For most small business entrepreneurs in India, the next step in their business is exploring growth opportunities. When growing your business, there are many questions you must answer when it comes to your finances. Will you apply for a loan to fund your business’ growth plans? How quickly will you recover your initial investment? If a business’ financial assets are not managed well during the growth process, the chances of succeeding in your plans for growth decline dramatically. According to past research, 82 percent of businesses fail due to poor financial management. To get the most from your finances, you need to practice good financial planning before and during your business’ growth transition. When done right, financial planning can help businesses plan for the risks of expansion and maintain control of their financial assets.
Why Financial Planning Is Needed When Growing A Business
Having a good financial plan in place for the growth period means your business is better prepared for all eventualities. It helps a business to know where to direct the additional financial, physical and human resources they take on board during the growth process. For instance, it can help in determining the percentage of growth capital to dedicate towards marketing plans or product research and development.
Another advantage of having a financial plan for your business’ growth is that it helps business owners monitor their debt levels. Many small business owners tend to rely on external financing to fund their growth. In 2020, personal loans account for 20 percent of bank credit, according to recent data from the Reserve Bank Of India. In a business’s financial plan, it focuses on two sections: growth and preservation. When detailing a financial plan for a business’ growth, entrepreneurs should seek to address key areas of concern such as cash and debt management, or protecting investments and talent acquired.
Keep Your Financial Plans Aligned With Your Business Plans
Before you can have a truly successful financial plan for your business growth, you must first align your budget with your business goals. A key function of financial planning is to help a business control its financial assets better. Similarly, a disconnect between your financial and business plan can mean your assets are inadequate to achieve your business goals, or your business ends up setting unfeasible business goals without considering its financial reach. In the end, businesses end up making ill-informed investment and allocation decisions, opening the door for unwise and inefficient financial management.
To help your business finances and strategy align perfectly, aim to create an open dialog between your financial planning and strategy teams. Additionally, when estimating the financial budgets for your growth plans, be sure to choose a period that is well beyond the initial growth stage. Think long-term so that you can visualize the impact on your business goals. Finally, keep your financial and business goals SMART. Achievable and specific targets help you to narrow down what you want to achieve, how to get there, and how to judge your progress.
When Expanding Your Business Assets, Remember To Protect Them
Whether you are just starting a business or expanding one, it is essential to protect your investment. According to a report by Price Waterhouse and Cooper, to grow, companies must first focus on protecting their core business. Therefore, after you have answered the strategic growth questions and formulated a growth strategy for your business, it is time to think about contingency plans and protection policies. For instance, expanding your manufacturing capacities would call for an expanded workforce and investment in additional equipment.
To grow your business, implementing policies that would attract and retain the right talent is crucial. This includes a well-rounded employee compensation package and organizational culture. One good example is securing additional worker compensation for your expanding workforce. Cerity recommends that all businesses obtain workers comp insurance for two reasons: it protects your growing business from legal backlash and offers your workforce protection against wage losses and medical expenses stemming from injuries in the workforce. When weighing the costs and benefits, remember to take into consideration the cost of the consequences of events like a legal lawsuit and what it would mean for your business’ finances.
Use Tax Planning To Find A Tax Efficient Avenue For Business Growth
Another thing to include in your financial planning when growing your business is the impact on your business taxation. Whether your plans are entering new overseas markets, expanding your assets, or growing by acquisition, you need to be aware of and plan for what these growth moves might mean for your tax obligations and bottom line at the end of the day. Efficient tax planning not only helps to lower the amount of taxes your business pays during its growth transition, but can also help you identify any new tax reliefs or credit available to your business. For instance, the tax rate deductions at source were reduced to 25 percent until the end of fiscal 2021 (March 31, 2021). There are also Special Economic Zones throughout India which allow the beneficiary to access 100 percent income tax exemption on export income for the first five years and 50 percent for the next five years. For those planning to grow to new international markets, this is something to consider.
Growing your business is always an exciting and uncertain time. While it comes with its potential benefits, there are also risks behind any growth strategy a business chooses to pursue. Good financial planning when growing your business ensures you make the wisest financial decisions during such times of development, and increases your chance of successfully taking your business to the next level.
