3 things to know in Financial Planning
If you are starting or thinking of starting your own business, it is a good idea to keep in mind that every business has its risks. Any business, no matter how fool-proof it is believed to be, is a potential for failure if not managed properly. Whether it is an emerging business, or a business that is already making profit, without proper management and handling, it is doomed to head for a train wreck.
One of the most important, and sadly often overlooked when running a business is financial planning. There could be a variety of reasons: not realizing how important it is, not having an idea where to start and how to do it, or just not bothering to create a financial plan. No matter what the reason is, it isn’t going to be good for the business.
Creating a financial plan helps you see the bigger picture and guides you in setting both long-term and short-term goals with regards to your finances.
Unfortunately, though, 60% of female business owners neglect their financial planning; so it should come as no surprise that about 35% of female entrepreneurs have less than 25,000 euro turnover. You can’t call that a business, can you?
Financial planning isn’t that hard if you have all the information you need. There are 3 things that you should know before you start planning your finances:
1. Know your numbers
Not a lot of women are good with finances, so they resort to hiring a bookkeeper. This is totally fine, as long as you are still aware of how your numbers are. A book keeper can record transactions and produce financial reports, but these data are futile if the business owner does not know how to process them.
The first step in financial planning is knowing your turnover in the previous year. You would need to know how much you made and how much you lost; how much was the profit and how much were the expenses.
2. Know Your Expenses
Your bookkeeper probably already has a record of the previous year’s expenses, and you just have to look at the overview to see how much you spent and where you need to cut expenses.
If you sell different products or services, you can also allocate how much you want to spend per product or service. Marketing is also an essential part of a business and it doesn’t come free. Growing your business substantially means you need to hire more workers, and allot some more for their salaries. Those are some of the expenses that you would have to consider when making your financial plan.
Essentially, your expenses should be less than your profit. Weigh up your expenses and see where you could cut corners.
3. Know Your Target
Lastly, you need to look at your productive months. Some businesses are seasonal, and every business has months that are likely to be better than the others. Take a good look at your financial report and count how many productive months you have. Next, divide your total turnover by the number of your productive months, and you should make out your monthly target.
Every month, you need to make a minimum of your target to be on top of your finances. It is advisable to check on this at least monthly to stay ahead of the curve; as well as to be aware if you’re getting behind, and you need more marketing efforts.
Now this may seem like a lot of work, but trust me, you are missing out on your business advancement if you do not plan your finances. Plus, it also gives you a sense of control, along with knowing when you need to step up a little more.
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To your success.