Friday, October 22, 2010 @ 6:18 AM

Why You Need a Financial Plan for Your Business

“Winging it” is the name of the game for many home business entrepreneurs. More often than not, many decide to start a business without preparation or sufficient information or experience. They just improvise, hoping that their gamble will pay off. Some succeed, but many more fail.

One important planning material they don’t often have is a solid financial plan. They just have the idea of what business to start and a certain amount of capital – and dive right in.

Importance of a Financial Plan

A financial plan gives you a better grasp of the financial requirements and needs of your new business. It forces you to keep track and think through your financial issues, and not just deal with them in your head. Laying out your financial picture can help you develop better strategies, pinpoint trouble spots early on, and plan your business for growth.

More importantly it can help you answer the following questions:
  • Is your startup capital sufficient? Will it allow you enough to adequately jump-start and operate the business?
  • When will your startup capital run out? At what month?
  • What type of resources can you afford now given your startup capital?
  • What kinds of expenses can you cover now and what can you forego until your financial picture improves?
  • How much revenues should your business bring to keep the business afloat?
  • If the business is not bringing in the revenues you need, until when and how long can you put in capital to show up the business?
  • What is the amount of shortfall that you need to cover every month? Where will you get the money to cover the shortfall?
  • What is the price you need to set that will cover your expenses and ensure profitability?
  • If you borrowed money, how much revenue should be coming in order for you to meet your obligations?
  • How are you measuring your progress?
Don’t just wing it. Work on writing down your financial plan for your business. It can help you see a clearer picture of what your business really entails in terms of capital and expenses, and what you must need to do to turn the business into success. It will be easier to resolve or minimize problems that you will meet along the way.

If creating a reasonable financial plan is too hard for you, get the help of an accountant or financial expert to help you draw up your financial plan for the business. Even if the numbers are just estimations and projections, operating on an educated guess is still better than “winging it” with nothing.

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