A financial plan is the expression in figures of what is expected of the company: includes the setting of targets, the study and selection of the strategies that will be used to achieve them, the placement of goals, etc. How important we must know to making a financial plan?
Small companies normally function without any explicit plan. But the businessman who is dedicated to design a financial plan (big or small, will be in great advantage over that which is carried away by the multiple factors of random that influence business: the boats rudderless generally end bogged.
The objectives also have different levels of priority and we could name, among others: the profitability (i.e. that is more convenient invest capital in the company that deposit in a bank), efficiency (performance of capital and labor), the growth in the time, reinvestment, etc. Each employer will have its own objectives and priorities; the important thing is to define explicitly what these are.
In a small company, where the employer makes the times of manager, his house the occupies as office, his car as a vehicle of the company, etc. is very important to consider that, although not cost money, all these things are not “free.” If they are not considered with their respective price the financial plan will be heavily distorted.
The basic elements of the financial plan for a small businessman are simple: sales, costs, expenses, gross profit, taxes and profits (or net profit). However are surprisingly few small entrepreneurs to set goals and control these variables regularly? It is a miracle that many small businesses not fail and still thrive in the middle of the most absolute lack of control and planning.
A small businessman traditional spend the money to measure that is going entering, either of its own capital, loans or sales, and only gives an account if the business and a right or wrong in the extent to which his remaining balance in favor in your checkbook in order to each month.
A good businessman by another party considers detail their costs and expenses, setting a salary even to their own work, from that estimated as must sell at least to cover their costs (and not to have to eat the capital), i.e. its “equilibrium point”. On the basis that may make its budget which then must go controlling monthly to know as the business? The majority of bankruptcies occur because an employer did not realize the bad is happening until it is too late.
There is a series of test to determine whether a business worth or not, if its indebtedness is or is not acceptable, if it is worth maintaining the volume of inventory, etc. It is “thermometers” that mark the good or bad health of the business. The reality is that the small entrepreneurs rarely case these indicators and many times decide to continue with businesses that are all kinds of alarm signals with the hope that things will get better in the future. It is not the most logical way to carry a company but if the more common, and many times is due to the factor of random inherent in the companies produce dramatic changes. This does not mean that planning is useless, on the contrary, but if you need to take into account that the numerical indicators are not infallible and it is not enough good planning to ensure the success of a company.
The money is a key resource of the company and must be well managed. While most small is the company more dangerous is the waste. And all the planning described above should serve as a basis for projecting the cash flow. The “cash flow” is the detail of the inflows and outflows of money out of business and every good businessman knows how important it is take controlled. Many leave this vital task to banks, be alone in the end of this month. Nothing more dangerous than this practice. Although the cash flow is difficult to project if it can control daily this will give the small businessman an important x-ray of the health of the business.
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