Financial Planning: The Basics
When you’re involved in this type of planning, you first need a sense of your current financial state. Therefore, you’ll research and list all of your company’s financial assets and liabilities.
In the process, you’ll answer questions such as the following:
- What is the total market value of all your current assets?
- How much money do you have ready to invest?
- What were all of your expenses in the past year?
With such information, you can set financial goals for your ecommerce company in the short term and over the long haul. For instance, you might have certain objectives for the next month, quarter, year, or even five years. Three-year plans, by the way, are especially prevalent in business.
On top of that, you’ll figure out the most strategic investments you could make to achieve your goals. However, as you plan those investments, you should also set some financial parameters. For instance, you might want to have a certain amount of cash on hand at all times. Naturally, you never want to bet on the house.
In addition, a completed financial plan will tell you what your priorities are. If you’re ever low on cash, you’ll know which endeavours to keep funding and which you could defund. Keep in mind that, with financial management for ecommerce, there are no guarantees. No one knows, for instance, what the markets will look like over the next decade or what the demand for certain products could be in five years.
For that reason, try to always have extra money on hand in case of an unexpected financial problem: a sudden stock market crash, for example. In all of this, financial planning requires flexible thinking, creativity, keen analysis, and educated guesses. It’s a process you’ll probably get better at with time and experience.
Why Is Financial Planning So Important?
Many benefits come with financial plans. For starters, when you make a list of your liabilities, you may find some wasteful spending or redundancies you could eliminate. As a result, your ecommerce business will be more efficient. Any money you’re currently misspending could be redirected toward your financial priorities, which would ultimately bring in more revenue. Furthermore, solid financial plans — those that are backed up by data — appeal to investors. With that extra funding, you might complete your projects sooner and reach your objectives faster.
These plans can also help you spot problems as soon as possible. Each month, you could look at your financial results and compare them to your expectations. If those numbers are roughly the same, you could keep doing what you’ve been doing.
On the other hand, if your actual revenue for a given month fell short of your projected revenue, you could immediately take action. You could analyse your operations, figure out what’s not working, and make adjustments right away. Perhaps a certain marketing campaign isn’t targeting the right audience. Or maybe one particular service isn’t taking care of your customers’ wants and needs.
By contrast, without those financial expectations, your company’s weak spot might not get addressed for a long time. Consequently, your revenue for the year would be lower than it could have been.
Note, too, that financial planning isn’t just for established companies. Even if you haven’t launched your small business yet, a financial plan could be essential to your work. It would assess the marketplace demand for whatever you’re offering and help you estimate your initial profits. Plus, it should be easier to attract your first-ever investors with such a plan.
Here’s another advantage: If you’ve hired employees to work at your ecommerce company, a business plan could help to unify them. When you tell them precisely what your goals are, how you will attain them, and when you’re likely to reach them, your whole team could have newfound feelings of confidence and purpose.
Indeed, once they read through your financial plans, your employees will each have a distinct mission. They’re likely to feel like they’re part of something grand, something bigger than themselves. As such, they’ll probably be inspired to put in their best efforts every day.
In the end, it’s wise to create new financial plans every year. By doing so, you can continually update your goals and expectations, taking into account new information and unforeseen developments. Your entire company will then have accurate assessments to guide them. And your ecommerce brand will be positioned for many shining achievements in the days and years ahead.