Having a money plan will help you to define what you want to achieve
Investing your time in creating a money plan will allow you to make exceptional business decisions that will literally pay off!
Creating a money plan:
1. Define your strategic ambitions
What are the aims for your business, what do you want it to look like in three to five years’ time? Is it increasing profits, expanding your product range or improving the scalability of your operations?
This will help you to get clear about your end goal and focus your resources on attaining it.
2. Focus on one year at a time
Having decided on your strategic ambitions you can focus on what you need to do in the next twelve months to move your business in that direction. To expand your product range or increase your profitability would you purchase new equipment or invest in waste saving process improvements?
Knowing your end goal and what you are going to focus on in the first year is essential in creating a money plan that will drive your business forward.
3. Plan your income and expenses
Having established your focus for the next twelve months you can begin to forecast your income and expenses for that period.
Start with fixed costs including rent, utilities and insurance. Then plan your variable costs like petrol, postage and raw materials. Consider what drives these costs and what level of business activity you are expecting.
Estimate your income as realistically and conservatively as possible. Finally, calculate the difference between your income and expenses.
Recognise that if you are investing in new equipment to increase your product range that a surplus may not be possible. Regardless of whether you make a surplus or deficit consider ways to adjust your variable costs and remove unnecessary expenses.
4. Plan your cash flow
Cash flow is a crucial part of your money plan. This will help you to establish when money flows in and out of your business in the coming twelve months. Understanding this will allow you to identify and plan for shortfalls and surpluses.
Now that you know how a money plan can bring focus to your financial resources by assisting you in aligning your short term business decisions with your strategic ambitions, you simply cannot afford not to have one.
This article originally appeared in the Business Insight section of the Gold Coast Bulletin newspaper and is for general information purposes only.