Financial planning and analysis, the secret of SMEs

Since we open a business, we have acquired a responsibility that forces us to consider aspects that go beyond the activity to which we want to dedicate ourselves. Not only must we be good in our area of ​​interest, but we also have to dabble in administrative, planning, analysis and management issues that perhaps we have never seen before, all with the aim of keeping our project afloat.

INEGI, in its second set of results from the 2020 business demography study, estimates that in 2019 there were 4.9 million micro, small and medium businesses, of which 12.8% (619,443 businesses) were new openings, but 20.8 % (1,010,857 businesses) closed their doors.

Likewise, INEGI comments that the average life of an SME is 7.7 years, but according to the Center for Business Competitiveness Development, only 25% of companies survive the first two years of operation. The causes? There are different responses, from insecurity, high financing costs, the legal difficulty to establish a company and the lack of planning and analysis to sustain the venture in the long term.

Of all these reasons, the one that draws the most attention -because it falls completely under the control of the business owner- is the lack of business planning and analysis, which is why today we want to investigate this issue to help you better understand this essential aspect.

What is business planning and analysis?

As well as life itself, businesses are governed and work daily under three times: the past (which is responsible for accounting), the present (workers and actions focused on generating income) and the future that depends on the establishment of commercial strategies that ensure the financial health of a company.

We are talking about crucial decisions that will set the course for our business, but how do we make better decisions for the future? The answer is found in forecasting, analysis, budget management and the accumulation of data that allow aligning efforts to meet financial objectives through strategic planning that must be evaluated regularly.
Entrepreneurs must be able to save, collate and analyze all the internal variables of their operation, current demographic and economic trends and objectively and subjectively evaluate their processes and finances to determine a business plan, as well as its financial impact.

Not only do you have to learn to manage payments and collections in your SME, but you also have to be able to analyze all those financial movements to map a path that leads to maintaining the financial health of the company in the long term and, although this aspect is not so easy to achieve, there are always ways to do it.

Where to start?

When an entrepreneur opens, it is very common that he himself has to carry out both the analysis and the planning of his finances with a little external help, but you can always plan for the future to strengthen the necessary areas that allow this task to be delegated and that you start to see results with a positive impact on your business.

Finding a CFO, as soon as possible, should be the first step. When the business becomes more stable, even a dedicated financial planning and analysis team will always represent a good investment. Your main task will be the creation of budgets, forecasts and analysis to ensure the necessary financial survival.

It sounds very simple, but in reality it involves very specific skills and knowledge that are not so simple to execute, such as the analysis of income statements and balance sheet, balance graphs, cash flow, costs to scale, sales levels and production, collections and periods of accounts payable, cash balances, among others; all to begin to carry out a strategic planning.

It seems overwhelming, we know, but considering this figure in your project will help you solve early the problems that lack of planning and financial analysis brings. In addition, today there are already online programs that also help simplify all these processes, but you will still need a finance expert to help you translate them into your medium and long-term action plan.

Recommendations for creating good financial planning

If at the beginning you still do not have a financial expert to assist you, here are some recommendations that can help you take your first steps:

  • Start planning by defining the heart of your business opportunity and outlining a strategy to achieve it. Review your necessary assets and operational needs to estimate how much money you will need, and finally, make a list of details that may impact your planning.
  • Make use of your creativity. There are no rules that define your actions, so you should always consider alternatives and unique ways of acting to obtain the financial resources that allow you to stay afloat.
  • The analysis and planning never stop, try to give constant time to the evaluation of everything that happens in your business, always boost the inflows of money because the capital and financial support that will sustain your project will depend on that. Seeks to generate more income than you need by making use of the previous point.
  • Pay special attention to cash flow management. The good management you do will impact your finances in the short term.
  • Make, create and maintain business relationships with finance experts. Look for mentors or consultants to help you and listen very well to their findings and recommendations, all of which will help you better understand this financial world and could even recommend someone who can help you in your business. The most important thing is that you give them the confidence that your venture is serious.
  • If your business opportunity is not well laid out, then the numbers in your analysis will be inaccurate. You have to understand the venture very well to be able to delimit well all the analytical and planning aspects.
  • Make your life easier by purchasing financial products and services that help you understand your finances more easily. For example, at Oyster we created a smart finance platform that helps you categorize your transactions, create budgets and even create savings goals that simplify your actions when moving your budget to achieve your goals.

We hope this information has opened the picture for you and invites you to find out more about financial planning and analysis. We also invite you to share recommendations and experiences about this and other topics on our social networks because that can benefit other entrepreneurs to keep their business afloat