Financial planning is an essential strategy for gaining greater control over finances, achieving sustainable business growth, and standing out in the market.
An article by Jornal Contábil, based on data from a survey by the Brazilian Institute of Geography and Statistics (IBGE), highlighted that thousands of new companies enter the market every year. However, 21% of them close after the first year, and about 60% survive for no more than five years. Among the reasons they close, one of the main ones is the lack of good financial planning.
With that in mind, we prepared this post to cover everything you need to know about this strategy. What it is, its benefits, and tips on how to build good financial planning are the topics covered.
Happy reading!
What is financial planning?
Planning can be defined as determining the objectives of a business, as well as managing the means and resources to achieve them. Therefore, financial planning can be defined as an instrument that guides the company in setting goals and choosing the means necessary to reach them.
A study conducted by researchers at the University of Southern Santa Catarina highlights planning as "a fundamental tool for the development and growth of an organization, since through it the administrator gains real knowledge of the company's financial situation."
So, based on financial planning, an entrepreneur can organize their finances and build a cost forecast for a given period, which can be quarterly, semiannual, or annual.
Meanwhile, another study published in UNIPAR's Ciências Empresariais journal says the purpose of financial planning is "to assist the client in decision making and enable more effective management."
Benefits of financial planning for a company
Financial planning is a resource that can offer a company several benefits. Here are a few examples:
Knowledge of the business's financial reality
To carry out financial planning, the manager needs to make a diagnosis of the state of the business's finances. In doing so, they get to know this reality in depth and can then think of solutions capable of helping the organization achieve better results.
For example, it is only possible to set a financial goal (such as increasing sales revenue) based on a prior diagnosis that helps the manager better understand this point.
Efficient cash flow management
Financial planning also enables an entrepreneur to manage the business's cash flow efficiently.
This way, they better understand the right time to make purchases (raw materials, support materials, etc.) and confirm whether they are able to make new payments (suppliers, workers, etc.). All of it based on the financial reality of the business.
Reduction of unnecessary costs
It also helps reduce costs across the company. By diagnosing the company's finances, the manager broadens their view and can identify costs that are considered unnecessary and that may slow down growth.
Some costs that can be seen as unnecessary include, for example:
- Paper printing costs. Instead of printing on paper, the company can encourage its employees to read reports, performance indicators, and other documents in digital format;
- Costs from excessive electricity and water consumption. In this case, it can instruct employees to turn off electrical equipment as soon as they leave the workroom.
Elimination and/or reduction of risks
Financial planning can also help eliminate and/or reduce risks, which contributes to safe company growth.
How? By offering a broad view of the business's financial reality, so the manager makes decisions based on solid data. For example, if they know a certain product has low turnover — that is, it sells seasonally — then it is not strategic to buy it in large quantities. That is why inventory control is so important.
Tips on how to build good financial planning
Given all of the above, you are probably curious to know how to build good financial planning. In this section, we present four valuable tips:
Diagnose your company's financial situation
The first and most important tip is to conduct an in-depth study of your business's financial situation. For example: cash balance, existing debts, unpaid debts with late-payment interest and fines, payroll, and so on.
Based on the diagnosis of the company's financial situation, it is possible to outline clear objectives that can be achieved in the short, medium, or long term.
Set clear objectives
Next, you need to establish clear objectives and achievable goals that guide the company toward organizing its financial situation. For example:
Pay off debts X and Y by a certain deadline;
Reduce costs in the company's operations by up to 25%;
Increase the number of sales so there is more cash on hand.
Create an action plan
Then you need to create an action plan aimed at achieving the objectives outlined in the financial planning.
By way of illustration, it is important to hold meetings with employee teams to provide guidance on the behaviors that should be adopted to reduce costs.
Establish ways to monitor the financial plan
As a final tip, establish indicators capable of helping the manager gain greater control over financial management.
Performance metrics can help the manager know whether the financial planning is actually generating the expected results. They also help with making decisions to ensure the outlined objectives are effectively achieved.
An ERP system helps with financial management
Having an ERP system is essential for any administrator who wants greater efficiency and productivity in a company's financial management.
This technology allows greater control over cash flow, broadens the financial manager's view, and provides data that supports decision making.
Knowing what financial planning is and understanding its main benefits is the first step toward grasping how important this solution is for ensuring your company's sustainable growth. It is a solution that offers many benefits, such as better decision making.
If your company does not yet have an ERP system, take the opportunity to get to know the Useall financial software. How about doing that right now?
Originally published in Portuguese at useall.com.br.