Financial planning can sound daunting, but it doesn’t have to be. A financial plan helps small businesses plan for growth by predicting cash flows and financing needs. Knowing your goals is fundamental if you want to monitor financial performance; otherwise, how do you know whether your performance is good, bad or great? A financial plan can help small businesses decide on the optimal timing for hiring employees.
It differs from financial statements because it projects your upcoming income and expenses instead of looking at past finances. By its very nature, financial planning is forward-looking and helps set up your business for success.
While managing your finances is crucial to any business’s long-term growth and success, this is especially true for local small businesses in Alberta, given their unique economic landscape and challenges.
This blog explores practical advice for Alberta business owners who want to dive deep into the data of their business. You’ll learn that your business’s past data can be used to predict future results through budgeting and forecasting. A well-performed financial analysis can be helpful when working on a budget for your business, so you know how much you can spend on each line item to hit your profit goal. Implement these best practices to position your small business for sustainable growth and to navigate uncertainties confidently.
Do you need a mid-year small business financial check-in? Come talk to us.
Budgeting for success
The foundation of sound financial planning is a comprehensive budget. Budgeting can help you stay on target, meet financial obligations and allocate your financial resources to invest in growth opportunities. Use the following steps for successful budgeting:
- Start with a clear understanding of your business’s financial goals and objectives.
- Gather accurate and up-to-date financial data as the basis for financial analysis.
- Analyze how each expense and revenue line item has changed over the years and determine the basis for predicting what each of these line items will be in the coming months and years.
- Prepare your 12-month operating budget.
- Use this budget as the basis for running different scenarios for the next year: best case, worst case and base case – this is forecasting. Run various growth scenarios with variables of your choice.
- Look at budget-actual reports to track and monitor your expenses regularly to ensure you stay on track.
- Adjust your budget to accommodate changing business needs or market conditions. Clients often ask whether they’re spending too much on a particular expense. The truth is each business is different, and each business owner is in a different stage.
- Benchmark against other businesses in your industry to get a clearer picture of how much you should spend in certain areas like payroll, ad spending, etc.
Read our blog, Personal finance 101: How to create a budget for your lifestyle.
Accurate forecasting
One of the most powerful tools in your arsenal will be financial forecasting. Reviewing your past financial performance, your accountant can create projections to help you predict future revenues, expenses and profits. Here's how you can enhance your forecasting practices:
- Analyze your historical data to identify trends and patterns. For example, if you’re in construction or automotive or financial services, your business will experience ebbs and flows throughout the year.
- Use market research and industry insights in your forecasting models.
- Consider different scenarios and their potential impact on your business.
- Review and update your forecasts to reflect new information.
- Seek the guidance of financial professionals or growth advisors to refine your forecasting techniques.
Your projections can help you understand your small business’s trajectory while identifying opportunities and managing risk. Sometimes you’ll need to spend money to make money, but we can ensure your business grows responsibly. When should you hire your next employee or take on a new lease? With budgeting and forecasting, we can show you when you can afford the next big investment.
Read our blog Maximizing your practice’s cash flow with the help of an accountant.
Cost reduction strategies
Your accountant can help you reduce expenses by identifying and reducing costs to improve your business's profitability. Explore these strategies:
- Conduct a thorough analysis of your expenses to decide how much you should spend in each area.
- Identify areas that could be trimmed and go on a discipline and cost-cutting campaign. It's amazing how much you can negotiate with suppliers when you have the data to back your requests and help you hold firm.
- Explore alternative suppliers and energy-efficient solutions to reduce utility expenses.
- Use technology and automation to streamline processes and improve efficiency.
- Ask us to set you up with budget-to-actual reporting to show you exactly where you’ve exceeded the budget.
Want six tips on how to be financially fit? Read our blog.
Capitalize on financial opportunities
Look for ways to achieve sustained growth by identifying and seizing financial opportunities. They don’t have to be huge – start with the “low-hanging fruit” and keep iterating to test your business concepts and produce cash flow. Consider the following practices:
- Stay updated on government grants, funding programs and tax incentives available for local businesses in Alberta.
- Explore partnerships or collaborations to access new markets or leverage shared resources. For example, if you’re an accountant, you could pair up with a lawyer or financial planner to cross-promote services.
- Monitor industry trends and consumer behaviour to identify emerging opportunities. Are more people working from home? What does this mean for your small business?
- Diversify your revenue streams to reduce risks and capitalize on new market segments. Lock down your main business model, test your ideas, then go onto bigger opportunities to expand.
- Develop strategic relationships with financial institutions and consultants to gain access to specialized financial products or expertise.
Here are some of our favourite small business partners who can help support your business.
Financial planning is an ongoing process that requires regular review and adaptation. Seek the support of financial professionals or advisors to enhance your financial planning efforts and position your business for long-term success.
Read our article, “8 steps to financial planning for small business owners.”
The CPA website also has financial literacy resources for small- and medium-sized businesses.
As experienced small business accountants and advisors, we've helped countless small business owners and solopreneurs achieve their goals and overcome the challenges of running a successful business. If you want to grow your business but need help knowing where to start, consider partnering with True North to help guide you. We can help with a specific matter or create a strategic planning program that grows as your business grows.
Learn more about our small business advisory services.
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