As of December 2019, there were 1.25 million employer businesses in Canada. Of these, 1.2 million, or 98% were small businesses. Small businesses are the largest employers in Canada. Yet it is amazing how many businesses do not do any kind of financial planning. Depending on what it is your business does, spending a day or a week doing a financial planning checklist can seem overwhelming so many avoid it. Yet, it is absolutely crucial that is be done.
Unless your business is accounting, taking time out to do a plan like this can also be difficult. Luckily, there are services that can help create a financial planning checklist for you so that you can take the time to focus on what’s important: taking care of running your business.
However, if you’d rather try to do it yourself, or at least want to know what goes into a good financial plan, read on. We’ll break down what components are necessary when taking a look at what’s going on in your business.
What is a financial life planning checklist?
A financial life planning checklist helps you keep tabs on how to fiscally plan for your business’ future. A financial planning checklist isn’t vital, but we’ve created a checklist that helps make it easier for you to create, or at least understand your financial life plan.
It is imperative that you know what’s going in and what’s going out of your business each year. Some businesses perform these plans monthly, others quarterly, and some annually.
Read on for some of the key components to figuring out where your business is currently.
Your cash flow
This is perhaps the most important item on your financial planning checklist. Your cash flow, whether you like it or not, is the lifeblood of your business, and you need to know what’s coming in and what’s going out.
A cash flow statement helps lenders and investors understand where your business is, and it helps you keep on top of any potential issues.
Your cash flow statement is typically put together each month, though you can do it more infrequently if your business is smaller. This statement should account for all of the money going into the business, as well as all of the money leaving it. It should account for things like salaries, as well as mundane things like paying the heating bill for the office.
You should also be aware of how much cash your business has at the end of each month. This can be a profit, or it can be a loss, and it is essential you’re aware of this.
A cash flow statement can help you determine whether you need a new strategy, or if you’re on the right path to success.
If your business isn’t doing that well, your cash flow statement will flag this for you, and allow you to make as many changes as necessary.
A profit and loss statement
This is just as important as your cash flow statement but puts your profits and losses a bit more formally.
This statement should show in detail what has come into the business and what you’ve lost.
With this statement, you’ll see how much your company has earned, minus the cost of sale, to get your gross margin. A cost of sale depends on how much it cost to sell an item. For example, if you sell clothing, your t-shirt may have sold for $15 but you had to purchase the t-shirt for $5 and purchase bags that cost $0.50 per sale. This must be deducted before you figure out the cost of your revenue for the item. However, if you don’t sell a product, but a service, you likely won’t have a cost of sale.
You’ll also need to deduct things like taxes and the running costs of your business before you figure out if your business is in the red or black.
Your projected profit
Now that you know your profits and losses, your business’ financial life plan should also include a forecast of your business over the next few months.
Don’t get discouraged if you’re operating in the red for the first few months, or even the first couple of years. Unfortunately, that’s just part of doing business. However, if you want your business to thrive, and for investors to want to help with your cash flow, you have to have a plan to turn over a profit.
Your financial life plan should have a roadmap of how you’ll get your business to the point that it’s regularly turning over a profit, not to a point where profit is random or lucky.
Learning from your profit and losses, you’ll need to have a look at what’s worked and what hasn’t. Find a remedy for what hasn’t worked and figure out a way to do better in the future.
Financial life planning can be difficult, and it can take time away from your business itself. If, for example, you run a theater company or dance studio, financial planning takes up time that you could be using rehearsing or helping students.
This is the value in hiring experienced finance professionals to help create your business plan. With our services, you can spend less of your time worrying about the numbers, and more time doing what it is you do best: conducting and growing your business. You won’t have to worry about making mistakes or risk creating a business plan on numbers you crunched incorrectly.
We specialize in financial life planning, modeling, and valuation. Whether you need simple advice or need an external advisor, come learn what we can do for you at www.NorthernRiverFinancial.ca. Business owners need to do the right amount of planning and the partnership that we can create, to ensure this is accomplished, puts you on the road to Keeping Life Current.