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Accounting & Finance

Financial Planning For A Growing Business

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There are two critical moments in the life of a business: the period just after it has started up and the period when it first starts to expand and grow.

If you’re reading this, congratulations because you’ve almost certainly made it through the first one.

The second vital consequence of operating a startup, however, requires careful consideration as a mistake at that stage has the potential to destroy everything you’ve built.

The need for diligent preparation ahead of expanding your business cannot be overemphasized. It accounts for a large percentage of the difference between those businesses that fail and those that go on to enjoy long-term success.

A larger business is, in most cases, a safer business, but reaching that point requires a balancing act. Invest too little, and you’ll get nowhere. Invest too much, and you could be in serious trouble.

Proper financial planning requires an awareness of both these factors.

Keep Your Business Plan Up To Date

Many people think of business plans simply as tools to use for attracting investors, and some see no point in keeping them updated after the startup process is complete. That is a mistake.

Your business plan is, first and foremost, there for you. If you update it regularly, then it will prove invaluable for mapping cashflow and for getting a clear picture of business activities past, present, and planned. It should be your first point of reference when establishing how you can best use the funds you have – or raise more funds – to achieve your ambitions.

Review Your Risk Strategy

The first area you need to look at when working out how to grow your business is the degree of risk involved. What are your vulnerabilities, and if something went wrong, how much capital would you need to have available to resolve the problem?

You need to be realistic. For instance, if your income is likely to be slow during the winter months, you need to work out what it would take to tide you over. If a critical piece of equipment is likely to fail at some point, you need to know how you’d replace it.

Planning for black swan events like global pandemics might be tempting but is just not a practical approach for most businesses most of the time.

Keep Track Of Your Liabilities

Although most businesses plan month by month, incomings and outgoings vary across the year, especially when it comes to liabilities like taxes and fees. Any spending plan must take this into account. That means, for some businesses, it’s much easier to expand at one time of year than at another.

You’ll need to track bills, which can be unpredictable, and any debts that you have, paying particular attention to those paid in periodic installments.

Set Up A Pension Scheme

One great way to invest in your business, yourself, and your staff while keeping your tax liabilities to a minimum is to set up a pension fund. As financial planning consultant Robert Ryerson notes in his book What You Don’t Know About Retirement Will Hurt You, it’s never too early to start thinking about this even if you’re not in a position to act.

A well-chosen or well-developed pension fund has multiple advantages, including making your business look more attractive to funders when you next reach a point at which you need to source extra capital to support your development.

Invest In Developing Your Products Or Services

Many businesses start with a single strong idea, launching a carefully designed product or service, which quickly makes inroads in the market. This is no bad thing, but in the long term, if the demand for what you offer disappears, you’re in trouble.

Secure growth requires an element of diversification, so invest in research and development to establish new products and services that you could offer to your customers.

Invest In Research And Marketing

As well as establishing what your customers want or might be open to, you need to determine the factors that would make them likely to buy it from you rather than looking elsewhere. This requires a thorough understanding of your customer base and provides an opportunity to consider branching out to appeal to new demographics as you expand.

It’s the essential foundation of any good marketing strategy.

Many businesses treat investment in this area as an add-in, but when you’re growing, you can’t afford to be without it.

Careful preparation in these critical areas can help you to make a lot more out of your growth opportunities. It will enable you to move forward in a more balanced and controlled way with a clear idea of what your options and limitations are.

It’s essential to think through possible scenarios and do as much contingency planning as you reasonably can because once you start to make your moves, things will happen fast.