In business, you’ll find that your funding needs will fall into two categories: long term and short term. The long term funds will be used for capital investment in setting up your business; the short term funds will be used for taking care of cash deficiencies that occur from time to time in any business, and to cover seasonal bulges, as in businesses that must build a large inventory for the Christmas trade.
If your business prospers and grows very rapidly, you’ll develop a need for major outside investment in your company. Most businesses don’t generate enough profit to furnish the capital to support significant expansion. But can you apply these two in your financial planning?
Planning for long-term financing. Each business has unique requirements for capital investment. Like in running an online digital printing company, offering marketing materials like print pocards, newsletters, brochures and etc., your approach will be a lot more different compared with your physical printing shops. You need to have more budgets allocated for marketing and advertisement expenses because you will be competing with millions of online digital printing shops worldwide. And if you won’t be having extensive marketing techniques your chance of visibility and profitability will be expectedly low. You’ll find it necessary to draw on your own data for this purpose. With technical competence in your business, you’ll know the items needed to turn out the product or render the service.
Planning for short-term financing. Once you have a capital budget that covers your initial investment in the business, you’ll want to prepare your short term operating plans. These are crucial in controlling your operating affairs day by day, month by month, and year by year. These plans, which are in essence budgets, include projections about sales, expenses, balance sheets, income statements, and break even analyses. You’ll also want to learn how to use financial ratios in your financial planning.
The characteristics of the planning required for you to know what your financial needs will be just simply will not allow you to do it in one pass. You’ll find that your projected results will vary when you change your assumptions. You’ll want to develop a feeling that your planning is somewhere near what the actuality is likely to be. To accomplish this, you’ll have to make several estimates: optimistic, pessimistic, and what you think is reasonable.
Your first plans, even after you’ve made repeated trials, will still not be what will happen, unless you’re very lucky. But that doesn’t matter. What does matter is that you’ve now become a proficient planner; it’s in your blood. You now see what a powerful tool it is for controlling your financial affairs- indeed your whole business.