What is a Financial Plan and Why is it Important?
96% of businesses fail in the first ten years because of a lack of visibility on their numbers.
Having a financial plan for your personal and business finances is so important because it gives you a clear direction of travel. It’s a reference to measure your success or failure against. If you want to scale beyond a lifestyle business, it’s the number one thing to focus on.
Here are ten other key benefits of having a clear financial plan. (Some I repeated on purpose so they get reinforced!)
1. It gives you a short and long term plan to succeed on your terms. Thus you are much more likely to actually achieve it. Studies have shown that being in business without a plan, is akin to travelling somewhere without your destination! You may work out where you want to go along the way, and you will move away from your start point, but progress will be far from smooth and efficient.
2. You can compare actual performance to your plan and adjust strategies. You don’t let your business run you, you run your business. The way to improve is to measure results > adjust tactics > remeasure results > adjust tactics and so on, until you find what works.
3. It gives massive accountability if shared with your team or family. If you have a team you can start to leverage them, by giving them responsibility for line items in the plan e.g general manager ensures all general overheads are kept under budget.
4. It allows you to first map your goals, then apply strategies and tactics to achieve them. For example, if you want to grow revenue for a particular product or service by 30% next year. What will you do to generate X new clients, how many prospects will you need? how will you attract them? How will you measure progress on attraction each week?
5. It’s easier to get investment or funding; you can build out a financial model based on the driver of new business relevant to you. So if you use Instagram ads, then drive the entire new sales targets from ad spend metrics. If you get referrals, how many clients do you need to request referrals to generate a new client on average? Use that to drive the targets for the activity to produce sales NOT the other way around. Most business owners don’t have any scientific approach to lead generation and don’t track data to predict new client acquisition.
6. It allows you to review it regularly, have thinking time, and work on your business and not in it. It’s a reference point for your weekly executive meetings.
7. You can share it with a coach, mentor, friend, and family to get feedback. For example, we once had a plan to get to 10m in sales with a low-profit margin. A coach asked me why that number? Did you pluck it out of thin air? what do you actually want? Because I want a bespoke firm that works with amazing clients at lower numbers we redid the plan to generate almost as much profit but only 2.5m in sales! Much easier to run and much more aligned with my vision of the perfect version of GrowFactor, we get to interview prospects, not the other way around!
8. It’s motivational to see you are on track. It’s like this new app I’m using to lose weight during the lockdown. It makes you weigh in every 2 days. that accountability makes me snack way less than I would, as I know I have a weigh-in the next day. I workout harder and I’m more focused. So far I’ve lost 5kg and I’m on track to achieve my ultimate goal. The app actually graphs your predicted weight loss based off a goal and shows you if you are on or off track. When you are on or below the weight loss line (predicted) you feel amazing and it gives you confidence and certainty you are doing the right things.
9. It’s much easier to be resourceful when you have a plan, if you aren’t hitting your targets each week you can see early and adjust until you find something that works.
What gets measured gets managed and there is always a way to achieve a goal, it’s about failing enough times to find the one that works for you.
10. Adding control to your business, allows you to track cash flow, expenses versus plan, and how much sales you need to grow your business to your vision. By committing the numbers to paper you’ll increase the chances you achieve them.
If you haven’t got a business financial plan and are interested in discussing how you can get started, or you want to review your current financial planning process then book a call with me below.