Why is financial planning and analysis important to a business?
Proper financial planning and analysis answers the following questions within a business:
- How much cash do I need to operate this business?
- How should I manage my line of credit?
- Is my operating plan cash positive or do I need to make some changes?
- What behaviors help and what behaviors hurt cash flows?
- How should I structure my debt?
- Does my business need additional investment?
- Should I expand to new markets?
- Is my pricing limiting my sales?
- Is my pricing causing me to lose money?
- What's the business' break-even point?
Every dollar has a place it needs to go, as a business manager, your responsibility is to make sure it goes to the right place well in advance of receiving that dollar. It's also nice to plan to maximize the number of dollars you spend and keep. Most businesses are best suited to create a cash strategy that spans 13 months in advance.
Without proper financial planning and analysis businesses can run out of cash, underprice their product, have inappropriate incentive programs for their salesforce, and create unnecessary emergencies inside their business.
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