Make A Financial Plan And Work The Plan!

In my 20 plus years of consulting small and medium size

businesses it is rare that I find a business with a

financial plan that is being monitored. Most financial

plans are generated to obtain a bank loan and once that

purpose is served the plan usually finds its way to the

lower bottom draw of the owner's desk to collect dust. The

other day I had an occasion to check one of these plans out

with a client whose business was in trouble and sure enough,

most everything in the plan had been ignored. If only part

of the plan had been followed and monitored the business

would have been profitable and not in need of any outside

help.



Usually when a financial plan or budget is first put

together it is based on the business history, knowledge of

the business and industry, and some valid assumptions

about the business future. A flight plan is put together in

much the same way, however as soon as the plane takes off

and winds change, adjustments must be made in order for the

plane to reach its destination. The same holds true for a

financial plan. Once the business is put into operation,

some things change either with the product or the

marketplace, and adjustments must be made to achieve the

profit objective. Therefore, a financial plan must be

monitored to identify the variables as they present themselves.



In a business these variables usually present themselves when

a Profit and Loss statement is compared to a financial plan.

Unfortunately, since most small business owners do not value

their financial plan there is no urgency to check it against

a P&L statement that tells you what actually happened in

the business for the particular period of the report. Since

the plan is not being monitored it is very easy for the

business to head off course and in the opposite direction

of its profit objective.



Comparing each item in the Profit and Loss Statement (What

is actually happening in a period) to the Financial Plan

(What you want to happen) will identify the variables and

help you identify where problem(s) exist in meeting your

profit objectives. However, identifying the problem is only

the first step in solving it. You must research further to

find what is really causing the problem and then make the

necessary adjustments. Various solutions should be

considered before picking the best solution, and after

implemented, the new solution should be monitored to

see if it really solved the problem.



The importance of a Variance Report that compares a

financial plan (budget) with a profit and loss statement.

cannot be overstated. These are two important

management tools to control your business and reach

your profit objectives. If you have a financial plan, start

using it to control your business, and if you do not have

one, create one, it could mean the difference between

success and survival. Good Luck!

Copyright © Donald N. Lombardi

http://www.HomeBasedBusinessWizard.com



Donald N. Lombardi, Is A Business Consultant, As Well As,
Expert Author on Home Based Business.



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