Let’s say you’re a relatively young business, you’ve experienced initial success and growth, but now you feel like you’re hitting a wall with your growth initiatives. It might be time to consider financial modeling and budgeting, with the support of an expert, to help you get over your growth hump. We’ve pulled together a few reasons why financial modeling and business budgeting is such an important tool that could help you stop banging your head against the wall, and feel like you have an actual plan in place so you can make sure you stay on budget while achieving your desired growth.
What is a Financial Model / Budget?
Let’s start with the basics. A budget is essentially a simple breakdown of how you plan to use your money, logging your projected income and expenses over a period of time. It allows you to plan and analyze whether your business is able to cover its expected costs, which parts of the business are spending the most, and whether you can afford to invest in any non-essentials for your business. Having a budget is important for any business, but it’s especially important for businesses in their early days and startups, as budgeting is a key factor in high growth. Without a budget, you may run out of money or end up spending your limited funding in a less effective way.
Your budget is also an analytics tool, giving you the ability to see how you’re allocating resources and whether your business is spending and earning the way you had planned. If it isn’t going as planned, it will allow you to ask some questions and smooth out any bumps in the road early on, instead of finding out there’s a problem too late. But how can good budgeting contribute to growth in your business?
Why is a Financial Model / Budget Important for a Growing Business?
Regular and consistent budgeting will open up so many doors for your business, and allow you to pursue the levels of growth that you want. Knowing the financial ins and outs of your business is key to making those important decisions! Here are just a few reasons as to why budgeting is vital for growth:
Hiring Employees – Budgeting will give you a good idea as to if and when you can start looking for new employees and expanding your workforce, especially if you’re finding that the workloads are increasing. A good financial model will give you the necessary tools to make predictions as to when is the best time to bring on new employees.
Cashflow Shortfalls – A budget will also flag up any shortfalls you have in the business and allow you to get ahead of any problems early, so it doesn’t heavily impact your finances in the long-term. It gives you some breathing room to source and negotiate funding in order to cover the cash deficits meaning you can stay on your projected growth journey without altering things too much.
Extra Money for Savings – You may also find your business in the position where it has money leftover one month or quarter. Instead of rushing into any splurging decisions, which may not benefit your business’ growth in the long-term, good budgeting will make you think about savings and an emergency pot because you can see where the money may possibly needed down the road.
Sharing with Investors and Lenders – A good financial model will also come in very handy when approaching investors and lenders as it will tell them that you’ve really sat down and thought about your business. They’ll be able to clearly see the income streams and expenses in your business and how you’re budgeting for long-term growth. Good budgeting shows that you mean business!
What are the Top 3 Pieces of Clarity You Get from Building a Financial Model / Budget?
Good budgeting is not only great for business growth but it also provides clarity in a number of areas. And having clarity in your business, especially your finances, is vital. So, what can a budget shed light on in your business?
A detailed budget will allow you to see exactly where the money in the business is going, down to the spending of each team or department. And so, if one month you’ve found that the business has spent too much, you can quickly find out where this overspending has occurred. And because it’s so easily identifiable, any rejigging of the budget can be planned far in advance so that no department is left without funding at the eleventh hour.
Budgeting can also give you a much better idea as to what your business is spending money on, and which of these costs are essential and which are not. Being able to identify and distinguish between your essential and non-essential costs will allow you to track these spending streams, and if/when needed, cut down your non-essential costs. Good budgeting means you’re always covered on your essential costs and are unlikely to find your business scrambling to find money to cover the essentials.
Reaching Your Targets
Arguably the most important feature of a budget / financial model is its ability to clearly show you if you’re on track to meet the targets of your business, or if you need to make some adjustments to get back on track. Your financial model is all about the journey to your goals and targets, and how your business can get there. Good budgeting can show you month on month how close you are to achieving your goals, and how much your business is growing.
Budgeting is Key for a Sustainable and Successful Business
Simple Startup can help build you a financial model / budget through our financial services and can then help you stay on budget through our advisory and accounting services. A financial model is not only vital for raising money – it provides a roadmap for you to follow as you grow and scale your business. Whether it’s our basic or advanced offering that you chose, we can give you a clear picture of what your future can look like and give you a roadmap to get there.
We work with you to translate your vision into a fully customizable and adjustable (by you!) financial model that enables you to experiment with different scenarios, understand their effect, and plan out your business’ future. For example, if I increase the price of Product A, how does that affect my profits? If I acquire Company X, what effect will it have on my overall business – now, 6 months from now, and 1 year from now?
Our financial modeling program helps you go from unclear or totally in the dark with your company’s finances, to in control with a 5-year financial plan to guide your way. We build your model so that you can tweak it as you grow and have more context to modify or confirm assumptions. This helps you make better decisions that are based on hard data rather than gut feel, truly putting you in the driver’s seat of your business.
So, why not grab some time on our calendar and see how we can support you and your company’s journey.