Keep up-to-date accounting records
6. Meet tax deadlines
7. Become more efficient and control overheads
8. Control stock
9. Get the right funding
10. Tackle problems when they arise.

Solid financial management is the only way in which you can prepare for both survival or growth, either way, without it, your business objectives cannot be attained. If you abide by these financial planning tips you can expect longer-term financial stability.

But in order to understand and maximise this advice there are certain financial strategies you need to understand and utilise as an integral part of your business planning:

Essential Financial Planning Tools For Your Business


The Profit & Loss Statement

Explaining how your business made a profit is important not just when applying for finance, but for explaining and demonstrating how your business is performing to employees and directors. Your statement consists of a table of figures showing all of your financial income, including all of your revenue streams, alongside a list of all of your expenses. At the very bottom will be a figure showing either a nett profit or a nett loss.

Your Profit & Loss statement will be the first port of call to understand how and why your company might be losing money.To understand this it means including every financial income and expense related to the company:

  • Sales
  • Purchases
  • Fixed expenses
  • Rent
  • Wages
  • Utilities
  • Insurance
  • Overheads
  • Taxes.


Cash Flow Forecasting

An essential tool for estimating and assessing how much money you are going to need in terms of how much is coming into the business versus how much is going out. This can be measured in weekly, monthly, quarterly or annually. There are few financial products that won’t need to include fairly detailed figures showing this.

If you have a regularly updated cash flow forecast you can monitor the performance of your business at any given time and accurately pinpoint when you might need additional financial help. It is a major component of every successful business planning strategy:

  • Helps you to understand your business’ performance
  • Allows you to plan for the future
  • Overcome seasonal cash flow fluctuations.


Sales Forecast

This is essentially the way in which you are going to estimate your business’ future sales. In the absence of your sales forecast, future planning, including growth, purchasing and infrastructure cannot be determined. Your sales forecast is important in allowing you to make intelligent business decisions immediately, in the medium term and in the future.

Your sales forecast will focus heavily on the cost of sale of your services or products and the quantity you are realistically going to sell in a given period of time. Combine the number of sales with your price and calculating the cost of each will reveal a pretty accurate sales forecast you can use to show expected profit. This can be done quarterly or yearly but is usually best done on a monthly basis to identify how your business is performing in real-time.

Balance Sheet

Your balance sheet provides a snapshot of your company’s performance. It takes a look at what your company owns against what it owes. It compares your assets with your liabilities by listing each.

At its simplest it allows a business to assess how the value of the company has grown or decreased over a period of time. But it also shows how its assets outweigh debts giving an indication to its financial health to both creditors, shareholders and investors.

It demonstrates a company’s abilities to pay its debts or to facilitate additional borrowing such as loans. Your balance sheet analysis might play out alongside your Profit & Loss statement and your cash flow statement in judging your ability to pay outstanding debt and manage shareholder equity. But it also helps you work out potential financial scenarios and how they might affect the business.

Break-Even Analysis

This is simply a calculation of how much you need to sell in order to cover all of your overheads and expenses and start making a profit. Your business needs employees, stock, equipment and product before you can make sales, but how many sales do you need to make in order to recover your outlay?

Remember not all of your products actually make a profit, some might cost more to make than you get back from selling them, you might also have variable-priced products and pricing agreements that account for a wide range of different revenues.

To get your break-even costs you’ll need to calculate the total fixed costs of production by the unit price (less whatever variable costs are included to make that product). Simply put:

Break Even Costs = Fixed Costs / Sales Price per unit – Variable Cost per unit

Understanding Scalability

The future success of your business is often dictated by the scalability of it. Knowing intimately how your business works will ensure you are able to deal with, and prepare for, opportunities to scale.

The essence of scalability means allowing for expansion and growth – especially revenue growth – without letting operation costs get out of control. It means minimising outlay but maximising profitability.

All of this is only possible by utilising all of these financial planning tips and incorporating them into your business planning. When you exercise your financial toolbox of Cash Flow Forecasting, Profit & Loss Statement, Sales Forecast, Balance Sheet and Break-Even Analysis, you can allow for increased profits through scalability and diversification.

Your financial planning is essential for your overall business plan to be a success. Whether you actively monitor it or hand it over to your financial director or a third party, it is essential that you understand these aspects of your business.

Taking heed of the financial planning tips as outlined above will ensure that you are in the best position to adopt the financial tools you will need to fulfil them.

Creating and monitoring your financial statements will allow you to efficiently understand the full capability of your business; where profit comes from and how much potential you have for increasing it. But most importantly it will ensure that you have the best chance of securing funding from investors and lenders when the need arises.


Malika Street

Malika Street

With over 5 years as a copywriter for several top UK marketing, funding platforms, banking & property investment firms. Malika has produced top-quality articles for readers throughout the UK.