The Importance of a Financial Plan.

Firstly, Financial Plan for SME: Every project, undertaking, or company in progress has many parts or pieces that mesh to configure the whole; this system is what we usually know as a business. Each of the system’s features is important, like all the parts of the human body, but some are vital, without which its operation would be impossible.

In a company, money management is fundamental and even more so at times like the present. Companies live in a box for thirty days on average, and everything finances. Without money, a great idea cannot be developed, a product or service cannot be created or offered, it cannot be distributed, and it cannot be marketed, so for a company to succeed, it must strive to make a coherent financial plan, feasible and accurate.

Financial Plan for SME

The financial plan has been placed at the extremes of the equation; For any undertaking, it seems that it is obvious to have a projection of how sales will develop in a given scenario and how its cash flow will behave to calculate how much money is needed initially, at the other extreme are the large companies, which they plan well in advance the behaviour of the variables that affect their finances to control the cash flow and maximize the benefits of the organization.

What do SMEs do Regarding the Financial Plan?

Let’s start by simply defining a financial plan. This contemplates all the variables that interact in one way or another with our company, perfectly representing which are the ones that can generate risk in its economic viability. Understood as financial viability, the ability to generate profits, and without economic benefits, there is no growth.

However, Financial Plan for SME is immersed in the day-to-day. The operation always absorbs the entrepreneur. allows him to estimate and relate the result obtained between what is expected and what is real. He loses sight of the importance having a Financial Plan

What are the Components of Financial Plan?

  1. The assets. Many entrepreneurs have lost sight of their assets, their replacement value, their useful life, and, above all, the influence these have on the configuration of the price of each product or product line. Without knowing this relationship, you can mistake placing a price that does not have the potential to replace those assets in the future. This replacement may be due to technological advances or simply exhaustion due to its use.
  2. Mostly, Cost structure. Most entrepreneurs have extensive experience in this area; they know the direct components of their products; an example of this is a chef who knows each element of his recipe and its proportion and knows perfectly well that he has a quality product. Still, they do not have enough information to relate the influence of other components such as costs and fixed expenses in the sale price; this may be wrong, affecting income or making them insufficient.
  3. The financing of the operation. SMEs must consider that governments offer funding to well-organized companies with viable financial plans. It is necessary to know where the funds come from; whether they are their own or third parties, they will be shareholders, investors, or bank loans.

Financial Plan for SME

  1. Cash flow, treasury management. Combining the three previous components must generate a positive result in terms of money available so that the company’s operation is viable; this will depend on the payment terms, payment of suppliers, price of services, and payment of obligations with the workers—commitments with credit entities and amount of other costs and expenses of the company.
  2. However, financial statements. The impact and analysis of the financial statements result from the variables elaborated in the plan. How the results estimate. And their implications for equity.
  3. The indicators (KPIs) of the plan. How do the variables behave? What indicators allow us to verify that the project fulfills, and to what extent?
  4. And also, As we can see, the financial plan is vital for any company; the opportunity to improve profits will always depend on it.
  5. Seeking the support of an external expert. A consultant who supports the entrepreneur in the preparation and analysis of the financial plan. And also, reduces risk and uncertainty, critical elements for a company.
  6. Moreover, If you have a problem with your financial plan? Do you suggest any other topic to deal with finance for SMEs? Make comments below.

Also Read: What is the Financial Plan – and how to do it Step by Step? [Example]

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