Every business, be it small or large, can and should have a good plan to help realize its financial goals and objectives. Financial planning ensures that business managers utilize financial resources in the best way possible. It involves detailing how much there is to spend as well as deciding what to spend on. Here are a few critical reasons to explain why your business needs a financial plan:
Asset Management
Several assets often have liabilities attached to them. Your commercial buildings may have been bought under a mortgage arrangement, you may be obligated to service a loan advanced by a commercial bank for the purchase of motor vehicles, or perhaps the capital equipment you are using might have been financed externally. As a result, it becomes imperative to find out the real value of each asset. Financial planners have the knowledge of settling or harmonizing the liabilities that usually come with owning various types of assets. Hence, they can help you to avoid obtaining assets whose real value will be difficult to maintain moving forward.
Lifestyle Changes
Changing lifestyles significantly influences how business finances are being spent. With increased profitability and revenues, it is not uncommon for business managers to demand for higher salaries, which can be used to improve their standard of living. For instance, the managers may want better perks so that they can acquire luxury cars that may be befitting of their status as corporate heads. Financial planners will have an integral role to play in helping businesses provide what individuals need to maintain and upgrade their lifestyle.
Property Protection
With contingencies like fire emergencies, it is important to have a sound financial plan to help you mitigate such situations without draining your finances. The financial planning process will reveal potential financial risks that are associated with certain situations and advise you on the most effective way to protect your financial interests. For example, you may be advised to purchase a fire insurance cover if the risk of a fire disaster is significant. This way you won't have to worry about replacing damaged property in case of a fire disaster, as your insurance company will compensate you for the loss.
Cushion Against External Shocks
By anticipating external shocks, such as inflation, that every business is bound to be affected by at some point of its lifespan, financial planners will help to protect your financial resources against the risk of loss. For instance, you can tie up your money in foreign currency if you expect that the local currency will lose value in the days ahead.
Share25 January 2016
Good day. I’m Linda and I run two family businesses — building contractor and aged care staff agency. It is quite a feat to juggle schedules and keep track of finances. I have become quite an expert with business management software. I have also learnt the vital importance of having good accountants to give advice and keep bookwork up-to-date. Prior to starting our family businesses, I honestly thought accountants existed to organise tax returns. I now understand that their jobs are much more complex and they can help your business prosper. I started this blog to highlight the numerous ways I’ve found that accountants can contribute to financial success. Please browse through the posts and I hope you find something useful within.