To a non- finance person, this sounds intimidating. But I am sure you have done financial planning before. When you go to a store to buy something, you knew you have enough money in your wallet. Otherwise you wouldn’t go, right? You had a financial plan. Expand that to an annual plan and you will have a Financial Plan for the year.
Do not be a perfectionist. I used to do mine on sheets of table napkin while waiting for my appointment in the coffee shop. Improve as you keep on doing it.
My wife and I used to have the same wallet for both the business and the household. This method is not effective. It results to mismanagement of finances in both spheres.
Now that we have a financial plan for household and a financial plan for business, management in both spheres is easier. Discipline in both is easily established. When we have used up our budget for the home, we don’t dip into our business finances. Otherwise, we might have a problem in our business finance which can easily creep into our household finance. When something like that happens, identifying the problem becomes very messy. Financial problems can easily affect our relationship. So, I believe the Lord is pleased when we establish discipline in all aspect.
1. Financial Planning in the Home
A fixed monthly income from my business is the major piece of the puzzle in constructing the financial plan for the home. Out of that, I give my wife a fixed monthly budget to spend for household expenses and her own needs like massage, health and beauty and entertainment. I plug in other expenses like travel, investments, loan amortizations, and my own personal expenses. Out of the budget I give my wife every month, she does her own budgeting. I am happy that she is able to have her own savings, because if ever my business collections are delayed, I know where to go. But I always hope that does not happen.
Do we stick to our budget to the peso? No. We don’t want the details to stress us needlessly. When we are able to stay within our budget, we congratulate ourselves.
2. Business Financial Plan
This looks very much like the household plan. I cannot predict the exact timing of my cash inflow but I can make assumptions. Without these assumptions, I cannot do the plan. Next of course is the overhead which includes my salary and business overhead expenses, another major piece. Other expenses are direct expenses related to the volume of business that is generated. The cash flow will differ per business and industry. What is important is I am able to see how things will shape up in the coming months, and if they don’t as expected and there will be tightness, I can see it way in advance for me to do contingency measures. There are factors that affect timing of cash flows like inventory. Am I over stocking? Or collections that are delayed. I should know what is happening so that I can manage well and keep on improving.
At the end of the year, I expect extra cash for the coming year plus extra to pay myself dividends that I can use for investments. The Lord wants us to be generous. This will not happen if we are poor managers.
When I look at the financial plans of my clients, I always look for improvement. If business is not growing, it is time to look for reasons why. If business is growing, the owner also has to know the reason for it. A good business owner does not believe in luck because he must be totally in control.
Does that mean to say that we are excluding God because we are in control? Of course not. We are stewards and He wants to bless good stewards. That is why I always say, good management attracts wealth. When the manager is good, the master gives him more to manage. A good manager does not lose control.
Contrary to common thinking, planning reduces stress. It is when we are faced with unexpected results that we have to address with very limited time that puts stress on us.
An extra note of caution. Financial results is just the outcome of how we manage the important aspects of our business, like marketing, production, organization, etc. A good manager is not just a good finance person.
In my case, I use excel to do my financial plan. You can start with a piece of paper just as I did before. Having a plan, no matter how crude is better than having none.
It is our wish that your 2019 will be much better than 2018 for your family as well as business. May you also be in good health. God is good. He wants to bless you, prosper you and give you good health.
We wish you a blessed 2019!
(If you have questions or comments, please feel free to post them here. If you want to sit down with me for coaching, let me know. )