PICTURE: PEXELS/ BUDGETING
The idea of strategic financial planning for your business can seem quite daunting, but at its simplest, it is only having an idea about what you would like your business to achieve over the next period.
Managing your budget is one of the imperative tasks for a small business. This article will assist you with planning for the year ahead and ensuring your business is set for success in 2025.
A small business’s financial plan is determined by its goals. Founder of Colab4Growth Xoliswa Moraka says the most critical step in creating a financial plan for a small business is to first review the company’s performance over the previous year against its set growth goals. This will help you determine whether the company met its objectives and, if not, what went wrong and what can be
done differently.
Financial objectives of a small business might include:
- Saving money by improving operations.
- Increasing revenue through increased marketing and advertising.
- Diversifying offerings.
- Adding new products or services.
- Forming partnerships.
- Raising funds or repaying outstanding business loans to make cash available for other business activities.
Once you have a good understanding of your company’s performance and goals, you can start to develop a financial plan that will help you achieve them.
Build a powerful financial plan
When creating a financial plan, you’ll need to consider several elements. Strategy Consultant Bonolo Smith shares her insights:
Cash flow projections
‘Understanding your expected cash flow over the next year will help you plan better for your business,’ she says.
- Consider your base case assumption.
- Consider different scenarios that could play out and how they could impact your business.
- Stress-test your cash flow under the worst-case scenarios (e.g. How would your business do under stage 8 load-shedding, without water etc.)
- Do a sensitivity test of your assumptions, so you can see which of your assumptions have the most influence on your business case and cash flows. This will help with formulating a strategy for these scenarios. You can build a financial buffer and manage suppliers and staff costs.
- The areas your business is more sensitive to from a cash-flow perspective will be what you need to focus on and a plan for going into the new year.
Balance sheet
‘Your balance sheet will give you a view of where you are now – as opposed to looking back or projecting to the future. Taking stock of your assets, liabilities and equity will give you a sound view of your business. An important strategy going into the new year will be to manage your liabilities, and creditors and be prudent with cash management,’ says Bonolo.
Revenue is also key!
As you consider stepping into the new year, what are ways in which you can drive revenue? Bonolo says it’s important to consider what has changed in your business landscape, and market and how can you respond better and position yourself to attract more sales.
Importance of budgeting
A financial plan and budget are essential for businesses because they provide a roadmap for business performance and growth. ‘With a financial plan and a budget, businesses can make more informed choices about where and how they will spend their money to achieve their goals, and then measure the impact of their actions,’ says Xoliswa.
Toolkit for your business
Several tools for business owners, such as financial planning software, can keep you on track and help you set up a consolidated view of your business. ‘Sage, Xero, QuickBooks and hiring an accountant to support your financial management or set up systems could be a game changer for your business!’ says Bonolo. You can find SA accountants here: findanaccountant.co.za
Financial advice for business owners to use money wisely.
Establish goals
Xoliswa advises entrepreneurs to establish goals, track their progress, and constantly seek ways to reduce costs, increase income and effectively manage their finances. ‘Business owners may also want to consider hiring accountants, tax advisers and financial advisers to improve their financial management skills,’ she says.
Be as stringent as possible
Build your financial buffers early. Bonolo says, don’t be tempted to spend cash on your business too early when it’s in its infancy. ‘Know what is important for the stage your business is in, spend on that, and the rest will follow as your business grows. Stick to your financial plan as much as you can and leverage an accounting tool/expert to keep you in check,’ she says.
Originally published for print in BONA Magazine
Writer: Ondela Mlandu
Also see: Unlock the superpower that can transform your financial journey
