Why Create a Financial Plan and What Are Its Benefits
Sometimes in life, you need to be spontaneous. It makes life exciting. But when it comes to business, you need to prepare for all eventualities. If you are an entrepreneur, you must establish a solid financial plan to achieve long-term success.
Doing this will help you win investors, anticipate growth and weather cash flow shortages. Some business owners are hesitant to create one because it entails the professional help of an accountant. These Nay Sayers only see the service fee of the bookkeeper and not the benefits they can reap from a solid financial plan.
If you are hesitant to establish one because of the fees involved, kindly keep an open mind while reading this article. The primary goal of this piece is to educate entrepreneurs in the numerous benefits of creating a financial plan.
What Is a Financial Plan?
Before we tackle the different benefits of establishing a financial plan, let us define it. A financial plan helps you determine if an idea is sustainable. Most importantly, it keeps you on track to financial health as your business matures.
It does not sound so bad, does it? You might be wondering where the help of an accountant comes in. You will later see that an integral part of the financial plan is the financial statement, namely: the cash flow statement, income statement and balance sheet. For these reports to be useful, they must come in with a brief statement or analysis.
Why Is a Financial Plan Important to Your Small Business?
You may have been running your business for a long time now and have not stumble upon the need of a financial plan. Let us take that into account. But you must also consider the uncertainty of the times. You need one to keep up with your competitors.
If your accountant helped create the financial plan, you will have more confidence in your business because you have a better understanding of how to allocate resources. The analysis that accompanies the financial statements will tell probable investors that your company is committed to spending wisely. Most importantly, it highlights your ability to meet financial obligations.
A well-put-together financial plan can help you determine if your choice will positively impact your revenue. You can also identify the occasions that calls for the use of reserved capital. As mentioned earlier, it will help investors to seriously consider your company because it will show them how profitable the entity is.
What Are the Components of a Financial Plan?
As mentioned earlier, your accountant is essential in putting together your financial plan. He will not only create the financial statements, but he is responsible for analyzing these reports.
Let us break down the components of a financial plan:
Income Statement - This report will highlight how your business generates income. Some accountants call this as profit-and-loss statement.
Balance Sheet - After generating the income statement, your accountant will forward the balances to the balance sheet. Once done, it will give you a glimpse of your company’s current financial standing.
Cash Flow Statement - This report is one of the most crucial aspects of your financial plan. It will highlight the difference between your profit and your cash position.
Personnel Plan - It will show you the people in the organisation.
Business Ratios - This report is part of the analysis. Your accountant will drill down the specific aspects of your business to determine its financial health.
After your accountant creates the financial plan for you, you should ask for their help in understanding the figures. Let us take the business ratios as an example. They can help you determine if the number is a good sign for your business or not.
Now that you see the numerous advantages of creating a financial plan, you should immediately seek out a reputable accountant in Gold Coast. You do not have to look far because New Wave Accounting will be more than happy to help you through every step of the creation of a financial plan. Call us now for more information!