Four Effective Financial Planning Tips for Small Business Owners
Entrepreneurship and creativity have been lifting up the American economy for years. So it’s no surprise that many people believe small and mid-size businesses are the core of the U.S. economy.
The Small Business Owner: Being Two Places at Once
If you ask a small business owner, they’ll likely say their personal and business lives are essentially inseparable; which is why having a financial plan in place is vital.
Small business owners understand the unique aspects and opportunities that come with running a small or mid-size business. And their financial plan should reflect that.
Most small business owners spend years gaining capital, investing time, and building up their businesses; and often times have their family fortune tied to the business. If this is the case for you, you have even more reason to make financial planning a priority.
Financial planning is the process of organizing both your personal and business finances so that you can achieve your goals.
Unfortunately, because small business owners are so busy being pulled in different directions, they often leave financial planning to the last minute—nearing retirement.
The time to establish a solid financial plan is NOW. Luckily, I have these tips you can follow:
Find a Balance
Establishing a balance between business and personal goals will be key.
You must set your short and long-term financial goals. Business goals like buying new property or expanding into a new market can interfere with personal goals like saving for retirement or your child’s college fund.
I often see business owners put off their accounting needs, but just because you push them off doesn’t mean they go away completely.
Luckily, small-business bookkeeping is actually quite simple. All you need to do is break things down into categories — organizing expenses, paying employees, and sending invoices.
It makes the whole situation much more manageable and drastically decreases the tendency to procrastinate.
Identify Your Seasonal Cash Flow
Knowing your sales cycles and which months will bring a serious spike in cash flow will help you better plan a cash cushion for those more difficult months.
If you’re a business-to-consumer retailer that sells $20 items, your sales cycle is likely fast enough that having a cash cushion is less essential.
On the other hand, if you’re a business-to-business company, your sales cycles last months, or even years.
For the B2B company, having extra capital in the bank can mean the difference between being able to withstand the long periods before revenue manifests and having to close shop early when your cash has run out.
A business’ success is dependent on the owner’s ability to secure financing. This may come from personal funds or selling property.
External financing may come from the owner’s community or even in the form of a bank loan.
You could even look to customers for support. If consumers love your product, chances are they’ll give an advanced payment, investment, or even exchange a product for a service. Keep your eyes open for different opportunities!
Finances are necessary to running any small business. Utilize these four tips to ensure an effective accounting practice in your business today!
If you need extra assistance planning a budget, talk with our expert tax advisors, specializing in small business owners.