As a business owner, you should have some objectives and aims that you want to achieve. But how do you accomplish them? The answer is quite simple, through financial planning. Subcontracting businesses in the construction industry must have a well thought-out plan that gives them a clear pathway.
Upon hearing the term financial planning, you might think it has something that people with accounting expertise can deal with. However, that is not the case since you don't need to have a financial background to create a financial plan for your subcontracting business.
We will discuss the essential elements of financial planning for subcontractors in this article. Moreover, the article will cover the tips that you can use to build one. Let's start by understanding what financial planning is.
What is a Financial Plan?
In simple words, the financial plan entails a complete oversight of the current business finances and how you project your growth in the future. Any document that shows the existing financial condition of your business and the expectations you can have from it in the future is part of a financial plan.
When working on a financial plan, you must include vital aspects to get a clear picture of your subcontracting business's current and expected projections. It includes:
- Break-even analysis
- Cash flow projections
- Expense outlay
- Operations plan in case of changing market and economic situation
- Sales predictions and forecasting
- Profit and loss Statement
These vital elements help you create a decisive financial plan to deal with the ever-changing business situation.
Importance of Financial Planning
Financial planning holds a high significance for each business to deal with uncertain situations. It helps in the sustainability and the growth of your business. For subcontracting businesses, the importance of a financial plan can be assessed after the housing market slowed down after the 2009 recession and the pandemic.
Though the market did rebound to the original growth levels, many subcontracting and other businesses in the construction industry had to face tough times. Therefore, having a financial plan gives you leverage to run your business in changing environments.
Now, you might wonder how subcontracting businesses can create a financial plan. There is no rocket science or accounting formulas you have to apply. All you have to do is follow the tips below to create a robust financial plan.
Tips for Financial Planning for a Subcontracting Business
Subcontractor business owners will have to work on the vital aspects mentioned above for financial planning. It is why here are a few tips you can use to make it easy for you to get all the things correctly.
1. Get Your Finances in Order
Subcontracting businesses have to deal with the financing of different projects. Therefore, they might find their finances all over the place, making it difficult for subcontracting businesses to make a financial plan. It is why you need to get your finances in order.
The ideal approach to get your finances in order is by maintaining all the financial statements. It will make it easy for you to find the figures regarding the profitability and liquidity of your subcontracting businesses.
2. Compare Your Previous Year's Performance
To understand your business's growth from last year to this year, you need to compare the financial statements. By doing so, you will have a clear picture that will show the percentage change in your business profitability and liquidity. As a result, you can apply the same percentage and see how much your business can progress in the coming year.
3. Discuss the Expansion
The most important part of your financial planning is the expansion of your business's operation in current or new markets. By having a business plan, you can have a clear idea about the finances that you require to fund your subcontracting business's growth and expansion.
As a result, you can design multiple strategies to pull up the additional money necessary for your business's growth. You can think about the different ways you can get the money, such as:
- Taking a long term loan for financial institutions
- Collaborating or having a joint-venture to diversify
- Getting an investor
Expansion is a highly vital element of your business plan, and that is why you need to involve and discuss with all the departments. You need the HR, finance, marketing, and other teams to discuss how many personnel you will need, the money to fund the expansion, and other important things.
4. Take Help from an Expert
Creating a financial plan for your subcontracting business is not a complex task. With a little bit of understanding of the key elements, you can write a financial plan for your business in no time. Nevertheless, if you don't feel confident in writing a financial plan, you can always go to an expert.
Business experts will go through your finances and discuss your expansion objectives to give you a robust financial plan. Therefore, if you don't have the time or skills to design a financial plan for your subcontracting business, you can contact a financial consultant to help you.
Benefits of Financial Planning
Financial planning can open your subcontracting business to numerous perks. Here are a few of them:
- Helps you come up with clear objectives you want your business to achieve
- Gives you an idea about how to manage your cash flow efficiently
- Allocate all the resources in the best possible manner to give you the best returns
- Identifies the area where you are overspending to help you reduce expenditure
- Allows you to follow a clear roadmap in case of a crisis
- Make fundraising easy for your subcontracting business's expansion
Financial planning can help you reap many benefits to skyrocket your business's growth in no time. It can be helpful in both sustaining tough times and growing with the right opportunities. Therefore, if you are a subcontractor business owner, now is the right time to create a financial plan.
Using the tips in this article, you can work with your team on all the aspects of financial planning. It will give you and your team a road map towards taking your business to the next level.
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