Financial planning and budgeting are some of the oldest terms that we have ever heard in the business world. You may be tempted to ask yourself, “What is the difference?” Let’s look at these terms.
Financial planning is simply a long term, strategic road map of your business that tracks your progress annually, semi-annually or quarterly.
Budgeting is a short term money management plan that tracks key incomes and expenses. This is done on a daily, weekly or monthly basis.
Regular creation and tracking of your budgets will help you realize your financial plan for your startup.
How to prepare a financial plan for your Start-up
Counter checking your strategic plan
Financial planning is dependent on the long-term strategic plan set by the business. This is the roadmap to which the business will take shape.
These strategic plans include expansion strategies such as acquiring operation machines and equipment and recruitment of more staff.
Determining the finance channels to acquire capital is also crucial in reviewing your strategic plan.
Financial planning entails preparing financial projections
A financial projection is a foreshadow of where a business plans to see itself in a specified period. This can be quarterly, semi-annually or annually. It is an educated guess based on past data recorded by the business.
Key incomes and expenses are used to prepare projected income statements and balance sheets made by the business both recurrent and one-time expenses.
You will get better vision of the projected health of your business.
A good financial projection is a leeway to convincing your lenders of your repayment capability. Consulting a financial expert can be a great way to ensure you are taking the right direction.
True financial projections ensure your business avoids crisis when it comes to repayment. This is so since the records are a true reflection of your business at that period.
Having a workable investment and repayment plan is worth discussing with your business team, prior to seeking funds from your prospective lenders.
Financial planning involves having emergency funds
Our lives are full of uncertainties and so is any business especially in this era. Unforeseen things could happen at an unexpected hour. For this reason, it is a good practice to have cash reserves or maintain a creditworthy profile, just in case you have to run to the banks for refuge.
Monitoring and Evaluation (M&E)
Regular monitoring of your budgets and financial plans sets a good basis to evaluate your financial status. Strategies to regularly reflect on your progress as a business in implementing your financial plan, help you to stick within the plan and do adjustments where necessary.
A financial tool will be useful in actualizing this plan. Have a look at startup suite for proper financial planning and budgeting for your start-up.