A FLAWED FINANCIAL PLAN LEADS DIRECTLY TO BUSINESS FAILURES!

The basis of an effective financial plan starts with effective budgeting. In the process of effectively budgeting, the most important goal for a business revolves around accurately forecasting the inflows and outflows of cash, the “grease” that makes the engine of business grow continually and faster.

Cash is the fertilizer without which nothing else matters in most businesses. One of the most common causes of the failure of business financial plans is when revenues are forecast to appear too quickly (and unrealistically), and expenses are forecast to be lower for longer than they ultimately become.

The concept of building a financial plan for a business is not like a financial plan for an individual. A business can live forever, will be growing continually, and will never retire. This puts the focus of the planning for a business into a special category that takes a keen and sharp focus on cash inflows and cash outflows

Although the common belief is that growth is the goal of every business, and the faster the better, the truth is that rapid growth causes more business failure than slow and orderly growth. Think of the amount of cash it takes to grow!

You must hire more people. You must advertise more. You must carry more inventory.  You need more space. You will have more legal and accounting fees. You may need more insurance. But wait, then there is Murphy’s Law in operation making the best of plans go haywire and cost more as the result.

These extra costs and expenses are incurred in advance of the anticipated growth. Therefore, when you spend the money, you won’t have the revenues yet to pay for them. If you don’t forecast these scenarios carefully, you will be unable to fulfill your orders, pay your new employees, pay your new rent, and pay for your new advertising. It could take 90 days or more to realize the cash from your growth plans which is long enough to be evicted, lose your employees, and have your ad campaigns taken off their platforms.

Not a good outcome, is it? Plan for the worst and expect the best!

Stephen D. Replin, JD, CPA, MBA, LLM
FastTrackBusinessAcademy.com