If you’re launching a new business, then you’re in a precarious (though exciting) position. You might have dozens of moving parts to consider, including arranging premises, recruiting staff, and dealing with a launch event. According to the Federation for Small Business, there were around 5.5 million small businesses at the start of 2021. These account for the vast majority of businesses overall. But the survival rate for most new ventures is lower than we might expect, with around one in five failing within the first year.
What may ultimately scupper your well-laid plans in the long run, however, is the way that you handle (or mishandle) your money. To give yourself the best possible chance, a formal financial plan can be tremendously beneficial. Ideally, you’ll do this with the help of an outside financial planner, with considerable experience to draw upon. Let’s take a look at five reasons why.
What do you want?
A financial plan, much like your business plan, will help you to establish what you’re looking to get out of your new business, and how you’re going to achieve it. It might be that you come to revise your expectations once the plan has been put into writing.
Optimising Cash Flow
The amount of liquidity you have to hand can make or break your business. If you don’t have the cash to pay your staff, then they’ll walk out – which will leave you unable to bring in more cash. It’s a vicious cycle. A financial planner will give you the tools you need to maintain cash flow, including procedures to follow when a client fails to pay on time.
It might be that your new business runs into choppy waters during the first year. Through financial planning, you can prepare for this, and quickly pivot to a new strategy with the need for rushed, panic-driven decision-making.
Improving your Financial Skillset
Once you’ve formed a financial plan for your business, and observed how it’s either succeeded or failed, you’ll be in a great position to transfer those financial skills to other aspects of your life, and potentially to new businesses that you might decide to establish in the future. You’ll be better able to recognise risks and opportunities, and your nose for a good investment might become slightly keener.
Planning your Exit Strategy
While it might seem premature to be thinking about how you’re going to get out of the business before you’ve even gotten it off the ground, knowing in advance how you intend to get out of the business can be helpful. Are you going to take it to a certain stage, and then sell for a profit? Are you going to use your business to fund your retirement? While knowing the answers to these questions isn’t critical at the outset, you’re going to want to think about them at some point.