Did you know that there are around 300,000 small and medium-scale businesses in Singapore? This number has been growing so fast every year, as Singapore is a country that encourages businesses to freely flourish. However, it is a well-known fact that less than half of them survive in the highly competitive Singaporean business landscape. If we look at the approximate success rate of MSEs in Singapore, we see that only 1 of 4 of them are able to make it. The main reason for small businesses to fail is not having proper financial planning, according to business experts.
In this article, we explore the concept of financial planning in the small business scenario and its importance for small businesses to achieve success.
We will know
What is Financial Planning?
- Yes, although there are many facts that a small business should be concerned about, among all of them, financial planning receives the utmost importance. Let us explore why.
- In the first place, financial planning for a business is the systematic process of assessing its current financial status, setting goals, and developing strategies to achieve those goals.
- It has several aspects, such as budgeting, cash flow management, risk assessment, investment planning, and long-term financial goal setting.
- No business in today’s world can survive without proper financial planning. Why do we say that? If they try to go without financial planning, small businesses surely face unbreakable challenges. These can be cash flow shortages, excessive debt burdens, the inability to seize growth opportunities, a lack of preparedness for unexpected financial setbacks, etc.
- No matter what the size of your business, these are the main reasons why you need to do proper financial planning even before initiating your business.
- You know that there is tough competition and a dynamic business environment out there. Surviving cannot be possible if proper and well-organised financial planning is not executed. This has become essential for ensuring sustainability, growth, and resilience.
- On the other hand, it provides small businesses with a grid or a roadmap for managing resources effectively. This reshapes the decision-making process and gives SMEs a hand in adapting to changing market conditions.
- In the business realm, financial planning has become an essential component and lays a solid foundation for small businesses to build their corporate empire smoothly.
The Main Reasons Why Small Businesses in Singapore Need Financial Planning
Goal Setting and Monitoring
Goal setting and monitoring are integral components when you embark on an adventurous business journey. Financial planning helps small businesses set realistic financial goals by assessing their current financial status, market conditions, and growth potential.
What sort of goals are we talking about here? These goals could include revenue targets, profit margins, expense control measures, or investment objectives. When you establish clear goals, your small business can create a roadmap for success and focus its efforts on achieving tangible outcomes.
Moreover, financial planning provides a framework for monitoring progress towards these goals. Yes, it is like putting your business on the grid. When you initiate regular financial reviews and performance evaluations, they enable businesses to track their financial health, identify areas for improvement, and make necessary adjustments to their strategies.
This monitoring process keeps businesses accountable for their financial decisions and ensures that they stay on track towards achieving their objectives.
In a competitive landscape like Singapore, setting goals and monitoring whether you are walking on the track are highly important. As you can see, financial planning empowers small businesses in Singapore to make informed decisions.
It also encourages your small business to prioritise resources effectively and work towards long-term sustainability and growth.
Capital Allocation
Whether it is for expansion, equipment purchases, or hiring employees, small businesses need to allocate capital wisely to maximise returns and sustain growth. Financial planning provides a structured approach to prioritising spending and investment decisions based on the business’s objectives and financial capabilities.
When you analyse cash flows, assess risks, and evaluate potential returns, financial planning helps businesses make informed choices regarding capital allocation. It ensures that resources are directed towards activities that generate the highest value and contribute to long-term growth.
On the other hand, financial planning allows businesses to anticipate future capital needs. It will be quite helpful in planning for contingencies and changing strategies accordingly.
As a result, effective capital allocation as a part of financial planning paves the way for small businesses in Singapore to optimise their financial resources and achieve their growth objectives in a competitive business environment.
Tax Planning
Taxes lay the bedrock for a country’s development, yet they are a burden for small businesses. This is why a small business needs to plan the tax process properly.
Singaporean businesses face this challenge more often due to the complexity of the country’s tax laws, making financial planning indispensable.
What is effective tax planning? This means strategically arranging financial affairs to minimise tax liabilities while ensuring compliance with regulations. Singapore offers various tax incentives and deductions, but there is no need to say that navigating these intricacies requires careful planning and expertise.
Yes, this is exactly what tax planning is all about. When you do tax planning as a component of financial planning, it allows small businesses to optimise their tax obligations by using available incentives and deductions. If this is done properly, the latter will help reduce tax burdens and preserve more profits for reinvestment or expansion.
When you go ahead with financial planning, you can forecast tax liabilities, analyse tax-saving opportunities, and implement tax-efficient strategies correctly. Financial planning ensures that small businesses can maximise their after-tax income and maintain competitiveness in the market.
In a country like Singapore, where the government puts a lot of weight on regulatory compliance, small businesses can easily stay compliant with tax regulations. This indicates that you successfully avoided unnecessary penalties and legal issues.
Budget Management
If you own a small business, this is especially important for you. Let us explain why. In one way, financial planning assists small businesses in allocating resources efficiently by creating a structured framework for managing expenses and maximising revenues.
This is done by analysing past financial data and forecasting future income and expenditures. In another way, financial planning helps businesses develop realistic budgets that align with their strategic objectives. This process encourages businesses to identify areas where cost savings can be achieved, prioritise spending on critical activities, and avoid unnecessary expenses.
If further explained, financial planning allows businesses to monitor their budgets closely. Tracking variances and making timely adjustments as needed to ensure financial stability and sustainability are also part of this concept.
When processing business operations, maintaining effective budget management practices through financial planning should receive more weight. Don’t you agree?
Risk Management
Is there any business that can avoid risks? Literally, no one!
This is why getting yourself prepared is highly essential. In the section below, we will explore how risk management is quite important for small businesses in Singapore due to the diverse array of risks in the local business environment.
If you are underestimating the necessity of financial planning, this is where you put the full stop to your doubts. As we can see, Singapore faces risks such as economic fluctuations, regulatory changes, and market volatility, all of which can significantly impact business operations and financial stability.
When you initiate financial planning, it provides a systematic approach for identifying, assessing, and mitigating these risks. How it can be done is not that complicated. This is made possible by conducting risk assessments and evaluations. With this knowledge base, small businesses can anticipate potential threats and develop strategies to minimise their impact.
You are supposed to take this proactive approach, as small businesses tend to face a ‘sandwich’ situation due to these challenges.
When you have financial planning ready, it enhances the resilience of small businesses, encouraging them to adapt to changing conditions and safeguard their financial well-being.
Business Valuation
If you own something, you need to know the true value of it. Do you agree?
This applies to your business as well.
Understanding the value of the business is crucial for various purposes, including seeking investors, negotiating mergers or acquisitions, making strategic decisions, etc. When you embrace financial planning, it will provide insights into the business’s financial health, performance, and prospects. You obviously know that these are the fundamental factors in determining its value.
When you plan your finances, you analyse financial data, assess market conditions, and project future cash flows as a part of it. This means you get to know your status clearly. In other words, financial planning helps businesses determine their worth accurately.
This information not only enables businesses to attract potential investors or partners but also facilitates informed decision-making regarding growth strategies and exit options.
Having good knowledge about your business is the first step in making better financial decisions.
Paving the Way for Small Business Success through Better Financial Planning
It is not as easy to plan your finances as it seems to be. But on the other hand, it is a must if you want to survive this competitive business landscape. What you can do to streamline financial planning is to opt for a suitable tool. If you hold hands with a reputed supplier who is a pioneer in the Singaporean landscape, your finances will pour the cement for your success in the future.
