Planning for the long-term is something every small business will need to focus on. It can be easy for owners to get caught up in the day-to-day management of an SME, but they will still have to set time aside to get their attention out of the details and looking to their long-term business development plan.
Even when business owners do sit down to map out what they want to achieve, there's a temptation to get stuck in the short and medium term, without thinking beyond these horizons. Without clear objectives though, even experienced business owners can struggle to build a successful company.
With three quarters of Australian small businesses not making it past their third year in operation, according to the Sydney University of Technology, it's important for owners to keep looking to the long-term. While this could be a depressing figure, the companies that are surviving are those with owners who have thought about their long-term survival and how they're going to build resilience.
Long-term financial planning is the compass for your business.
What are the benefits of long-term planning?
Imagine your business is a ship at sea and, as the captain, you want to know that you're heading in the right direction. How do you do this? Well, you start by looking at your compass, to see which way north is.
Long-term financial planning is the compass for your business. It's a chance to get down on paper what the business is going to achieve, what's going to make it different and how it's going to do this in the coming months and years.
Putting in place a long-term financial plan also lets you set goals that you can then work towards. If you're looking to exit the business in the next decade, your long-term planning will be geared towards getting the company's books in order so a new owner can step in easily. On the other hand, if your business is preparing for a high-growth period, it will instead be about setting up the right framework to support this growth.
What does a good long-term plan look like?
Mapping out your business's future takes a number of different strands. A big part off it is about setting the vision you have for your business, the high-level goals that act as your reference point.
It's then about building a strategy around that goal: how are you going to get from where your business is now, to that vision you have for where it should be in the future. This means deciding where you want to expand to, what new products and services you want to be moving into, the market share you want to control and the margins you want to maintain.
Of course, beyond the strategic piece is the core financials. You should be looking to forecast how areas like revenue are going to perform over the coming years, so you can establish benchmarks and financial KPIs that you can then measure success against.
A good long-term plan will also let you forecast different scenarios, so you know if your sales plateaued, what effect this would have on your business. It also lets you see where there are potential risks that might hold back your business's growth.
Many businesses will find their clients taking too long to pay for work completed for example, which is a risk to current growth, but also to future expansion. As more deals come in, it is only going to become harder to keep on top of future growth aspirations.
Mapping your requirements for the coming years
Once you've got written down on a page or two what your long-term financial planning looks like, you can then start to make financial decisions to help fuel that growth.
Knowing when the right time is to exit the company can help to give financial planning a focus that it otherwise wouldn't have.
For example, it might be that your company needs a cash injection. While about 30 per cent of Australian businesses don't carry any debt, according to the Australian Bankers Association, there will be times when businesses need to take on a business loan in order to fund their expansion plans. For other situations, long-term financial planning will instead be about minimising debts and maintaining strong margins.
Strong long-term financial planning will also cross over into other aspects of your business strategy like succession planning. Knowing when the right time is to exit the company and how this process is going to happen, can help to give financial planning a focus that it otherwise wouldn't have.
If you're ready to start looking beyond short-term metrics and chart a long-term view for your business and its success, get in touch with the team at WMC Accounting. Their expertise can ensure you're planning efforts are heading in the right direction and can help you achieve your goals.