Financial Planning for Small Businesses

Many people think ‘I'll start now and then I'll sort it out’. But this approach is like building a house without a foundation. The wind blows and everything collapses.

Financial planning is the map by which you move. Without it, you are walking blindly, and the slightest mistake can cost you dearly.

Keep your finger on the pulse - keep track of your money
You need to know what happens to your money every day. Think of money as water in a tank. If you don't close the tap, everything will flow out. So keep a record of all income and expenses and once a week see where the ‘leaks’ are. Use a simple record keeping system: a spreadsheet, an appendix, a notebook - the main thing is that you understand what's going on.

Never confuse personal and business money
This is one of the most common mistakes. You take a little for yourself, then for groceries, then for a holiday... and that's it, the business till is empty.

Remember: you should have separate accounts for personal and business use.

From your income, pay yourself a salary - a fixed amount. And never take from the business coffers just because ‘you need them now’.

Plan a year ahead
Many people live for one day at a time. But business requires farsightedness. You have to visualise where you'll be in six months' time, not just tomorrow.

How to plan:

• Make an annual financial plan: how much you want to earn and how to achieve it.
• Break it down into quarters, it's easier to monitor.
• Take into account seasonality, risks, development, investments.

Be prepared for the worst case scenario
Sound scary? Now imagine that demand for your product drops dramatically. Or your supplier raises prices. And you have no reserve, no plan.

Protect yourself! Having an emergency fund is a must. Write out scenarios: what to do if revenue drops by 30% or 50%. Think ahead of time about ways to cut expenses.

Invest in what gives the maximum return
It happens that a business spends on everything: a new website, a cool logo, a fancy interior. But if it's not making money, it's ballast.

Don't be afraid to cut back on useless spending. Invest better in marketing, product, team - in what really brings results.

Check everything
Blind faith in an accountant, cashier or partner is a bad idea. It never hurts to be in control. Check reports once a month and see where the money came from and where it went.

Financial planning is your defence. If you want your business to survive and grow, sit down and write out a financial plan.