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Why Budgeting and Planning is so Important for Businesses. Entrepreneur MBA Podcast 2.7

Summary: It is important that your company has clear financial plans and an understanding of your operating budget. Most businesses fail due to insufficient funds and poor money management. Raz Petric from Root Financial talks with Financing Solutions Stephen Halasnik about how you can get started budgeting and planning.

Today’s topic: Why Budgeting and Planning is so Important for Businesses

A common misconception for companies around the 2 to $5 million revenue mark is that they believe they are too small to hire a chief financial officer or a CFO. In reality, there are many financial business decisions that get overlooked because these businesses neglect the benefits of an expert coming in and helping. When business owners are so focused on growing the business, the last thing they really want to worry about is the financial and budgeting and planning for businessoperational part of their business.

If a business wants to grow, it must become more sophisticated and structured. The purpose of this podcast is to help businesses get over $10 million in revenue. When your business starts reaching 2, 3, or $5 million, you must have more sophistication when it comes to the financial end of your business.

As you start scaling, hiring more employees, and branching out in different revenue streams, you start losing full control of the business. Hiring a financial expert that can help guide you in the right direction will allow your business to get a better handle on the growth. Setting financial goals with a CFO will help you scale a lot quicker and smoother than trying to do it yourself.

Budgeting and Planning For Businesses

The number one reason Raz believes budgeting and planning are so important is that it allows business owners to know exactly what targets to hit and forecasting these targets, how to scale the business through budgeting, and overall creating key performance indicator‘s that will take the business to the next level. Budgeting and planning also make the decision-making process much easier. An example of this would be if you want to scale your business by marketing a new product. The benefits of budgeting would allow you to already know whether or not you have enough capital to invest in it. Due to your past trends of saving funds, you have already budgeted or allocated funding for this new product allowing your business to pursue its innovative business plan.

If you want to grow your business past $10 million in revenue, you must install more discipline in the organization for it to reach that goal. What usually ends up happening with businesses in the 2 to $5 million mark is a very high growth mode that spirals out of control. Due to the business’s push to grow to get the next million, the business quickly starts spending more money than they have and soon runs into financial issues. The impact of COVID-19 left businesses struggling because of their inability to cut back on anticipated expenses and being unprepared for a decline in consumer spending. In today’s world, it may be hard to get to $10 million in revenue, but setting your targets, planning, and budgeting will help you get there.

If you are still a small business who has not been able to plan, create a realistic budget, or hire a CFO, the best thing you can do is write everything down. List the new business that is coming up this month, what your salary is, what your fixed and variable expenses are, any capital expenditures, and how much inventory is needed. You must always have a very good understanding and record of what is happening in your business at the moment.

Raz Petric Working with Business Owners

Many of Raz Petric’s clients do not know where to start when considering their business budgeting and bookkeeping and become overwhelmed thinking about it. One major reason why business owners do not create financial plans is that it is simply not their expertise. The first thing Raz will do with a business owner is sit them down and get a good handle on what their business goals are for the future. Together they identify their 3-year, 5-year, and 10-year plan, and understand whether they will sell the business when it gets big enough or if they will keep it for its lifetime. Raz works with his clients to help them identify their goals and then break down the step-by-step road map of the actual results needed for the small business owners to reach their goals in a reasonable manner.

Raz asks his clients: “If you didn’t have to worry about money or you had a comfortable amount in the bank, what is your wish list for the next year?” This can include staffing, improving departments such as the marketing or accounting department, or filling in the missing pieces from your business’s development.

Many times, especially recently with the COVID-19 pandemic, business owners believe it is a good idea to establish a more efficient budgeting process. Many businesses missed the boat to prepare for such an unexpected event. However, these business owners now understand that if they want to survive the remainder of this recession, they should consider hiring a part-time CFO to get the business budget on track.

The entrepreneurs that Raz has worked with are very creative with their business ideas. They are very passionate about the products or services that they provide, and most importantly, they are fully invested in the business as a full-time job. These entrepreneurs do not focus on finances because it is not their expertise, and that is okay. Raz helps them understand their business on a deeper level leading them to financial success.

Once your business has hit the $10 million in revenue mark, this means you have exited out of the ‘small business’ stage of your business’s journey. At this point, your growth becomes a lot more serious. You are very heavily invested in your business success and it is not something that you could give up on. This is also the mark where other companies can become very serious about their interest in buying out your business.

The Importance of Your Business’s Finances & Planning

Many businesses are forced to shut down because they run out of cash. If these same businesses were able to recognize the red flags in their finances at the time of the occurrences, the business could have avoided shutting down operations due to their insufficient functionality.

Some businesses will try to crawl their way out by obtaining loans with really bad terms. However, there are alternative options if you recognize your business’s financial issues sooner than later. For example, an old client of Raz’s was about three months away from running out of cash. Raz was able to go in and see where the business was bleeding out cash and restructure the budgeting process to stop it. It was a simple fix to the CFO, but not to the business owner, allowing the business to stay afloat working to achieve its mission.

Some business owners take out a line of credit or loan to use it for growth opportunities while others take out loans to keep up with their previous loans. Those that take out multiple loans will have a very hard time getting out of that debt hole, so avoiding the situation in the first place is the best option. Understand your finances! If you do not know how to, hire someone who does.

Statement of Cash Flow Analysis

The statement of cash flows states where your cash is coming from, where it is going, and the difference in your cash balance from the beginning of a period to the end. You can get cash from three different sources: from loans with banks, outside investors, or the operations of the business, showing a healthy business with positive cash flow. Commonly, a company can look very profitable on the income statement. However, if the business does not collect any of the money that it invoices its customers, there can be a negative cash flow on the statement of cash flows.

Cash Basis and Accrual Basis Accounting

Banks, lenders, and outside investors do not want to see businesses with a cash basis, but rather an accrual basis. Working with just cash can fluctuate numbers from month to month while the accrual basis gives you a much more accurate understanding of your business’s margins. Banks, especially smaller ones, pay a lot of attention to detail, including the overall direction the business is going toward based on the cash basis information provided.

Your company may reach a point in revenue where you have passed a threshold, requiring you to convert your accounting basis. A company that has a cash basis must switch their accounting to an accrual basis. When you are converting transactions from cash to accrual, you have to adjust your historical earnings as if your transactions were on an accrual basis all along. This can get pretty messy, so hire a professional to help you out!

Taxes Payments

Commonly, business owners do not save for the great amount of taxes that they have to pay. To prepare, you should meet up with your tax accountant at least once a fiscal year, or every quarter if needed, to figure out what your estimated tax payments will be. Raz usually forecasts the amount his clients will have to pay for taxes using the business’s cash standpoint. The business owner’s awareness of their tax payment will allow them to establish a budget process to save money ahead of time and avoid issues. For struggling businesses, it is important to remember that just because you shut your business down, you still have a tax obligation that you need to pay at the end of the year.

Why Your Business Should Hire a CFO (full time or part-time)

As you grow your business, you should hire experts in the fields in which you struggle. Growing the business should be your number one focus, so leave your uncertainties to the professionals. There is nothing wrong with needing help. Many aspects that entrepreneurs need to consider include taxes, finances, and the different rules and regulations from those fields that can become overwhelming. Many business owners would rather ignore these aspects until the time comes to think about it, causing their business to deteriorate.

Knowing how to review your business’s statements allows the decision-making process to be lightning-fast. When you are unaware of your business’s financial position, requiring you to take risks, you are more likely to misinterpret whether your business can sustain that business decision. At this point, you second-guess yourself a lot, you have low confidence in your decision making, and you take on more risk because of your low knowledge of your business. Avoid this!! Understand your finances to make better business decisions!

The financial numbers do not lie. They tell you exactly what you need to know while representing your business’s future. For example, say your business is currently making $1 million and you create a detailed plan of getting to $5 million by next year. When the end of the year comes by and you only made $2 million, you should see this as a reality check. This is when you should ask yourself: Why didn’t I hit that goal? Where did I go wrong? Were my assumptions that I made way too large? The purpose of you writing down a goal in the first place is so that whether you end up attaining it or not, you can use that time for reflection about your business and its functionality.


  1. In today’s world with the Coronavirus and the recession, you should know your fixed costs and variable costs, as well as your inflows of income and outflows of cash. Put all of these transactions on a spreadsheet or a master budget and review it monthly. It will help your business stay on top.
  2. Pay attention to your income statement, balance sheet, and statement of cash flow. Either learn to understand these statements or hire someone to explain it to you. Hiring an expert to deal with your finances allows you, the business owner and entrepreneur, to focus on the rest of the business without the worry of your finances.
  3. Write down your business objectives and goals in terms of one, three, and five years from now. Have self-discipline that will make you want to work toward your goals. Reevaluate them if needed or break your goals into reasonable, attainable pieces. Don’t expect to hit them all at once.

About the Guest Raz Petric, Root Financial

At Root Financial we primarily provide fractional CFO services to startups in middle-market companies. In addition to that, we also provide a full suite of services for the back-office, finance, and accounting function of companies. A lot of the clients that we work with need a much more in-depth reporting, strategy, planning, and budgeting system which will be some of the things that we are gonna cover today.

Prior to starting Root Financial, I was an auditor for a few years and then transitioned to working with Fortune 500 companies. More recently before starting at Root Financial, I got involved in the start-up space. I realized that one of the biggest deficiencies is when companies are trying to scale, but do not have the right resources behind them, holding back their growth.

About The Host Stephen Halasnik, Financing Solutions

Stephen Halasnik is the host of the popular, The Entrepreneur MBA Podcast. The Entrepreneur MBA podcast’s purpose is to help small businesses get over the $10 million per year in revenue mark. Mr. Halasnik is the Co-founder and Managing Partner of Financing Solutions. Financing Solutions is a leading provider of Lines of Credit to small businesses and nonprofits

Mr. Halasnik is a graduate of Rutgers University and has an Executive Masters from the MIT Birthing of Giants Entrepreneurship program.Mr. Halasnik has started and built 6 companies over 25+ years with 2 of those businesses making the Inc 500/5000 fastest growing list. Mr. Halasnik is a best selling Amazon author on business and regularly tweets about his ideas about growing a business. You can also find Mr. Halasnik on youtube talking about Entrepreneurship.

Mr. Halasnik loves small business. He lives in New Jersey with his best friend, his wife Gina. Mr. Halasnik’s number one purpose is raising his two boys, Michael and Maxwell, to be good men.

About Financing Solutions

Financing Solutions, an A+ and 5 stars rated BBB company since 2002, is a direct lender that provides lines of credit to small businesses and nonprofits.

Financing Solutions small business financing product is a great alternative to a traditional bank line of credit because it costs nothing to set up, nothing until used, and when used, is inexpensive. The credit line requires no collateral and no personal guarantees.

Small businesses use their line of credit to help with emergencies or opportunities when cash flow is temporarily down (i.e. Payroll funding)

Please feel free to fill out the no-obligation, 2-minute business line of credit application here.The time to set up a credit line is when you don’t need it so that it is ready to be used, just in case.

Note: Financing Solutions donates 10% of its profits to various nonprofit charities


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