Early in my career I had a quote on my cupboard that said, “Never live beyond your means, unless you need to borrow the money to do so.” It gave me a little chuckle because clearly this is not a smart way to live - personally or in business.

For some, the idea of preparing a budget and sticking to it can be a headache. Creating plans of any kind often takes a back seat for business owners who are anxious to get their wares to market. Yet, lack of planning catches up to you sooner or later and is an even bigger headache to fix. Financial planning is no different.

What is financial planning? First of all, it is a process that involves gathering all of your existing financial data, projecting new expenses, developing written goals for your business, making lists of all your potential resources then analyzing that data against your goal(s). The next step is to develop and implement your plan. Contact your financial advisor and/or CPA for this piece and other tax and financial planning. From there, it's a matter of monitoring your plan regularly to make sure you are on target to hit your goals, or adjusting it to meet the changing needs of your business.

Various documents help in the analysis and planning, including a cash flow statement, cash reserves, projection statement, break-even analysis, balance sheet, and profit and loss (P & L) statement. Your business may require additional specific documents, so be sure to check with a financial expert.

For example, the cash flow statement identifies the sources and uses of cash generated from business operations. The statement should include monthly projections for the following year and be updated to reflect actual performance. If your company has been in business for some time, you can use past and current figures to generate predictions. If you are just starting your business, you will have to project all of your financial needs. Regardless, your cash flow statement should identify two things: (1) when and how much cash will be received, and (2) when and how much cash will be disbursed to pay expenses.

The profit and loss (P&L) statement, or income statement, tracks all of a company's revenues and expenses within a given period. If you use accounting software this report can be printed in a few clicks. The P&L is a quick view into the financial health of your company.

Keeping accurate financial records from the initial planning stage and throughout the life of your business is critical to making informed decisions. With these facts at your fingertips, the feasibility of hiring employees, expanding into additional space etc. becomes clearer. In addition, proper documentation might help you procure additional capital for expansion, avoid IRS issues, and get the most out of your business when it comes time to sell.

If you want to learn more, sign up for the Jan. 21, 8 a.m. to noon Financial Planning workshop and meet Bryant Arnold who will share his insights. Call 360-394-2725 to register. Just $59!

(Editor's Note: Wendy Miles, Director of Customized Training and Military Education at Olympic College, oversees the operation of the Kitsap Business Assistance Center (KBAC). Bryant Arnold, Financial Advisor for Waddell & Reed Inc. in Silverdale also contributed to this article. For partnership opportunities, contact Miles at 360-475-7786. For business counseling needs call the KBAC at 360-307-4220.).