Managing money effectively is an essential aspect every entrepreneur of a small business enterprise needs to take into consideration if he/she intends to succeed in the market. Effective financial planning acts as a catalyst in making in helping the proprietors of such organizations take prudent decisions on a daily basis. Comparing the forecast of sales, revenue and expenditure with their actual figures highlights the strengths and weaknesses of such businesses. This provides vital information regarding efficiency of the business and its financial health.
Steve Sorensen , a reputed business professional explains that it is essential for an entrepreneur of a small business enterprise to have a financial plan in place. Regardless of how well such a businessperson monitors his/her business revenue and expenses without a proper plan, he/she will face difficulties in running the organization. The proprietors of such business many end up incurring avoidable interest payments and facing legal disputes because they could meet their obligations. In addition to this, they may not have the money they need in critical moments to pay for necessary expenses. By making use of certain essential financial planning tips, they can increase their business revenue. He says the benefits of financial planning for such businessmen are:
- Cost Control
One of the important aspects of financial planning is the ability to avoid incurring unnecessary expenses. It is vital for all entrepreneurs of small businesses to create a budget to monitor their costs and finds ways to reduce them wherever possible. This will go a long way in helping meet the financial objectives of their organization. Formulating a budget will not solve all their business problems but it is go a long way in ensuring their expenses do not exceed their business revenue.
- Cash flow management
It is important for entrepreneurs to realize that just because their sales revenue is very high it does not mean they will have those monetary resources in time of need. Cash flow management is a critical area of financial planning that helps businesspersons identify their cash requirements regardless revenue they earn. If they have very slow receivables and bad debts when their payables are high, these entrepreneurs may lose profitable contracts. This will adversely affect the growth prospects of their business organization.
- Debt Management
Many businesspersons are unaware that interest payments on credit cards and loan contain hidden expenses that they do not monitor. An effective financial plan can go a long way helping them to address the issue of such unnecessary expenses while finding ways to ensure faster debt repayment.
- Accurate Tax Compliance
Businesspersons must remember that financial planning also involves estimating the amount of taxes payable by them accurately. Failing to pay taxes on property, payroll and income on time can lead to serious legal problems in the future. This is in addition to the penalties and interest they have to pay for the delay. This can serious hamper the growth of their business.
Steve Sorensen says the above benefits of effective financial planning can help entrepreneurs to achieve their business objectives in the future.