Why Every Small Business Needs a Financial Plan (and How to Create One)
- Colin Murray
- Jan 12
- 4 min read
Updated: Jan 24

Did you know that 82% of small businesses fail due to poor cash flow management? This is a figure that astounds me no matter how many times I read it.
At the root of this problem is often the lack of a solid financial plan. Without a roadmap, even the best businesses can lose their way.
I like to compare this to attempting to drive your car while only looking in the rearview mirror. It’s nearly impossible to get to where you want to go, without significant damage.
A financial plan is more than just numbers on a spreadsheet. It’s a tool that gives you clarity, control, and confidence in your business decisions.
In this post, we’ll explore why every small business—no matter the size—needs a financial plan and how you can create one that sets your business up for success.
Why Financial Planning Matters
Lack of Planning = Missed Opportunities
Operating without a financial plan is like driving a car without knowing the destination. It’s easy to run out of gas, take wrong turns, or miss critical exits. Without a financial plan, you risk:
Difficulty managing cash flow.
Missed investment or growth opportunities.
Inability to handle unexpected expenses.
Example: Imagine launching a new product without budgeting for marketing or production. The result? Overspending and stunted growth. A financial plan ensures you allocate funds where they’re needed most.
A Deeper Look: Too many small businesses approach finances reactively, that is to say they only deal with their finances when something happens to them. The problem with this approach is that a missed tax payment, an unexpected repair, or a seasonal downturn can create chaos.
Proactive planning reduces these risks by setting aside resources in advance. This shift from reactive to proactive finance management is transformative.
Long-Term Impact of Poor Planning
The consequences of ignoring financial planning compound over time. You could face:
Increased debt due to poor cash flow management.
Declining profitability from unchecked spending.
Struggles to scale your business because of limited resources.
The Ripple Effect: Without a financial plan, small financial missteps can snowball. For instance, relying heavily on credit to manage cash flow gaps may lead to high-interest payments, further straining the business.

The Benefits of a Financial Plan
Clear Goals and Priorities
A financial plan helps set SMART goals: Specific, Measurable, Achievable, Relevant, and Time-bound.
Instead of vaguely aiming to “grow revenue,” a financial plan breaks this down into actionable steps, such as increasing monthly sales by 10% by the end of Q2 by implementing targeted marketing techniques.
Better Cash Flow Management
Managing cash flow becomes more straightforward when you have a financial plan. It helps you:
Allocate funds for operational costs, debt repayment, and growth initiatives.
Avoid overextending resources.
How This Works in Practice: Imagine a landscaping company with seasonal revenue peaks. A financial plan helps them save during high-income months to cover expenses during slower periods.
Preparing for the Unexpected
No one can predict the future with complete accuracy, but a financial plan equips you to handle challenges, such as:
Sudden drops in sales.
Large unplanned expenses.
With a financial plan, you can create an emergency fund to cover at least three months of expenses. Better still, you can create multiple plan scenarios that allow you develop action plans for various events. This makes your business more nimble.
Proactive Example: When a restaurant’s refrigeration system unexpectedly failed, their financial plan’s emergency fund covered the $5,000 repair cost without impacting day-to-day operations.
Steps to Create a Financial Plan
5 Simple Steps to Get Started
Here’s how to build a financial plan for your business:
Assess Your Current Financial Situation
List all income sources, expenses, and debts.
Identify areas where you’re overspending.
Pro Tip: Use tools like QuickBooks Online to generate detailed financial reports. These reports can highlight trends, such as consistently high utility bills or fluctuating revenue streams.
Define Your Financial Goals
Set short-term goals (e.g., reduce expenses by 10% in 3 months).
Establish long-term goals (e.g., expand to a new market in 2 years).
Actionable Example: A retail store aimed to increase online sales by 15% within a year. They allocated 20% of their budget to digital marketing and tracked progress monthly.
Create a Budget
Allocate funds for operational costs, savings, and growth.
Review your budget monthly to ensure you’re staying on track.
Forecast Cash Flow
Project inflows and outflows for the next 6-12 months.
Identify months where you might face a cash shortage.
Example: A small consulting firm identified a potential cash gap during the summer and proactively secured a line of credit to maintain operations.
Review and Adjust Regularly
Schedule monthly check-ins to review your progress.
Adjust your plan as your business evolves.
Pro Tip: Include team members in review meetings to ensure alignment across departments.

Overcoming Common Obstacles
I Don’t Have Time to Plan
Running a business is time-consuming, but dedicating even a few hours a month to financial planning can save you time and stress in the long run. Tools like automated expense trackers or professional services can streamline the process.
It Feels Too Complicated
Start small. Begin with a simple budget and gradually incorporate forecasting and scenario planning. Remember, progress is more important than perfection.
I’m Not a Numbers Person
You don’t need to be a financial expert. Resources like online tutorials, financial software, or fractional CFO services can help you understand the basics.
Conclusion
A financial plan isn’t just a document—it’s your roadmap to business success. By setting clear goals, managing cash flow, and preparing for challenges, you can steer your business toward sustainable growth.
Key Takeaway: Even small steps toward financial planning can have a big impact. Start today by assessing your current situation and defining your goals.
Don’t wait until you’re struggling to create a financial plan. Start now, and set your business up for long-term success.
From Dreams to Reality
Looking to bring clarity and strategy to your business finances? HighRidge CFO specializes in helping entrepreneurs take control of their finances.
Contact us today to learn how we can help!
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