What Are the Advantages of Financial Planning in Business?

Financial planning is common when it comes to personal finances, but how do you do it for your business?

by Scott K. Schmidt, Chief Financial Officer, U.S. Money Reserve

When you think of financial planning, you likely think of managing your own personal finances on a long-term basis. Did you know, however, that you can perform financial planning for your business and that it can make a huge difference in your work? We’re always looking way ahead for future trends, influences, customer changes, and market changes to plan for the good and challenging times in our business. But putting a financial planner’s hat on while considering these aspects can be a real boon for the future of your business in the long term. Here are some of the biggest advantages of financial planning for your business, whether large or small.

What Is Financial Planning for Business?

Many of us are familiar with financial planning for our personal finances but not as familiar with it for business applications. Financial information is often part of your business plan already — but it should be revisited each year, both so you can check on your progress toward your business’s goals and so you can revise any goals that may have become out of date or irrelevant to your business focus over the last year. You can revisit these goals more frequently, but at least a once-per-year audit of your financial planning is an absolute must for any business.

So what does a financial plan for your business include? Well, like your business plan, it should consist of an income statement, a balance sheet, assets and liabilities, and break-even plans, among other features. When creating a financial plan, you need to have a strategy for contingencies and an assessment of where you landed in achieving your past financial goals. All this work will give you a good idea of where you stand, where you might be able to grow your business, and what you need to improve.

Once you have a clear idea of your financial plan, you can start to roll it out to the rest of the company and ensure that everyone is working together to achieve the goals you’ve set out for yourself and your company.

Before we move on to the benefits, it’s important to understand that the timing of financial planning also matters. Many businesses take a look at their financials on a regular basis, whether quarterly, monthly, or yearly. Be sure that you have a regular schedule to check on your financial planning so you can get a clear handle on where your business is, where it could stand to improve, and where it’s going.

Hone Your Business’s Focus on Main Goals in the Short and Long Terms.

With a plan in place, you can get a firm idea of the road ahead. You can also keep your eyes on the prize or your teams working in the same direction with clear goals. Financial planning for your business helps you hone your focus — both your own focus on what truly matters to your business and your teams’ focus. Financially planning for your business’s future helps you get really specific about what you want your company to achieve in both the long and short terms. Know that these goals can and likely will evolve and change over time, but it pays tremendous dividends to ensure that you, your team, and your business are all focused on goals that are well in the future.

Adapt to a Changing Business Environment.

An added bonus of focusing on financial planning for your business is that you can adapt to meet the changing business environment. There’s no question that we are currently in a strange place, economically speaking. Both here in the U.S. and globally, the economy as a whole is facing unprecedented indications of a global recession. That means business could (and is very likely to) slow down in 2023. As business leaders, we must focus on what we can do to prepare ourselves and our businesses to adapt to a possible slowing economic environment. Without financial planning, it isn’t possible. You have to know where you’re going to adapt to changes in the business environment.

Manage Your Cash Flow.

Part of daily, weekly, and monthly business management is ensuring you have cash on hand to deal with any needs that might arise. This is especially important as the world faces an impending global recession. Cash is still king, and getting a handle on just how much cash goes out and comes in is a crucial benefit of crafting a regular financial plan for your business. Managing your cash flow can help you decide when the right time to buy a new machine is or help you determine when you can hire a new employee you want to attract. Your cash flow is a key metric to keep on hand when you consider your financial goals, and it’s a crucial piece of information that can make or break your company. It’s okay to have more cash going out than coming in, but it’s important to know your limits. Getting a regular financial planning session in place can really do wonders in terms of managing your cash flow and understanding the actual health of your business in the moment.

Manage Your Risk Exposure.

As I’ve written in the past, there’s no avoiding risk when it comes to business. Risk is part of the rubric of success and a vital part of doing business on local and global scales. Knowing where you might be exposed is essential to managing your risk levels. Financial planning for your business helps you assess your vulnerabilities and plan for contingencies should you fall prey to those issues. It can also help you prepare for the worst, even if that doesn’t happen. Think of your financial business plan as an umbrella or an insurance policy that helps protect you in bad weather. It pays to take the time to invest in preventing unnecessary risk exposure.

Prepare for Potential Crises.

To continue the idea of a financial plan being like an insurance policy for your business, remember that it’s essential to recognize that crafting a financial plan for your business also serves to prepare you, your company, and your employees for any potential crisis. Consider the COVID-19 pandemic that has rocked the world for the last three years. No one saw it coming, and it wasn’t easy to navigate. Those companies with solid financial plans in place and that continued to reassess and focus on their financial goals succeeded, while those that did not fell by the wayside. Financial planning for your business can make a tremendous difference when it comes to dealing with crises, whether expected or not.

Financial Planning Creates a Road Map for the Path Ahead.

You need to know where you are to see a path forward. A financial plan for your business helps you get a feel for where you are and thus enables you to set measurable, attainable, and regular goals for the path ahead. It can also give you an idea of when you should invest, when you should pull back, and when you should leverage up. These kinds of insights are incredibly invaluable and can and often do help keep a company on track as time marches ahead.

Financial Planning for Your Business Can Ease Fund-raising Struggles.

Financial planning can be an invaluable tool to lean on if your business is in a place where you need to fund-raise to make it to the next level. If you regularly check in with your financial plan or create a new or revised plan, you can go to the market when you need to and find ways to fund-raise for your business. This can be incredibly valuable when growing your business since funding rounds can happen quickly. You need to have your financial plan in order so that you can apply quickly and capture the funds you need before someone else does. With a financial plan in place, you can go to the market and request funds immediately. Fund-raising is a vital part of doing business and one you should be sure to invest plenty of time and effort in to secure your company’s future.

The Bottom Line on the Advantages of Financial Planning in Business

Ultimately, financial planning in your business can help you achieve the goals you are aiming for, give you measurable and regular feedback, help you plan for any crises, manage your risk exposure, adapt to changing business and economic environments, and make a world of difference to your peace of mind. It can be hard work to put together a financial plan on your own, so it pays to hire the right people to help make it happen. Consider it an investment in your future and the future of your business that truly can’t go south. By spending both the money and the time to take a closer look at your finances as the year progresses, you can make on-the-fly changes to enhance your company’s long- and short-term security and ensure that your business is healthy and sustainable as the world continues to evolve and change.