An SME is a small or medium-sized enterprise and operates under a legal definition which can differ from country to country. The criteria revolves around the number of employees and usually any outfit which employs less than 200 people will come under the SME banner.
With this in mind, an SME could be responsible for providing the livelihood of a handful of people right up to a couple of hundred, and as such planning for the future is an essential part of trading.
Of course, a business of any size must have a good idea of where it is headed in terms of what will make it a viable concern, but for SMEs setting financial targets can be an essential part of trading.
The basics of running a small business have been the same for centuries, with the bottom line being to make a profit from providing goods or services. Planning in the early stages means that you might be able to avoid looking into business recovery options down the line, although this strategy can be useful in some cases.
In today’s world it isn’t quite as simple as just setting up shop and hoping for the best. Whichever area your company might be operating in, there is sure to be competition and both customers and clients will always be looking for the best deal.
In the first place every SME must have a comprehensive business plan, as this is usually a requirement to gain funding as well as being used to map out the initial periods of activity.
However, planning should take an important role at all stages of the development of a business as it is the only way that success can be measured if and when targets are achieved.
Setting financial targets is the basic way in which to gauge whether a company is trading successfully or is in danger of becoming a failure. Financial planning doesn’t simply revolve around making sure the balance sheets add up and the profit and loss columns even out. Hitting established targets within certain timeframes is the only way that a business can grow and expand.
Planning ahead for how the business will grow is essential unless you are a sole trader with an established client base that keeps you occupied.
For an SME it is important to have a realistic overview that is neither too optimistic or negative, as this is the only way to plan and ensure that finances never become stretched too quickly.