What are the steps of a financial planning process for your business?

Being proactive is one of the key things you need for your business to be successful. If you're only thinking about how you can make a profit today, you might meet your short-term goals, but you'll never really excel. You can only anticipate market changes and do better than your competition if you're always thinking ahead, planning in advance, and catching problems before they arise.

Business financial planning is an important process for any business owner, and it's one that shouldn't be put off until the last minute. When you wait until the last minute to reconcile bank statements and balance assets and liabilities, it makes your partners and stakeholders think that you don't prioritize your business. Even tax authorities frown on late submissions and filings, so it's best to plan ahead.

Here's a look at the business financial planning process and how it works:

Step 1

Gathering of data

When we talk about data, we're referring specifically to accounting data. This is the information you need to plan your financials. Take the budget plan, for example. To set a budget for the upcoming fiscal year, you need records of all the expenses your company usually incurs.

All businesses have to take into account different types of expenses, including both operational and non-operational costs. For example, you need to factor in things like depreciation, insurance, interest, and taxes. You also need to be mindful of things like inflation rates and how they might impact your business.

Your accountancy team needs to sit down and customize the reports to make budget drafting easier. You can use accounting software like QuickBooks premier hosting to generate relevant data without putting in much effort.

Step 2

Analysis of data

The financial analysis actually is dependent on the type of planning you are implementing.

For example, if you want to plan and forecast sales for the upcoming cycle, you’ll need to analyze data accordingly. In this case, you’ll look at historical sales data to see if there is a pattern. With the access to all historical sales data, you can be able to pull out the difference of the percentage for every two years intervals.

If you look at sales figures from the past, you'll notice patterns emerge. You can use those patterns to predict future sales, but only if external factors stay the same. For example, if sales have always increased by 10%, you can assume that they will follow the same pattern this year.

This type of data analysis is quite simple. In the business world, most analysis is done with software. For example, accounting software can categorize organize, group, and process small data in any way you want it to—in other words, it’s a small data goldmine.

Advanced accounting systems are a versatile tool that can do everything from calculating financial ratios to creating reports and analyzing historical trends. You can also integrate your data with external information sources to get a complete picture of your finances.

Step 3

Set up budgets

While accounting software like QuickBooks premier cloud hosting can give you the relevant information in whatever way you want it to, it takes a human analyst to help you make sense out of it. It can generate automated reports, but you also need experienced analysts to work on the data.

Let's pretend that the reports show that your non-operational profit was less over the last three years. You'll spend some more time looking at the reports to see where things went wrong. It's possible that the company spent too much money on salaries or other expenses. If this is the case, then the analyst and other people in charge will have to plan the financials for next year so that these expenses can be controlled.

One way to save money on utility bills is to allocate a fixed budget for them or plan your expenses in a way that they counteract the effect of expensive overheads. Set quantified targets of how much you can pay the electricity company in the next year and change the workplace habits accordingly.

Even if the financial reports show that there is extra money available, you should still make a plan for how to invest it. This plan should consider mutual funds and stocks, but you should also set a budget for how much you are willing to spend. No matter what decision you make, be sure to set a numerical goal and work towards it. Do not deviate from the plan.

Financial planning process is a must for a startup to succeed and all business should have a team dedicated to gathering and analyzing the data to get the most accurate information.