Every business plan has many components that include details about its operations, marketing, strategy, and finances. While all those components are important, the financial plan of any business is one of the areas that needs the most focus.
Many people often make the mistake of underestimating the importance of a solid financial plan and being satisfied so long as the numbers ‘fit’ in terms of the capital required. While that may be enough to start a business – sustaining it is quite a different question entirely.
“What is Sustainable Financial Planning?”
Essentially a ‘sustainable’ financial plan looks into not just the capital required to start a business, but also the funds required to keep it running over a period of time. It goes without saying that on a monthly basis any business is going to have certain operational expenditures, and being able to cover those is what will allow a business to keep running.
As such, aside from the initial capital expenditure a sustainable financial plan will take into account all other expenditures including wages, marketing costs, overheads, and incidentals. It will then use projected revenue targets to determine whether or not these expenditures can be met.
Depending on whether it can be met or not – certain measures can be taken to alter and improve the financial plan accordingly.
Importance of a Sustainable Financial Plan
Based on the plan itself you will be able to make key decisions regarding the business, its operations, and strategy. Generally these decisions encompass several areas including:
- Optimizing costs and outflow of funds
One way to make a business more sustainable is to improve its expenditure. The exact means of doing so will vary, but it could consist of cheaper alternatives, outsourcing, or even areas that can be cut completely with little impact.
Setting firm targets and key performance in indicators (KPIs)
With a sustainable financial plan it is easier to set KPIs in the form of sales and growth targets that need to be met in order for the business to survive and thrive.
- Evaluating the impact of growth and expansion
As the business starts to grow and expand its revenue will increase – but so too will its expenditures. Using a sustainable financial plan as a basis to analyze the impact of a business’s growth and expansion will help determine how effective it is.
Make no mistake, the benefits of sustainable financial planning extend far beyond these three areas and it goes without saying that ultimately it will have a huge role in determining whether or not a business survives. In short, it is worth spending the time to properly structure the long term financial plan for your business long before you actually begin operations.
It is also important to note that just as any good plan – in order for a financial plan to continue to be sustainable it needs to evolve along with the business itself. Doing so will keep the plan, and its benefits, relevant to the needs of the business.