Financial Planning Advice for New Shops
Financial planning involves looking at the past to make informed decisions about the future. You’ll be using data and analytics of your shop’s past performance to determine future projections. Your financial plan is a comprehensive account of all your expenses, your income, your sales, as well as your shop’s growth. That makes your financial plan not just a handy guide that helps you maintain your shop’s finances. It’s also a reliable tool that can indicate how well your shop is doing.
A financial plan is also a necessary document for investors. If you need funding, then you’ll need to explain the financial breakdown of your business, your financial goals, and how you expect your shop to get there. It’s an essential document for any shop owner. And if you want your business to succeed over the long term, a good financial plan is a basic necessity. Here’s how you can start writing your own financial plan today.
What is a financial plan?
Every shop needs to have regular expenses. From paying your employees to utilities, rent, inventory, administrative costs, overhead, and others, losing track of your accounts is easy. The amount you’re spending needs to be weighed against the income you make regularly.
A financial plan is an assessment of your shop’s current financial situation, where you hope to be in the future, and how to get there. To begin writing your financial plan, you need to gather all your financial details. If you run a new shop, then the amount of data you’ll have at the beginning is lower. This makes writing a financial plan that can make accurate forecasts is harder for you at this point. But over time, as you begin to start writing financial plans each year, you’ll realize the value of using the past to forecast the future.
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Even with a year’s worth of data, you’ll be able to notice opportunities your competition misses, find places where you can improve your shop, and keep a firm hold over your shop’s finances.
Learning how to use spreadsheets is also necessary if you want to write a good financial plan. Here are five tips that can you write a financial plan for your new shop.
1) Gather data on your past and present finances
You’ll be addressing three main areas in your financial plan, and having the data for all three is necessary to make forecasts. These are
- Cash flow: All income and expenditure.
- Balance sheet: Your shop’s assets, your equity as an owner, as well as any business liabilities.
- Income statement: A broken down outline of all expenses, revenue and profit, and net income within a certain period.
2) Turn your plan into profit
Once you’ve crunched the numbers and realized where your business is gaining and losing money, it’s time to start making projections. Your financial plan can be updated on a monthly basis to see how your shop is growing.
Every month, make a sales projection for the next month. Analyze how much of your inventory you could sell in the past month and what factors contributed to that. If you find that sales were low, then you need to market your shop to increase customers. Add a possible prediction for what the new sales figure can be after you launch your marketing campaign. This potential sales figure is called an assumption. You can make assumptions for other variables that you want to make forecasts about as well.
If in the next month, your sales figures increased, then you can find a direct correlation between your marketing campaign and increased sales. This also shows that you could convert your marketing plan to profit.
3) Deal with liabilities
New shops are more likely to have liabilities than shops that have been around for a while. This is as older shops will have already had to deal with their liabilities and overcome them. All businesses have liabilities that need to be addressed. Being aware of these and reducing your expenses towards them can help you increase your profit margins at the end of the month.
Use your financial plan to see where you’re spending money needlessly, and prevent that wastage.
4) Budget wisely and for the long term
Financial plans are developed keeping long-term growth in mind. Most successful companies update their financial plan annually. This typically happens at the beginning of each financial year.
A key advantage of writing your financial plan at the beginning of the financial year is that it helps you budget your expenses for the rest of the year. Seasonal variations in sales are a part of running a shop. But if your financial plan accommodates these seasonal variations, then your shop will always have enough funds to thrive.
5) Include insurance in your financial plan
New shop owners often forget about the importance of insurance when it comes to writing a financial plan. Since you’ll be paying premiums for your insurance policies, you’ll need to count them into your financial plan. While you’re writing your financial plan, do your research on the kinds of shop insurance available to you. Compare the prices and level of coverage online to protect your business with proper shop insurance.
With these tips, you can easily begin writing your financial plan. A financial plan grows over time. The more data you have, the better you’ll get at making predictions. Update your financial plan regularly, and keep it flexible so that you can take into account changes in the economy or the market.