Financial planning is an important aspect of managing the finances of your business.
According to Investopedia, financial planning involves documenting a person’s current money situation and long-term monetary goals, as well as strategies to achieve those goals.
In today’s article, we will be sharing key pillars of financial planning you need to consider for your business. This article is a recap of the “Key Pillars of Financial Planning For Your Business” session from our webinar series, facilitated by Israel Koledowo, our Head of Finance for Africa. You can watch the video on our YouTube channel, to get updates on new videos that can help you grow your business, kindly subscribe to the channel.
Financial planning helps you to know what to do with your finances (income & expenses) as a business owner.
The key pillars are:
1. Detailed Book-Keeping
Detailed book-keeping is a very important aspect of financial planning. It is about keeping a record of your income and expenses. It doesn’t have to be very fancy or grand, it can be as basic as a spreasheet.
You need to keep the source documents to effectively do this. Source document is anything you use to either send or receive money; examples are cheques, invoices, receipts, bank statements and much more. You need to actively record all transactions that you carry out.
As a business owner, you should be sending out invoices to your customers if you are not doing that already. You can use the Invoices feature on Flutterwave to do this, you can learn more about using the feature here.
Account reconciliation is also important, at the end of each month, you should be able to reconcile your bank statements. This way you will see other charges/expenses you may have missed. Once you see them, you will also need to add them to the spreadsheet.
At the end of each month, you also need to close your books. This involves summing up all the inflows and expenses for the month, this helps you to know if you are running at a loss or profit.
2. Strong Control Mechanism
These are the checks and balances you can put in place to prevent careless, costly or uninformed decisions or behaviors. The aim is to ensure the business is financially healthy and void of errors that can ruin it.
An example is when you have a customer who hasn’t paid for a product/service yet, you need a control mechanism that ensures you track and follow-up with the customer till they pay you. You can create an excel spreadsheet that lists all the customers who haven’t paid, how much and for how long they haven’t paid. This can also inform you about customers you need to avoid.
Budgetary control is equally important, it helps you stay on track. As a business, no expense should catch you off guard. You can create another spreadsheet that projects the finances of the business. It can include how much you will need to spend in some months, how much revenue you can expect to bring in that same time frame.
3. Excellent Income & Expense Forecast
A good business owner should be able to plan into the future and the easiest way to do this is by documenting all that you are doing. You should be able to document what you expect to be the inflows and outflows in 6 months or a specific timeframe. This helps to keep the business in check, it can help you identify expenses that are new. It can also inform you when you are going overboard with some expenses.
Remember, consistency is very important in planning for the finances of your business. Stay consistent, stay committed and stay disciplined.
We want to help you grow your business and this is why we are having these sessions to teach you practical lessons that can help you grow your business. You can see videos from the previous webinars here, watch them and we’re sure you will find them valuable.