Grow your small business without running out of cash
Let’s be real: If you’re in business, finances are a huge pain in the butt.
They always have been, but in today’s climate, cash is especially tight. And not every business is making it out on the other side…
If you don’t want to be on the chopping block, financial planning is the only option.
It’s your business lifeline.
This article is here to give you a breakdown of how to implement a robust financial strategy for long-term small business success.
Why Financial Planning Is Your Business Lifeline
Here’s a little secret that most business owners don’t realize…
Financial planning is not about predicting the future.
The truth is nobody has any idea what’s coming next. We’ve never seen a financial or business crisis like the one we’re in right now. There’s no blueprint.
But that’s the beauty of a robust financial plan. It doesn’t care what the future holds because it has you covered no matter what.
The reality is that 42% of small business owners had limited or no financial literacy before starting their businesses. Meanwhile, the data tells us 74% of business owners are cash-strapped. In fact, three out of four say their cash flow challenges are staying the same or getting worse compared to 12 months ago.
Wow.
So it goes without saying that the businesses that are thriving right now are not the ones with the flashiest products or the slickest ads. They’re the ones that plan ahead and are building solid financial foundations.
Sure, they still have challenges. Of course, they do. Small businesses have been decimated by this economy. But the ones that stick around are the ones that have options.
Financial planning is about creating those options.
Building access to flexible funding like a business line of credit is a game-changer. With a business credit line, you have ready access to capital when you need it. And the best part? You only pay interest on the money you use.
Smart, right?
But this is just the tip of the iceberg when it comes to financial planning. Strap in… We’re going deep.
The 5 Core Elements of Strategic Financial Planning
Now it’s time to cover the bread and butter of strategic financial planning. This is how to build a financial plan that actually works and gives you options, no matter what comes next.
1. Accurate Revenue Forecasting
You know how you optimistically assumed your business would make X sales this year?
Stop doing that.
You can only plan for a cash flow disaster like the one we’re in now if you’re willing to look at a variety of revenue scenarios.
Forecast three versions: one optimistic, one pessimistic and one most likely. This way you have an average to plan for, a best-case and a worst-case scenario.
2. Expense Management and Cost Control
Know exactly where every dollar is going in and out of your business.
Fixed costs are your baseline because they’re always there. Examples include rent, insurance, mortgage payments, payroll, and utilities.
Variable costs go up and down based on sales volume and business activity levels. Things like direct materials, commissions, shipping, and office supplies.
The key? Plan your budget around fixed costs first, then add variable expenses based on conservative revenue scenarios.
3. Working Capital Optimization
Cash flow is king in small business.
Working capital is the money you have for day-to-day operations. A healthy business will often have three to six months of operating expenses available in working capital.
4. Strategic Debt Management
Good debt. Bad debt.
Investments that help your business grow (equipment financing, expansion loans) are good debt. Bad debt is things like high-interest credit cards and unnecessary borrowing that just sucks resources from your business.
5. Emergency Fund Planning
Cash reserves for emergencies are your business safety net.
Set aside at least 10% of annual projected revenue for unexpected expenses.
Smart Funding Strategies That Actually Work
Let’s not sugarcoat it. The funding environment has shifted drastically in the last few years, and it’s not getting better anytime soon.
Bank loans are not only hard to get these days, but they’re often not the best option.
Successful business owners are diversifying their funding options:
- Mix and match various funding types (lines of credit, term loans, invoice factoring, equipment financing, etc.)
- Build creditworthiness before you need it by paying on time, building trade credit relationships, and separating personal and business finances
- Consider non-bank lenders and alternative funding sources for faster approvals and more flexible terms
Cash Flow Management That Prevents Crisis
Cash flow issues are a top cause of business failure.
Here’s how to avoid it:
- Implement cash flow forecasting, at least 13 weeks out. Update the projection on a weekly basis for early warning signs.
- Collect payments faster by offering incentives for early payment, using automated invoicing/payment systems, etc.
- Negotiate longer payment terms with vendors to push out expenses as long as possible
- Manage inventory efficiently so you’re not tying up cash in unnecessary stock
Building Your Financial Safety Net
Don’t sleep until you have more than one layer of financial protection.
Layer 1: An emergency cash reserve to cover 3-6 months of operating expenses.
Layer 2: Pre-established credit lines you can tap into when needed
Layer 3: Revenue streams that are diversified and not dependent on one customer/market
Layer 4: Comprehensive insurance coverage
With a multi-layered approach to financial protection, you have options when the unexpected happens. And trust me…it will happen.
Quick Implementation Checklist
- Create realistic 12-month cash flow projections
- Establish business credit accounts with suppliers
- Set up automated bookkeeping and invoicing systems
- Build an emergency fund (start with 1 month, build to 6)
- Research and establish credit line relationships before you need them
- Review and optimize payment terms with customers
- Implement weekly cash flow monitoring
- Create contingency plans for different scenarios
Wrapping It Up
Strategic financial planning is not just about crunching numbers and boring spreadsheets. It’s about understanding your financial situation, being prepared for different outcomes, and building a system that gives you options.
Businesses that last the long haul are the ones that have solid financial foundations in place and are adaptable to change when things shift.
Start with the basics. Build your safety net. Establish credit lines before you need them.
Because when opportunity comes knocking (or when a crisis hits, because let’s face it, it will), you want to have access to options so you can ride out the storm and position yourself for the best possible outcome.
Remember: The best time to plan your finances was when you started your business. The second-best time? Right now.
Don’t wait until you’re on the verge of running out of cash to start building your financial plan. Start today so you can give your business the best possible foundation to not just survive, but thrive.
