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What is a financial plan? Why is it required for every business?
Every business starts with an idea, which is intended to solve a problem, which leads to generating revenue. The first step, which every business has to do, is to write a financial plan to have clarity on various aspects, which will help in building the business.
Financial plan helps in planning every single penny that needs to be invested in the business, it helps in giving you clarity on the milestone that you need to achieve and also provides you clarity on the feasibility of the business even before you start.
Financial plan acts as a blueprint to give you clarity on the amount of funds you need to invest and at what time and what amount of funds and for what purpose and to validate the end result of the purpose.
Every business needs this financial plan irrespective of either being OEM (Original equipment manufacturer), trader, services or products. Every business needs to have clarity even before you start. The reason being you are very well aware of the amount of burn you have to do and every decision of yours as founder needs to be quantified with the end result or else it results in winding up of the business.
Every decision of the founder or the top management is arrived only after having clarity on financial aspects of the decision, for e.g if you want to increase penetration of your product and you set up an offer of buy one get one free then you need to decide the burn you are going to have in implementing the strategy and also you need to understand what will this strategy lead to will it increase brand presence or increase revenue or sales.
Every decision of the management team has to be validated on the financial plan as to have clarity on decision and result.
For e.g if you were to hire developers then financial plan will give you clarity as to how long you need to pay salary for the employees who are building product for you and duration by which the product needs to be completed to hit the market and what number of sales need to happen to generate revenue to keep this business alive.
A financial plan is the core of every business, which has to be on the tabletop of the CEO of every business. Making decisions becomes easier with a financial plan and also evaluating results becomes easier which helps in planning strategy and the cost to be incurred for implementing the strategy.