Financial plan acts as a roadmap for your small business. It helps small business owners to set realistic goals, track their progress, and make informed decisions about their future. Without a financial plan, you’re flying blind.
One of the most important aspects of creating a financial plan is arranging financial goals. Make sure the set financial goals should be specific, measurable, achievable, relevant, and time-bound. They should be clear and concise, and take your progress towards them. Make sure to align financial goals with your business strategy.
For a better understanding, please read Part 1 of this blog post before continuing – click Here to read
How to create a financial plan for your small bussiness | the basics of financial Planning ( part 1)
In the first section, we going to discuss what should be included in a financial plan for small businesses. The best financial plan should consist of the following sections:
- Executive summary: This section gives an overview of your business plan, including your financial goals and your plan to achieve them.
- Income statement: This section provides the revenue and expenses of your business over some time.
- Balance sheet: This section helps in analyzing your assets, liabilities, and equity at a specific point in time.
- Cash flow statement: This section helps to know about the cash flow of your business over some time.
THE BASICS OF FINANCIAL PLANNING:
Setting financial goals for small business:
Begin your journey by thinking about your long-term goals. Few business-related long-term goals can be What do you want to achieve with your business in the next five or ten years? Do you want to increase sales, expand into new markets, or launch new products? Once you fix what you want and understand your long-term goals, you can start to develop more specific short-term goals.
For example, if your long-term goal is to develop sales by 20% in the next five years, your short-term goals might be to:
- Increase sales by 5% in the next quarter
- Increase sales by 10% in the next year
- Launch a new product that contributes 15% to sales within two years
Be specific and measurable. Make sure your goals should be specific and measurable so that you can monitor your progress towards your goals. For example, instead of saying “I want to increase sales” which does not specify an exact goal, you can say “ I want to increase sales by 10% in the next quarter.” This way you can keep an eye on your progress quarterly and see if you are near to achieving your goal.
The set goals should be achievable. Do not set unrealistic goals which will make you feel like a failure. Be realistic about what you can achieve, based on your resources and constraints. For example, If you are a newbie in business with limited resources, and your goal is to increase sales by 50% by next year may be an unrealistic goal. Instead, you can set your goal to be realistic of increasing 10% sales.
Set deadlines for your goals. Your goals should have deadlines so that you have a sense of urgency and you are motivated to achieve them. For example, instead of saying “I want to increase sales,” say “I want to increase sales by 10% in the next quarter.” This way, you have a specific deadline to work towards.
Once you have set your financial goals, you can start to develop a plan to achieve them. This plan should include a budget, a cash flow forecast, and a strategy for managing your finances.
In the next part of this blog post, we will discuss how to create a budget for your small business.
Additional tips for setting financial goals for small business:
- Break your goals down into smaller parts. This will make them seem less daunting and more achievable.
- Write down your goals and put them somewhere where you will see them often. This will help you to stay motivated and on track.
- Review your goals regularly and make adjustments as needed. Your business and your financial situation may change over time, so it is important to review your goals regularly and make adjustments as needed.
Creating a Financial Plan for small business:
- Set financial goals: What do you want to achieve with your business? Do you want to increase sales, expand into new markets, or launch new products? Once you know your goals, you can start to develop a plan to achieve them.
- Create budgets: A budget is a plan for how you will spend your money. It should include all of your expected earnings and expenses. Creating a budget will help you track your spending and make sure that you are staying on track to meet your financial goals.
- Forecast cash flows: A cash flow statement shows how much money is coming in and going out of your business over a period of time. Forecasting your cash flows will help you identify any potential shortfalls and make sure that you have enough cash to cover your expenses.
Tips for Creating a Financial Plan for small business:
- Be realistic: When setting financial goals, be realistic about what you can achieve. Don’t set yourself up for failure by setting unrealistic goals.
- Be specific: When creating budgets and forecasting cash flows, be as specific as possible. This will help you track your progress and make informed decisions.
- Be flexible: Things don’t always go according to plan, so be prepared to adjust your financial plan as needed.
- Review your plan regularly: Your financial plan is not a static document. You should review it regularly and make adjustments as needed.
Google’s SMART Goals
Google uses the SMART goal framework to set financial goals. SMART goals are specific, measurable, achievable, relevant, and time-bound. Here is an example of a SMART goal for Google:
- Specific: Increase revenue from the Google Ads platform by 10% in the next quarter.
- Measurable: Revenue from the Google Ads platform is tracked on a quarterly basis.
- Achievable: This goal is achievable given Google’s current growth trajectory and the potential for growth in the online advertising market.
- Relevant: This goal is relevant to Google’s overall business strategy of growing its advertising revenue.
- Time-bound: The goal is to increase revenue by 10% in the next quarter.
Amazon’s OKRs
Amazon uses Objectives and Key Results (OKRs) to set financial goals. OKRs are a goal-setting framework that focuses on aligning teams around common objectives and tracking progress towards those objectives through key results. Here is an example of an OKR for Amazon:
- Objective: Increase customer satisfaction with the Amazon Prime service.
- Key Result 1: Reduce the average delivery time for Prime orders by 10%.
- Key Result 2: Increase the number of positive customer reviews for the Amazon Prime service by 5%.
Microsoft’s Balanced Scorecard
Microsoft uses the Balanced Scorecard to set financial goals. The Balanced Scorecard is a performance management framework that looks at a business’s performance from four different perspectives: financial, customer, internal processes, and learning and growth. Here is an example of a financial goal for Microsoft using the Balanced Scorecard:
- Financial perspective: Increase revenue from the Microsoft Azure cloud platform by 15% in the next year.
- Customer perspective: Achieve a customer satisfaction rating of 90% for the Microsoft Azure cloud platform.
- Internal processes perspective: Reduce the average time it takes to provision a new Azure instance by 50%.
- Learning and growth perspective: Increase the number of Azure-certified employees by 20%.
Tesla’s Monthly Financial Review
Tesla reviews its financial performance on a monthly basis. This review includes a look at key metrics such as revenue, expenses, and cash flow. Tesla uses this information to identify areas where it can improve its financial performance and make informed decisions about how to allocate resources.
Apple’s Quarterly Financial Review and Analysis
Apple reviews its financial performance on a quarterly basis. This review includes a detailed analysis of the company’s income statement, balance sheet, and cash flow statement. Apple uses this information to communicate its financial performance to investors and to identify areas where it can improve its profitability.
Additional Tips for Readers
Here are a few additional tips for readers who want to make the most of this blog post:
- Tailor the plan to your business: No two businesses are the same, so it is important to tailor your financial plan to fit the specific needs of your business.
- Use the plan to make informed decisions: Your financial plan should be used to make informed decisions about your business, such as how to allocate resources and grow your business.
- Seek professional help if needed: If you need help creating or implementing your financial plan, there are a number of professionals who can help you, such as accountants and business consultants.
Conclusion
A financial plan is an essential tool for any small business owner. By following the tips above, you can create a comprehensive financial plan that will help you achieve your financial goals and grow your business.
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