When business is going well and signals suggest it’s time to expand, effective financial planning plays an integral part of the progression process. Whether you’re planning to recruit new staff, invest in new equipment or move to a new workplace, you’ll need a substantial amount of cash to fund the process.
With cash flow problems being the primary cause of business failure, cash capital is more vital than ever when funding business expansion. For this reason it’s important to align your banking and financial goals with your annual business plan in order to future-proof your business.
The value of savings
Although savings are important, according to a recent Aldermore study, Saving SMEs, many companies do not consider saving for the future to be a priority. The Bank’s report suggests that less than a third of small businesses have a savings account and of those that do have savings, 21 per cent have less than £5,000.
Of the reasons cited for saving, 40 per cent of businesses agreed that unforeseen events compelled them to save. Setting aside money for the tax man was another popular reason (35 per cent), closely followed by building a cash-flow buffer (34 per cent) and earning interest (28 per cent).
Huw Chance, a partner in the property investing firm, IC Development, has been running his business since 2003. He says that business savings are an integral part of keeping his company going.
He said: “For us, there is no other safety net than savings; we don’t rely on unsecured borrowing from our bank, so building a savings pot is helping to future-proof our business. We’ve got an instant access account and a couple of fixed-rate accounts.”
Having separate savings accounts for different things can help to simplify your business savings, while making your money work harder. You’ll be able to gain interest with a fixed account, but will still be able to access cash when you need to in an easy access account.
Your financial plan
If you’ve made the decision to push your business forward, it’s important to consider financial constraints when outlining your business plan. To ensure that you’re prepared for expansion, it can help to include the following in the financial part of your plan:
Your objectives and goals for the year
What exactly do you want to achieve? Do you have a monetary goal, or are you hoping to expand your reach overseas? It’s important to determine in advance which direction you want your business to go down, rather than investing or spending money without focus. By synchronising your practical and financial business plans you’re likely to find it easier to determine how much money will be required and what actions need to be taken.
Changes beyond your control
Remember that while you’re busy progressing your business, it’s likely that so too are your competitors. Do you have a ‘Plan B’ in case your competitors are making similar moves? Also, if your plans for growth are successful and you invest money on progression, are these changes sustainable if you were to battle several late payments or lose a customer due to unforeseen circumstances? By saving for a rainy day and integrating your savings predictions into your financial plan you can safeguard your future and put your mind at ease in the event that something goes wrong.
Financial performance and forecasts
Your financial plan should detail where your company is currently, and where you intend for it to be in the future.Using your income statement, balance sheet and cash flow statement, you can forecast ahead and predict how much needs to be saved to reach your goals.
Your business banking
When it comes to finding the right banking decision for your business, there is no one size fits all. If you already have plenty of working capital and can afford to lock a percentage away, you may be able to benefit from more favourable interest rates. If you’d prefer to build your savings gradually, a more flexible account may be better suited.
If you want to minimise the impact that paying tax can have at the end of the financial year, it might pay off to put this money aside so that it can accrue interest before it’s time to pay HMRC.
Speak to your bank
When planning business growth, it’s wise to discuss your intentions with your bank as early as possible to see what they can offer you. For example, if you plan to invest a large sum of money in 18 months’ time, your bank may suggest locking the capital away. If you don’t act as soon as possible, you may miss the opportunity to embrace great fixed interest rates.
With a selection of business savings accounts and funding options for businesses looking to thrive, a good bank should be able to help you make your ideas come to life. By discussing your plans with expert advisors, you’ll learn which options are available to you and which accounts offer the best benefits.
If your current bank is unable to meet your needs, it may be time to consider switching to find the perfect solution for your needs.
By aligning your financial goals with your business plan you can ensure that you are making the right banking decisions to compliment your business’ progression.
To find out how Aldermore can help SMEs to reach their goals with a range of business savings options, please get in touch with our team of advisors.
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