Financial Planning for SMEs & Personal Finance and Fund Raising
A good financial plan is a road map that shows us exactly how the choices we make today will affect our future- Alexa Von Tobel
Small business owners are often so busy with day-to-day business tasks, that they neglect both their business’s financial planning needs as well as 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 lack of understanding of implications of wrong moves. Though financial plan is used by many SMEs, many look at financial plan just a document to raise loan or equity.
A financial plan is a vital tool that helps entrepreneurs to manage their businesses more effectively. It is important document which enhances self awareness, steering their way around the pitfalls that cause failures, protects him from many evils, explains risks and helps strike a balance between business & personal life.
Components of Financial Plan are:
(1) Liquidity management and cash flow management.
(2) Long term asset acquisition – which shapes the long term course of business.
(3) Funding, capital structure and cost of funding.
It is essential for small business owners to get better understanding of various elements of good financial planning. The link Self Help Questionnaire on financial planning for Small Business Owners gives good insight into gaps in present financial discipline in your organization.
SWOT Analysis-Improve the 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 are all leading to more aggressive financial model involving higher borrowing and high risks to returns, etc. It calls for one to improve the self awareness by clearly demonstrating to himself where he stands vis-à-vis evolving business environment.
The answer is SWOT Analysis . SWOT ANALYSIS FOR SMEs
For most small business owners, personal life and business life are practically inseparable. It is not uncommon to see small business owners invest all of their savings on their own business. After all, it’s the business they know the best. The problem with investing solely in your own business is one of risks, because for every immensely successful business, dozens more either fail or return only modestly.
Secondly, it is obvious to come across that the life of a SME owner is a long and crowded road. Developing customer relationships, managing employee issues, recovery of 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 self and family. Tips for Personal financial planning for SMEs
One of the biggest challenges for entrepreneurs and small business owners is finding the funds necessary to launch – and eventually grow – their businesses. Fund raising is an important exercise and carries both positives and risks. It increases reach of the market, and enhances the visibility for business. However flip side is risk of default if business does not reach the desired milestones.
Before going for fund raising, one need to invariably do homework how the money will be repaid. One should avoid borrowing funds without having clarity on financial model in all the three scenarios- best, normal and worst case. In initial days, it is desirable to do business without any external monetary support till the cash flow cycle becomes clearer- bootstrapping.
Generally Bank loan is most preferred source of funding, However one has to mindful of many delicate issues before approaching bank.
A closing word: One point should be clear when it comes to financial planning for the SMEs: the do-it-yourself drive that helped you start your business will not serve you well when it comes to managing the many financial issues created by that business. This is where professional expertise often becomes necessary.
Exercise your privileges as Boss and seek service of qualified business financial planning professionals. Their advice can make all the difference in improving your chances of business success. However be part of whole exercise. No Blind Faith.