Nine top tips to prepare a successful financial plan
It's everyone's dream to have their own business. Investing so much time, effort and money into a business is scary. So you need to have a financial plan.
The first question you want to ask yourself is, where do you want your business to be in two, five and ten years' time?
If you want to have a solid financial plan for your business and you've decided what your goals are, here are some useful tips in preparing a financial plan...
1. Budget, budget, budget
Without a budget you don't know if you're achieving your goals and if the numbers make sense. The most important budgets to prepare are the profit and loss budgets and cash flow budgets.
For a simple way to create and manage 10 of your most important budgets, simply follow this link…
2. Do some business structure planning
A lot of people think that it is a good idea to have lots of different entities in their business structure. Make sure you understand the purpose and goals of these entities and prepare a financial plan for all of them. Using intercompany accounts can be tricky and it might not have the benefit you were looking for.
3. Do some tax planning
Most business owners forget about the tax man or they over think it. Make sure you make tax planning the first thing you do when you do business structure planning. The truth is, sometimes all these intricate business structures just make it more difficult to get the tax benefit. i.e. Small business corporation tax is a tax on businesses where the owner only has shares in one entity. So, if you own more than one business (that you aren't using), you can't enjoy the benefit of this lower tax rate.
4. Decide what you want your balance sheet to look like
Sounds weird I know, but if you're in a service industry, you won't have a lot of assets except for the computer equipment etc. Perhaps you want your business to acquire extra investment assets such as, property for rental possibilities, or you need to buy a motor vehicle and you need your liquid assets to show that your company is good for it.
A lot of people come to me and say they need their financial statements ASAP to acquire an asset. But as soon as those financials are prepared, they realise it actually doesn't look good at all. This is because all the profits have been drawn out of the business making the profits very low. And there are no assets to strengthen the balance sheet.
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5. Think about valid business expenses
Ask yourself, what is a 'just' expense that's put through the business. If you want to sell your business it's not a good idea to artificially increase your expenses just to pay less tax. There are always consequences to making certain decisions and paying less tax is not always the right/best answer.
6. Write a business plan
A financial plan is nothing without a business plan. Where's your business going? Why is it going that way? Your budget all depends on expected expenditure, revenue and cash flow forecast etc. If you don't have a plan for your business, your financial plan is just a bunch of numbers on a piece of paper.
7. Constantly review your financial plan
Remember this is your map, your recipe if you must. Change the financial plan if you find that things are getting outdated or not applicable anymore. It's OKAY to change your mind because you're human, and humans grow as their business grows.
8. Speak to as many people as you possibly can on how they did their financial plan, financial budget and business plan
You can never have too much information and sometimes you have to hear something 10 000 times to figure it out and position that advise in your business.
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9. Get industry specific reading material
It's all good and well for me to 'lecture' you on what to do and what not to do! But this reading material will help you know what to look and out for in your specific industry