5 Key Principles To Create A Robust Financial Plan

5 Key Principles To Create A Robust Financial Plan

No matter the size of your business, financial planning is essential.

A financial plan should identify your goals and map out the future for your business and prioritise the steps you need to take to achieve those goals.

Financial planning is essential in our current complex economic climate, with COVID-19 impacting so many of our businesses. Achieving our financial goals may not be that simple.

It is also essential to have a robust business plan if you are looking to attract investors.

In this blog, we cover five principles to create a robust financial plan to maximise the success of your business.

 

Principle 1: Know Where Your Heading (set goals and objectives)

Without clear financial goals, your business will lack focus, and you will most likely not achieve the outcomes you were hoping to meet.

It is crucial to start by setting your goals with clear objectives in mind.
Be clear on why you are doing what you are doing, for example, ask yourself:

  • How fast do I want the business to grow, and where do I want to be in one year?
  • How many products or services do I want to start with, and how many will I add each year?
  • What is my purpose with this business – do I want to sustain my day-to-day living, or do I want to make enough money to retire?
  • Do I want to exit the company at some point in the life-cycle, and by when would that be?

Now that you have set the objectives, you must add monetary value to them and split them into time frames.

Short-term goals = 5 Years.

Medium-term goals = 5 to 10 Years and;

Long-term goals = 10 Years plus.

Splitting your goals into these categories will help you with your cash flow and funding plans.

Keep your goals realistic. It will help you to stay on track and keep you motivated throughout your journey.

 

Principle 2: Be Agile (plan for change+build contingency)

Things change rapidly in the business world, take COVID-19 as an example.

By including a contingency in your financial plan, it demonstrates your awareness of supply and demand, as well as prices which can rise and fall faster than you can imagine.

Make sure that these contingency figures are deliverable. For example, an increase in product sales will add pressure to your business processes.

Can your business deal with this increase financially and within the time frame? If the answer is no, then you will need to plan to satisfy the increased demand or decide not to take on the additional orders.

Sometimes, when something is going to derail you from your end goal, it is better to say ‘no thank you’ to the opportunity, rather than jeopardising your reputation and put your business at risk. Short term gains are not always worthwhile.

 

Principle 3: Bring In The Professionals (external advice, financial projections and investor information)

An External Advisor or Accountant can help you to create a financial plan for your business. They can be objective and provide advice and insights on your goals, time frames and circumstances constructively.

Although a session with your external advisor should develop a clear picture of your current financial position, your income, assets & liabilities and the milestones in your financial plan, you should consider getting your personal affairs in order as well. Set up a Will to protect your family, take out insurance (life and business), or create a more efficient tax strategy.

Financial Projections Model

It is advisable to get assistance to create a proper forecasting model, covering everything from profit & loss, balance sheet through to cash flow, as this is an essential part of financial planning.

Depending on the circumstances of your business, it might be worth it to have a number of different models. It is worth modelling how your business will react or turn out under different scenario’s.

Your financial models should be flexible and easy to change as circumstances in your business change.

See our website for more information on our Strategy, Innovation & Business advisory as well as  Financial Projections, Cash flows & Budgets services.

Investor Information

Engage your financial advisor or accountant to assist you in setting up a proper business plan for potential investors, covering your robust financial plan, which includes a five-year cash flow, profit and loss, and balance sheet forecast, including non-financial information such as units sold or services rendered, etc.

A well-structured presentation pack always has an executive summary, covering all the headline figures. Most investors will only read the executive summary and pass the document over to someone else for an in-depth review.

Include all your funding requirements over three to five years and remember to include potential loans and grants in your financial modelling. Already secured loans or grants demonstrates that other funders have confidence in your idea and might influence the investors’ decision to invest in your business.

Present realistic financial information with reliable assumptions to your potential investors. Make sure your number stack up and know them by heart.

Show that you have confidence in your plan. Make sure you have answers for every assumption and that they are clear, credible, and concise. You have worked hard to get here, do not risk losing a serious investor by being unprepared.

 

Principle 4: Tax Always Matters (tax planning)

Tax planning affects all facets of your personal & business affairs. Tax rules are also subject to change constantly, and it is, therefore, essential to regularly review your personal & tax affairs and plan accordingly.

Your Accountant should be able to assist you with advice on tax allowances and reliefs, which could be an effective way of reducing your tax liabilities and allow you the opportunity to invest those savings elsewhere.

If you are concerned that you are not making the most of your tax allowances or that your business is not structured correctly, please get in touch with one of our trusted partners, Intel Accountants, and they can guide you accordingly.

 

Principle 5: Life Happens (review and monitor your financial plan)

There isn’t much point in setting these goals and never reverting to them.

Life changes, and so will your plan.

Routine review of your financial plan with your financial advisor is sensible. Look at what has changed and adjust your plan accordingly.

Do not make your financial planning a DIY project, get proper financial advice from Beyond Financials to create and monitor your plan, assisting you as your circumstances, goals and time frames change.

 

Beyond Links:

https://beyondfinancials.co.nz/business-advisory-strategy/

https://beyondfinancials.co.nz/financial-projections-cashflows-budgets/

 

Other Useful Links:

https://intelaccountants.co.nz/

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