For any founder, CEO or business owner, financial planning is a crucial aspect of building a successful and sustainable business. To learn more about this please check out the Benefits of Financial Planning.
Before diving into the numbers and financial forecasts, it’s essential to take a step back and analyse your business and industry comprehensively.
First Step: clear vision
Start with a general business plan, analyse and understand your business and industry. Look at the whole area in which the business operates, focusing on industry, competitors, and get crystal clear about where you would like to be in one year’s time, three years’ time and five years’ time.
Study all the advantages and disadvantages that your business has and define a Birds Eye View plan for the business.
One of the most valuable tools for analysing and understanding your business and industry is a SWOT analysis. Probably many of you have already heard about it or even used it in your businesses. But if not, see below.
SWOT analysis
When you start in business, and then at regular intervals, it is a good idea to sit down and perform a SWOT analysis on your business, thinking about your industry, your competitors and your team.
This is an essential exercise that can help you gain a deeper understanding of your business and its environment, and it can also help you adjust your business strategy accordingly.
By conducting a SWOT analysis, you can identify areas where you should focus your attention, and this will lead to improved business performance.
Identify the unique advantages and capabilities your company possesses. These strengths can give you a competitive edge in the market. For a creative business for example, the talent and expertise of its employees could be a significant advantage. The reputation built over time could ensure repeat business. Or maybe your business has developed a unique service or a framework for delivering consistent results that delight customers.
Consider the weaknesses within your business that need attention. Dependency on key clients, for example, can expose your company to significant risks. The loss of a major client could have a significant impact on cashflow and profitability. Diversifying your client base might be necessary to safeguard against potential financial threats. Additionally, if your business lacks essential skills or expertise in certain areas like marketing or finance, addressing these weaknesses can contribute to overall growth.
Opportunities refer to external factors that your business can capitalise on. For example, there may be an opportunity to grow your business in a particular area or to take advantage of favourable macroeconomic conditions. The current rise of AI could pave the way for creating efficiency or for redesigning workflows. Embracing remote work culture can unlock access to a global talent pool and expand market reach beyond geographical boundaries.
Threats are external factors that could negatively impact your business. Rapid technological advancements may require continuous investment to maintain a competitive edge. Economic downturns can lead to reduced budgets and lower demand for your services. Additionally, new competitors entering the market might intensify price competition, affecting your margins.
Laying the Foundation for Strategic Decision-Making
The SWOT analysis helps uncover critical insights about your business's internal strengths and weaknesses, as well as external opportunities and threats, providing a sound foundation for strategic decision-making and business planning.
Once you've completed your SWOT analysis and gained clarity on your strengths, weaknesses, opportunities, and threats, it's time to translate these insights into your financial forecast. A robust financial plan based on your SWOT analysis will serve as a roadmap to guide your business toward success and sustainability.