The pandemic has brought many challenges with it, and those challenges have come with lessons – some harder than others. One of the hard lessons the pandemic has taught is the importance of rigorous financial planning. This topic isn’t easy for everyone, so we’ve got six tips to help you plan your finances:
Have a Short, Medium, and Long-Term Plan
You should plan for a 1-3 month period (or even shorter periods), a 4-12 month period, and periods a year or longer in advance – short, medium, and long-term plans.
It’s important to remember that your short and medium-term plans are, in effect, steps to achieve your long-term plans. Keep your company’s missions in mind, and plot all of your financial planning simultaneously – a change to your short-term plans may change your long-term forecasts.
Have Best, Average, and Worst-Case Scenario Planning
Your financial projections should include a variety of scenarios in which your business exceeds, meets, or fails to meet your financial estimates. Obviously, these predictions won’t always be perfectly accurate – windfalls and black swans do happen. Nonetheless, having such predictions allows you to better navigate these scenarios when they occur.
Manage Your Credit Carefully
You should be analyzing your cash flow constantly – including a thorough analysis of money you’re borrowing. As your business grows, and your credit rating improves, you can often find better rates. Carefully evaluate your options. When you’re running low on cash, and you can’t pay back all of your creditors, have a plan in place to prioritize which payments you’ll make first.
Build Up Your Cash Reserves
Investing in your company is, of course, the key to growth – that said, some of your cash should go to a rainy day fund. When the going gets tough, businesses that have cash they can lean on are in a much better position. You won’t have to worry as much about being able to pay debts with reduced cash flow, and businesses with a lot of cash in reserve might even be able to make investments when costs drop during global recessions.
Revise, Revise, Revise
Data pours in, predictions come out. The more information you get about how your business is running, what’s making money, what isn’t, how you perform each week, each quarter, and each year, the better you’ll be able to plan for the future. One piece of data is a curiosity – thousands are a trend. Keep meticulous records, extrapolate, and revise your financial plan as needed.
Get Professional Help
All of these tips can help your business grow in good times and stay stable in bad times. Some of them can be hard to do on your own – financial forecasting isn’t something you can do with a snap of your fingers. Our experienced accounting firm is here to help you stay on top of it all – from financial planning to tax preparation, we’re here for you.