Basic Finance Planning for Small Businesses
Finance planning is one of the most vital tasks you will have to perform when opening a business. In fact, it should be one of the first missions you should take in your new adventure. Sure, you can find hundreds of templates online to help you with financial planning. Unfortunately, some of these templates may not apply to your brand. For example, if you sell a service, you do not need to consider warehouse keeping, storage space, or dealing with product distributors.
This article will teach you how to make an effective financial plan for your new small business. But, we must mention, and we cannot stress enough, that every company is different. There are several factors you will need to consider in addition to the ones explained below. Having a finance expert, like an accountant, a bookkeeper, or an experienced entrepreneur, can help you kickstart your plan from the early stages while saving your initial budget in the best way possible.
Finance Planning Step 1: Define your Product
Your product or the service you offer will be the face of your company. Before getting into money matters, you must first define how to make your product or what your services will include. What ingredients do you need, how many tools you will offer, etc. It is also imperative that you have a clear idea in mind. The more detailed you can make these descriptions, the easier it will be to put a price on them. If you offer different services or more products, you must perform this task for each one of them.
Finance Planning Step 2: Define a Budget
While some experts claim that this should be the last step, we know that having a big budget is not something prevalent. Some entrepreneurs have to settle with the budget they have saved over the years or with a bank loan, and this barrier is why your second step should be defining a budget. A quick tip would be not to quit your day job yet. Those days where you can start something from zero and have immediate success are over. It's always better to have a steady income of money as insurance and manage your business separately. Once you have a budget, you can choose the distributors you like the most and see how much your product is worth the way you want to make it.
Finance Planning Step 3: Define your Workforce
Now that you have the net worth of your product, you can measure how much time it takes to make one and make equations when having one employee, two employees, etc. This last projection can help you as your business starts to grow. But it is also important to mention that you do not necessarily need to hire full-time employees when starting a business. Most small businesses start with one or two persons and will remain the entire team for up to the second year. But don't get discouraged; having a business has its ups and downs. You can also hire part-time employees, like virtual assistants or freelancers.
Finance Planning Step 4: Make a Model with Projections
The first thing you must do in this step is to define a price. The price you will determine must be related to the local market, if you are going to be local, or to the global market. Identify your direct and indirect competitors and choose a competitive price that can keep your business running. Based on your budget, the number of hands you need, the competition, and the time it needs to make your product, you can project how you think your sales might go in a month, quarter, or year. Remember that when you are making projections, you should make three of them: one with the lowest possible income, one in the middle, and one with the highest potential income.
Finance Planning Step 4: Reduce costs based on Projections
Now that you have your projections, you can see which sections you can reduce certain costs. For example, if your business prepares food, you can see which ingredients can come at a lower price by contacting local distributors or checking eStores. You may need to do experiments with different components to see which ones do not affect the quality of your end product.
Finance Planning Step 5: Define your Channels
Lastly, on this list, you will have to define your distribution channels. According to Investopedia, a distribution channel is a chain of businesses or intermediaries through which a good or service passes until it reaches the final buyer or the end consumer. This definition refers to how you are going to sell your product. Whether you choose a retailer, a wholesaler, or eCommerce, there are several factors you will need to consider for each one, like distribution and stock. You can click here if you want to know more about distribution channels and their requirements.
Finance Planning Step Plus: Add an Emergency Fund
One last tip in this finance planning for small business article is to consider margins of error. Accidents happen, and sometimes your mind is so occupied with big things that you tend to forget the little things. An emergency fund can help you prevent these types of accidents and provide a breather in dire need. If you find yourself forgetting the little things more than not, virtual assistants are a great solution.
Planning for a small business is a tough job. Besides your budget and your products, you also need to worry about your brand, your employees, your webpage, your SEO, and dozens of tasks that might be difficult to complete if you do not possess the knowledge or the time to achieve them. But, having a small business of your own is one of the most satisfying things on the planet. The total independence and the amazing feeling of being a different company from the rest is incomparable to everything you need to do to take care of it.
If you would like to know more about virtual assistants, do not hesitate to call or chat with us. Our virtual assistants are experts in their fields and can help you with the finance planning for your small business. They can also perform tasks like social media, bookkeeping, medical billing, and sales. Do not let this chance go, and invest in your own business today!