credit-plan4 group UK

You’ll need three kinds of funds to start your business: capital asset investment, working capital, and your personal money. Therefore, you should plan for both long- and short-term financing. Capital assets take long term money; while working capital and personal financing may be thought of as short-term. In all cases, you should do the planning yourself. This will give you the knowledge and skill you’ll need to guide the financial affairs of your company.

Before you start your business, your business planning will necessarily be based on assumptions. Make sure you have the list of sources of information you can draw upon to start with. As you do business, you’ll be able to replace what you’ve used up. It is best to redo your financial planning every month, projecting from the actual figures into the future. You’ll gain both speed and accuracy of prediction as you do this planning every month.

It is an advantage that you prepare the following plans each month: A balance sheet to see what the financial picture looks like; a sales forecast twenty-four months ahead by the month and perhaps a forecast for the third year by the quarter; a cash flow analysis in the same time frame as the sales forecast; an income statement, projected at least twelve months ahead; and, a break even analysis from time to time, to see how much you need to sell by the month just to break-even.

You should also learn to use ratio analysis as a check on different aspects of your financial condition. Of the many variations of ratio analyses, the following are significant for your management purposes:

Current ratio, which is your current assets divided by your current liabilities. Most businesses are considered to be financially healthy when this ratio is two or a bit above. For example, you’re a manager of a printing company and the bread-and-butter of the company is the online printing service, if it has a current ratio of 2:2, it means your online printing job is stable.

The acid test ratio, which is a refinement of the current ratio. You can get the acid ratio by dividing your quick assets by your current liabilities. Quick assets are those you can turn into cash immediately: collectible receivables, securities, and cash itself. Your acid ratio should be at least 1, which would show that you could pay your existing debts quickly in case there’s a need for it.

Proprietorship ratio, which is your total investment divided by the total assets of your company. This number should be at least 50 percent to show a healthy ownership position.

Net profit to net sales. This ratio is obtained by dividing your after-tax profits by the net sales for your fiscal year.

In conclusion, to practice the best kind of proactive management, you should compare your figures in these various plans on a regular basis, month by month, and year by year. This practice will alert you to potential difficulties so you can take the corrective steps immediately.

By knowing and practicing this analysis, you can do it yourself and at most, you have full hands-on experience in your business. You can monitor everything and not rely too much on your staff to do the analysis for you. It will also show what you’re doing well – and what you should be doing more of, and better.

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