Important Issues to Consider in Financial Planning

by Colleene Isaacs

Let me start by saying, I hate dealing with financials! In a perfect world, I wouldn’t have to think about or plan for the financial aspect of doing good business. Or better yet, I would have some really smart CFO-type deal with it, and be done with it. Unfortunately, as far as I know, we don’t live in that world. So just like everyone else, we have to do the financial “due diligence” (homework), necessary to do business well. There are a lot of great resources to assist as you begin your planning process, particularly when it comes to the financial matters of business. One suggestion I would make is save yourself a lot of grief, and apply a template like the “Business Model Canvas” to your planning process (see the book Business Model Generation.)  This model follows a somewhat lean startup methodology, and is a great way to visually scan and plan for all the aspects of business planning and design. 

Let’s really focus on some things you should be thinking about financially when you start the business start-up journey – a journey that is a very winding road, never a straight path!

Expect the Unexpected

A general principle is start with Plan A, but always have a back-up plan(s). You only have a limited insight into what the future will bring. You may be faced with geo-political situations, product development delays, weather, material sourcing issues, local permitting requirements and delays, transportation issues, broken equipment, etc. that you were not expecting. Any of these external elements, can severely impact planning and business execution schedules, as well as the finances required to support those activities. Just know that wherever there are opportunities for something outside your control to fail, there is a real possibility that it will. 

Plan for the Thin Times

Some say it is good to have at least of one month operating income in the bank, to allow for slow periods, others will say a minimum of three months. I tend to like a less risky approach to these types of things. A good example is Joseph building and filling the storehouse, providing for seven years of famine.  At a minimum, sound planning should allow for a six month storehouse, and, if you can afford it, set aside more. Of course, the amount you’ll need will depend on the type of business you want to operate, what your monthly fixed and variable costs will be, how many employees you will have, the question of self-compensation and the list is endless. The last thing you want to do is layoff employees because you didn’t plan well for the times of drought. A significant aspect of being equipped for business, is learning how to walk through unplanned crises, and having the financial undergirding to be able to manage the event.

Create Realistic and Multiple Pro Formas

It is common for enthusiastic entrepreneurs to be very generous in their assumptions or expectations of how they believe their new business venture will perform. This is where your ‘Plan A and Plan B mindset’  needs to take lead in your planning. If you have done your market research well, you should have a somewhat reasonable expectation of how your business will do. You will also want to run through best and worst case situations in pro forma statements so that you can create a back-up plan for a failed Plan A.  

A pro forma statement is a complete financial statement, which enables you to run through multiple models based on certain assumptions, considering all your expenses both fixed and variable, and multiple income scenarios. One thing to keep in mind as you build your pro formas, there is always a cost to sales, and as sales decrease, costs do not necessarily proportionately decrease. You also want to “play it safe” and factor in a buffer for hidden costs, which are usually revealed before too long.

Plan for a Small, Conservative Start

Many entrepreneurs mistakenly assume that a new company needs to grow and scale quickly to secure a dominant market position. However, I would advise business owners to be conservative in rolling out your offerings, being sure to test product-market fit before adding more products/services and consequently more costs to your balance sheet.

Unless you have very deep pockets, treat each dime as if it’s your last, don’t spend until you absolutely have to. Think big, but start small. Proceed cautiously until you have sales to back up your plans, and you have the space to begin to take risks with the business.

Too many businesses apply the majority of their capital to getting the doors “open,” and then have no resources to carry the business through the growth pains that always accompany a new business. If you don’t have the financial resources to weather the “ups” and “downs” of unpredictable economies, your tenure in business could be a lot shorter than you had planned. Usually, when a company grows too rapidly, it is at the expense of sustainability. Rapid growth does not give an entrepreneur an opportunity to learn about the customer, predict accurate sales, modify product offerings, identify weaknesses in the business model and so on. Slow and steady growth ensures that you have taken the time to understand the environment in which you are conducting business. 

Don’t Ignore the Need for Systems

One area in which an entrepreneur can quickly get into trouble is through lax financial management, often facilitated by the lack of integrated systems. I’m sure we all have witnessed many a small business in which the business owner paid little attention to the financial details. Ever had a situation where you were never able to receive an invoice for product or services rendered? Throwing your receipts in a top drawer for rainy day processing, or lacking structured and reliable systems will quickly transition you to a new career opportunity!

While this is fundamentally a poor demonstration of stewardship, it also shows a poor preparation for the role of entrepreneur. Plan to begin your business with stringent financial systems, and well-defined procedures; procedures which may need to change as you gain operational experience.

Will you be carrying accounts receivables? If so, what are the carrying terms? What is considered bad debt? How will you resolve bad debt? How much inventory will you need to carry to support your sales flow, and seasonal fluctuations? And so on.

Know your income, know your expenses. The simple formula is that what comes in has to be greater than what goes out. In keeping with having the proper system infrastructure for managing business finances, make sure you are financially aware of every aspect of your business, and what decisions are having an impact on your bottom line. You as the business owner are the one ultimately held responsible for financial governance.

Financing your Venture

Finally, a word on outside investment. My advice may not be popular, but I believe it is biblical. If you are fortunate to have outside investors who have committed to your project, you will need to ask yourself some hard questions about the future. If you are willing to take someone else’s money as an investment in your business, are you also willing to re-pay the money if your venture fails?

Ask yourself, what is the greatest risk you are willing to take to move your vision forward? And how do you view those outside resources that others want to commit to the vision? How you view that resource will most definitely determine your level of risk and mindfulness to how you use it. These are resources with which you have been entrusted, and there is a principle that “to whom much is given, much is required.” I personally believe that if you take outside money you should be prepared to re-pay if you lose it. 


Read more from Colleene on Bootstrapping your Business vs Seeking Outside Investment

colleene2Colleene Isaacs
serves as an advisor to early stage kingdom-focused startups and assists non-profit organizations in under-developed economies to develop sustainable models for income generation. Colleene has over 27 years of business experience and has been the founder of her own restaurant business, as well as a co-founder of a technology-based company. She has served in various management roles for technology companies, including training and development, customer service, business and channel development, and marketing. Colleene has been married to Robert, her high school sweetheart, for 40 years and they have 2 children and 3 grandchildren. Colleene is passionate about using her gifts to help others discover and live out their unique God-imprinted design for His kingdom purpose.

Colleene serves as a regular mentor on our ‘Ask a BAM Mentor‘ panel.


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