The benefits of producing a business plan/cash flow forecast

Whether you are a start up business or are a successful business that has been established for many years, a well-thought out and written business plan incorporating a cash flow forecast could prove invaluable in a number of ways some of which we cover below.

Highlights at which stage in its development the business currently is

This provides a useful summary of the position that the business is currently in i.e. nature of business, how long trading, customer base, level of borrowing and profitability.

Helps plan for the future

A business plan provides a "road map" that lists the various key areas that a business needs to focus on to become/continue to be profitable and successful. For instance, where/what is the customer base, how many new clients are required each year, what marketing activity is planned to attract those customers, how do you retain existing customers, how many staff are required over the next few years as the business grows, will new premises be required to cope with increased growth, will additional plant and machinery be required to cope with increased orders and what level of funding will be required.

Assists in monitoring performance

Targets should be set to help a business achieve in those key areas. It details how to achieve each of those goals, when each target is to be reached by and how much it will cost to meet those goals.

The targets that are set should be realistic, measurable and regularly monitored. If a particular target stated in the business plan is not met then analysis should be carried out to ascertain why and action taken to either get back on course or adjust the original target. 

Aids obtaining funding

A lender will usually require sight of a business plan/cash flow forecast in order to consider a request for funding. A comprehensive business plan should provide the lender with additional comfort that the business is well run and therefore worthy of their support. A well-composed business plan may even help in obtaining the borrowing at a lower rate of interest than a business that has not put much thought into the content of such documents.

Cash flow forecast

It is important that the cash flow forecast is reviewed regularly and compared with the business current account balance to ensure that the finances are under control. This should avoid the possibility of an unauthorized overdraft with the bank that could cause financial problems 

Summary

Both new start up businesses and those that have been trading for a number of years should complete a business plan/cash flow forecast. When used correctly, they are informative documents acting as permanent points of reference for business owners/directors that should aid the success of a business.