Is it important for a company to have a financial plan? If your company has a financial plan, what questions will help you ensure the plan is on track? At what point should you track your company’s financial plan?
See Also: Financial management tips for entrepreneurs and business owners.
Creating an annual financial plan is crucial for managing cash flow, cutting costs, handling taxes, and driving growth. However, it is equally important to consistently review and adjust your financial plan throughout the year to ensure it stays relevant and effective.
By midyear, you should have a clear understanding of how your business is performing compared to your annual goals and what adjustments might be needed for the remainder of the fiscal year.
This article will look at ten critical questions to ask at the midyear point to ensure your company’s financial plan remains on track.
See Also: Four great personal finance lessons for entrepreneurs.
Questions To Ask To Ensure Your Company’s Financial Plan Is On Track
Here are the questions entrepreneurs must ask to keep track of their company’s annual financial plan.
1. Are You Staying Within Budget?
Examine your income statement to see how your actual revenues, expenses, and net profits compare to your budget projections. If there are discrepancies, investigate the reasons behind them. Consider the following:
- Are your revenues aligned with expectations?
- Are your expenses higher or lower than planned?
- Are there any unexpected financial challenges or opportunities?
If you’re struggling with budgeting and monthly reporting, it might be beneficial to consult a financial advisor or invest in a robust financial management system.
See Also: How to write a personal finance plan.
2. How is Your Cash Flow Management?
Cash flow is the lifeblood of your business. At midyear, scrutinise your cash flow statement to understand the sources and uses of cash within your business. Key areas to review include:
- Outstanding bills and receivables
- Upcoming financial obligations
- Cash reserves for unexpected expenses
- Potential need for adjusting pricing strategies
3. Are You Planning New Investments?
Evaluate your financial position to determine if you have the capacity to make new investments in the upcoming quarter. Consider areas such as:
- Capital expenditures on equipment or technology
- Hiring additional staff
- Research and development initiatives
- Marketing and expansion efforts
4. Are Your Quarterly Tax Payments Accurate?
Review your quarterly tax payments to ensure they are aligned with your actual tax obligations. Overpaying can strain your cash flow, while underpaying can result in penalties. Adjust your payments as necessary to reflect your current financial status.
You should work with a tax expert to ensure that your business is protected. To ensure the financial plan of your company is on track, tax questions must be asked.
5. Are You Compliant with Current Tax Laws?
Tax regulations frequently change and can significantly impact your financial planning. Stay informed about changes in tax laws that may affect your business, such as deductions, credits, and compliance requirements.
Like I mentioned, regular consultations with a tax professional will help you stay compliant and optimise your tax strategy. You need to be tax compliant.
6. How Healthy Are Your Financial Ratios?
Monitoring key financial ratios can provide insights into your business’s financial health. Regularly assess ratios such as:
- Current ratio (current assets divided by current liabilities)
- Quick ratio (quick assets divided by current liabilities)
- Debt-to-equity ratio (total debt divided by total equity)
These ratios can help you identify potential financial issues early and take corrective actions. You need to understand your numbers and these data will help you make strategic decisions.
7. Are Your Revenue Streams Diversified?
Relying heavily on a single revenue stream can be risky. Assess the diversity of your revenue sources and consider exploring new markets, products, or services to reduce dependency on a single income stream.
You can activate different revenue streams with the current assets and resources that you have. You should constantly ask, what more can I do for my current customers? What additional pain should I relieve them? We guide you in activating many revenue streams for your business through the Start Your Business in 30 Days Programme.
8. Are You Leveraging Technology Effectively?
Effective use of technology can streamline financial management and improve accuracy. Evaluate whether your financial tools and software are up-to-date and whether there are opportunities to automate processes for better efficiency.
These tools are not as expensive as we think. There are free tools that can help you manage your finances. You need to research and find the one that has the features your business needs.
9. Is Your Debt Management Strategy Sound?
Review your debt levels and repayment plans to ensure they are manageable. Consider refinancing options to lower interest rates or consolidating debts to simplify payments. Effective debt management is crucial for maintaining financial stability.
For your company’s financial plan to be on track, you need to be on top of your debt. It is also important to explore other funding options available to entrepreneurs seeking to grow their businesses.
10. Are You Prepared for Unexpected Challenges?
Unexpected events such as economic downturns or natural disasters can disrupt your company’s financial plan. Ensure you have contingency plans in place, including an emergency fund, insurance coverage, and risk management strategies, to mitigate potential impacts.
Conclusion
Midyear is a pivotal time to evaluate and track your company’s financial plan and make necessary adjustments. By asking these ten questions, you can gain valuable insights into your business’s financial health and ensure you remain on track to achieve your annual goals.
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