Financial Planning for business: #
Small business owners are often so busy with day-to-day business tasks that they neglect their business’s financial planning needs and their own. That is a huge mistake.
Generally, the poor financial discipline of owners is the main cause underlying the problems of SMEs. It is, in turn, emanating from poor financial planning and a lack of understanding of the implications of wrong moves. Though many SMEs use financial plans, many look at financial plans as just a document to raise loans or equity.
A financial plan is a vital tool that helps entrepreneurs to manage their businesses more effectively. It is important to document which enhances self-awareness, steering their way around the pitfalls that cause failures, protects them from many evils, explains risks, and helps strike a balance between business & personal life.
The components of the Financial Plan are:
(1) Liquidity management and cash flow management.
(2) Long-term asset acquisition shapes the long–term business course.
(3) Funding, capital structure, and cost of funding.
It is essential for small business owners to get a better understanding of various elements of good financial planning. SelfHelp Questionnaire on financial planning for Small Business Owners gives good insight into gaps in the present financial discipline in your organization.
SWOT Analysis-Improve self-awareness: As the business grows, the risk appetite will grow, and new ideas will start emerging within and outside the organization, including expansion, extension to new geographies, diversification, etc. These all lead to a more aggressive financial model involving higher borrowing, high returns risks, etc. It calls for one to improve self-awareness by clearly demonstrating where he stands vis-à-vis evolving business environment.
Personal finance: #
For most small business owners, personal and business life are practically inseparable. It is not uncommon to see small business owners invest all their savings in their own businesses. After all, it’s the business they know the best. The problem with investing solely in your own business is one of the risks because, for every immensely successful business, dozens more either fail or return only modestly.
Secondly, it is obvious that an SME owner’s life is a long and crowded road. Developing customer relationships, managing employee issues, recovering bills, and paying creditors are time-consuming tasks but necessary to keep the operation running and finances sound. Unfortunately, business owners often neglect their own personal financial goals. Among owners, it’s more common to put off planning for their own financial future until later in life when “things settle down” or until there is more clarity about what the business can reasonably achieve. This delay can cost them dearly, much as an undeveloped business plan may harm business growth.
It’s Your Business—and Your Life– Pursuit of your ambition should not blur your responsibility to build a safety net for yourself and your family. Tips for Personal financial planning for SMEs