Financial Planning for small businesses

Reading the articles for this final week and trying to work on developing my financial plan I realized the financial plan was the life-line of the entire venture. It could stand by itself and speak a lot about your products/services, revenue stream, staff, expenditures. Cash flow is important for start ups and small businesses. Some important ways to maintain an efficient cash flow system are

1. Perform a good forecast: It is said that small businesses usually do not forecast well on the demand they are likely to receive and the Human resources they would need to deploy to meet that demand. Mapping things week by week to the 12 month forecast we will create, would help SE evaluate where the big expenses are and where payments might be due.
2. Enforce Payment Discipline: It is always best to have a short receivables period, by having a good collection system. Some key questions to ask yourself are
1. How long does it take to get paid?
2. Are you getting the right kind of contact/communication with customers?
3. Are disputed being identified and if so what is the procedure for dissolving these disputes?

This will help your business not only improve its cash flow but also better customer service. If customers are having some problems, invoices wont be cleared fast. Identifying these problems well before they get out of hand is working to our advantage.

3. Segment Customers, Suppliers and Inventory: To better manage cash flow segmenting them into categories and then analysing each will help ascertain where the road blocks are. For example looking at customers , can help you indentify which customers are lagging in their payments and what can be done to improve the situation. In some companies it was identified that the largest account holders had the longest payment cycle. The solution here would be to approach the client with the situation.

Setting financial targets, All start-ups should work on a financial target/objective. One way to set the financial target is to use the Bottom up approach . In this approach begin with marketing, operations and human resource plan calculations found in the respective budget, sales forecast and production plans. Totaling the projected expenses and revenues to determine the financial target. Once the target is arrived on it is up for discussion with your team if such a target is achievable within the given time frame if not, recalculate the original numbers again and recalculate the financial target until and achievable one is reached.