8 Financial Planning Tips for Small Business Owners

8 Financial Planning Tips for Small Business Owners Created By : Esperanza Brindle

If you own a business, you know about risk and opportunity. Compared to many people, you’re willing to take mo re personal and financial risk in order to gain more personal and financial opportunity. It’s a trade-off that can be highly rewarding. However, even with a successful business, there’s a good chance that you will experience a lifestyle decline at so me point in the future. It’s most likely to happen when it’s time to pay for the kids’ university education, when yo u hit retirement, or because of something unexpected, such as an accident or illness. It takes financial planning to protect yourself from this risk, but good planning has traditionally been reserved for the wealthiest of the wealthy.

Distinguish Between Personal and Business Goals It’s important for small business owners to identify their short and long-term financial goals. However, the lines between these objectives can get blurred, and individuals may compromise planning for their children’s education or retirement in favor of expanding their business.

Explore Other Funding Options for Your Business The most difficult hurdle for many small businesses is securing funding, and entrepreneurs often turn to their savings, credit cards, or friends and family for start-up capital. Financial advisors also urge owners to look for outside sources, such as a loan or offering equity in exchange for a good or service. Another often overlooked way to finance a small business is through customer pre-sales or subscription services.

Generate Revenue That’s Greater Than Costs A small business may not be financially viable because it’s unable to generate enough revenue to cover expenses. In addition to making a company more profitable, it’s also essential that owners carefully track and analyze all of their costs.

Focus on Liquidity While a company can have a great deal of resources on paper, it may not be very liquid. Improving cash flow helps businesses grow, pay their employees, attract investors, and have available funds in case of an emergency.

Manage Small Business Taxes The tax requirements for a small business depend on the company’s legal structure . Experts recommend that small business owners utilize a bookkeeping software and consult with a CPA or tax attorney to better understand their federal and state tax obligations.

Planning for Retirement To better align business and personal financial planning, advisors suggest a company retirement plan. A 401(k) plan allows for the highest contribution, and company matching is an excellent way to maintain employee loyalty.

Arrange an Estate Plan Creating a will and family trust will ensure that an individual’s personal and business assets are properly managed in the event of his or her death.

Establish a Business Succession Plan If a business owner must leave his or her position within the company, a business succession plan will enable a smooth transition in leadership and address many tax and financial matters.

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