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Proper financial planning is almost as important as being appropriately capitalized. Many small to mid sized companies often fail in the early stages of the business due to a lack of proper financial planning and an inability to follow established financial structure. An experienced financial consultant can provide the guidance needed to establish proper and effective budgets, operating procedures, forms, projections, and financial knowledge to effectively and efficiently influence the financial part of a small to mid size company.
It is important to memorialize the income and expenses involved in a business that include all potential income and expenses that may arise during the course of operations. Having a full understanding of the income (sales) required along with all of the associated costs is essential to establishing a useful budget for the business. There are often “hidden costs” that need to be factored into a budget to account for unforeseen expenses that could derail a business plan.
Financial projections over a 3-5 year time period will establish a view on how a business can develop and expand. Presenting expectations for income, expenses, and profit on an annual basis will identify the expected maturation of the business and any economies of scale that can be realized over an extended period of time. The plan can also be used as target goals for sales revenue that would then be matched with the associated expected expenses. Fixed and variable expenses should be identified and factored into various financial models to accurately demonstrate the impact of various sales levels.
There are several avenues for funding an expansion of an established business and in order to get the best terms it is essential to have a comprehensive plan to how the funds will be utilized and the expectation for repayment. Generally, the more certainty in the expansion plan, the better the terms for funding sources will be provided.
In order to have a positive cash flow management system in place, an experienced financial consultant would analyze the income and expenses for the business and determine the best collection processes, when bills are paid, and how to properly use credit for the daily operations of a business.
Banks loaning money to businesses are seeking to limit the risk of default on the loan and usually attempt to obtain personal guarantees from the business owners should the business fail. An experienced financial consultant understands the requirements, will properly complete the documentation and interact with the bank officials to improve the chances for receiving the financing and obtaining the best possible terms. Also, determining whether to buy versus lease equipment includes many factors that an experienced financial consultant can provide to the decision making process.
If your business is seeking an investor from a private source it is essential that a comprehensive plan be developed that would explain the opportunity and answer many of the questions that an investor would have about the finances of the business. Providing details on the finances for the business, background information on the personnel operating the business, and a risk/reward model will play a big part in the investment decision. An experienced financial consultant can guide the process and often help identify potential investors who would have an interest in evaluating the opportunity.
A potential option for financing is an asset-based loan that utilizes business assets and can also include the use of an invoice from the sale of a product/service to a reputable customer. An experienced financial consultant can guide this process with lenders who understand the mechanism of asset based lending.
In order to establish and maintain accurate record keeping for a small to mid sized business it is important to set up a procedure for daily bookkeeping and accounting procedures. Since many small to mid size companies do not have a full time bookkeeper, it is essential that a procedure be established and followed for the record keeping of income and expenses on a daily basis. If established correctly, a part-time bookkeeper working in conjunction with an accountant will be able to maintain accurate financial records and properly complete sales and income tax reporting and other financial operating procedures.
