Business Financial Planning A Must
Budgets in entrepreneurial companies are more awaste than a benefit. They’re never used in the traditional sense to control expenditures, and after the budget is busted, the process is ignored.
A financial planning gives management the ability to see the futureimpact of company strategies on the company’s profits and cash flow.
Financial planning will not only help the company increase profits and cash flow, but will be the predictorof the company’s financial future.
The greatest power that management has, although it is the least often used, is the ability to predict the company’s financial future. If management doesn’t like what the future holds, then management has the power to change how that future looks
by changing current operating practices.
Management must adopt an annual financial plan that includes these key items,
1. Procedures to collect money owed the company (AccountsReceivable);
2. A regular review of inventory, making certain old stuff is junked or turned into cash;
3. monthly financial statements; a 12-month profit-and-loss projection to keep you informed of the company’s future profitability; a 12- month cash-flow projection so you’ll know your cash requirements in advance; 12 months of projected balance sheets.”
Why the balance sheets? Two reasons,
1. First, the balance sheets let you know whether you will meet any loan covenants you have over the next 12 months.
2. Most importantly, the balance sheet is the only way to confirm that the P&L and cash-flow projections make sense.
Recently, I was having a discussion with an entrepreneur who had a set of financial projections prepared, after reviewing the P&L and cash-flow
projections, the entrepreneur was ecstatic. Profits and cash flow were going to reach record highs for the company. The future looked great.
However, upon reviewing the balance sheet, the client noticed that the accounts receivable were lower than they had been in the last five years.
The balance sheet made no sense.
The reason the projected accounts receivable were so low was that the projected collections from sales were too high.
The balance sheet is indispensable as the check to make certain the assumptions used in preparation of the P&L and the cash flow are realistic.
Many companies only have a projected P&L prepared, which may be helpful, but it’s only one piece of the financial puzzle.
What good is it if management doesn’t know their future cash requirements. Not knowing how long cash will last results in many, many
sleepless nights. Preparing all three financial projections is absolutely necessary.
By the way, take a look at www.cashplan.com. We offer a software that does all the projections for you, including the balance sheets.
Budgets in entrepreneurial companies are more awaste than a benefit. They’re never used in the traditional sense to control expenditures, and after the budget is busted, the process is ignored.
A financial planning gives management the ability to see the futureimpact of company strategies on the company’s profits and cash flow.
Financial planning will not only help the company increase profits and cash flow, but will be the predictorof the company’s financial future.
The greatest power that management has, although it is the least often used, is the ability to predict the company’s financial future. If management doesn’t like what the future holds, then management has the power to change how that future looks
by changing current operating practices.
Management must adopt an annual financial plan that includes these key items,
1. Procedures to collect money owed the company (AccountsReceivable);
2. A regular review of inventory, making certain old stuff is junked or turned into cash;
3. monthly financial statements; a 12-month profit-and-loss projection to keep you informed of the company’s future profitability; a 12- month cash-flow projection so you’ll know your cash requirements in advance; 12 months of projected balance sheets.”
Why the balance sheets? Two reasons,
1. First, the balance sheets let you know whether you will meet any loan covenants you have over the next 12 months.
2. Most importantly, the balance sheet is the only way to confirm that the P&L and cash-flow projections make sense.
Recently, I was having a discussion with an entrepreneur who had a set of financial projections prepared, after reviewing the P&L and cash-flow
projections, the entrepreneur was ecstatic. Profits and cash flow were going to reach record highs for the company. The future looked great.
However, upon reviewing the balance sheet, the client noticed that the accounts receivable were lower than they had been in the last five years.
The balance sheet made no sense.
The reason the projected accounts receivable were so low was that the projected collections from sales were too high.
The balance sheet is indispensable as the check to make certain the assumptions used in preparation of the P&L and the cash flow are realistic.
Many companies only have a projected P&L prepared, which may be helpful, but it’s only one piece of the financial puzzle.
What good is it if management doesn’t know their future cash requirements. Not knowing how long cash will last results in many, many
sleepless nights. Preparing all three financial projections is absolutely necessary.
By the way, take a look at www.cashplan.com. We offer a software that does all the projections for you, including the balance sheets.