Question

How would you respond to a business owner who says, "I see no need in putting together a financial plan for the future? All the numbers in the plan are just guesses anyway, no one knows what will happen for sure. I have a good idea what sales will be and beyond that, if sales are good, who needs a plan?"

Answer 1

I would respond in a manner that will make the business owner realize the importance of putting together a financial plan for the future.

I will start by saying that a financial plan helps in attaining the core purpose and objectives of the business. A financial plan is a comprehensive tool that is made after analyzing past financials of the business, forecasting revenue, determining probable operating costs for future and understanding risks as well.

Having a financial plan for the future helps a business in the following ways:

· It creates a revenue model – A proper financial plan always acts and functions like a good revenue model. This will enable the owner of the business to determine potential profits and losses for the future.

· It helps in setting realistic goals – A financial plan helps in setting realistic goals and acts like a long-range lens through which future financial position can be made tangible.

· It provides logic for sound decision making – On the basis of logic for sound decision making a financial plan will enable the business owner to craft a realistic strategy for the business that will not only help the business to achieve profitable growth in future but will also enable it to find its competitive advantage as well.

· It ensures adequate funds – Running a business requires liquidity and adequate funds all the times. A financial plan will ensure that adequate funds are available for different purposes like buying inventory, paying salaries, marketing and advertising etc.