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Small Business Financial Planning: Guide and Best Tips to Follow

A financial plan for small business success is crucial to your eventual success. Coming up with one offers you two benefits. The first benefit is just getting a clear picture of the financial health of your current state of affairs. The second benefit is discovering things you can do to start growing your business or make it more efficient in how it operates. Are you having trouble with small business financial planning? You can get professional financial planning services for small business owners.

What Is Small Business Financial Planning?

Financial planning for small business owners is something your financial advisor can help you with whenever you deal with business finances. As a small business owner, you don't have the resources that a large corporation has available. It doesn't take much to break your business, so you need to make the most of every opportunity you have. Proper financial planning involves analyzing your current and future costs and income so you can ascertain your best possibilities in terms of courses of action to pursue. This will eventually touch on every aspect of your business.

Why Is Financial Planning Important for Your Small Business?

financial plan for small business

Financial planning small business owners need to work best when they have a small business financial advisor. As a small business owner, you need to know why financial planning is so important for your small business, and there are many benefits to it that you can tap into.

  1. Clearly Established Goals: This is the entire point of financial planning because everyone should know what your business is aiming to achieve right now and in the future.
  2. Common Sense About Cash Flow Management: The amount of money coming into your business and going out is crucial to your success, and you need to know what acceptable expense levels are.
  3. Intelligent Budget Allocation: You have to spend money to make money, but you also need to be wise about your burn rate each quarter in terms of specific budgets.
  4. Essential Cost Reductions: While you have to decide how much you can spend and what you spend it on, you also need to look ahead for potential savings you can adjust for down the road.
  5. Managing Risk: Two things you want to do include avoiding risk and navigating what you can't prevent. You can't see them all coming, but many are predictable.
  6. Managing Crisis: Any crisis is going to make you look back at your plans and rebuild them. That's easier to do when you have financial plans in the first place.
  7. Investor Fundraising: It can take time for any small business to start generating enough profit to go it alone, so until then, you need a steady stream of investment capital to grow and build your company.
  8. Mapping Out Your Future: Where do you want your business to go in the future? Your financial planning is a way to point things in that direction.
  9. Stakeholder Transparency: Communication is key with everyone from employees to investors, and having a financial plan helps you speak consistent language with them all.

How to Create a Financial Plan for a Small Business

What is a financial plan for a small business? It's a comprehensive financial plan that involves anything from tax planning to cash flow. There is a sequence of steps you can follow to create one on your own. However, you can also choose to hire a CPA or financial planner for this, too. They can work with you in creating a realistic plan that gives your small business the best chances of success now and moving into the future.

1. Create a Business Plan

Your personal finances should have a plan. Your small business should also have a plan of its own. Your financial advisors can look over your cash flow statement and other information to let you know what financial planning strategies might be the best routes for you to head down. You need to set specific goals and then choose business strategies that have a definitive impact on the direction you want to go. Your plan will guide you towards choices you make in every aspect of business, so it's important to recognize what's important to you and what's at stake.

2. Gather Financial Data

Get every piece of financial information you can about your small business. That will include bank statements, sales numbers, risk management assessments, payroll information, and inventory costs. Small business owners tend to get busy, so you might not have all your small business financial documents readily available. However, you should record all of this regularly and store it somewhere safe and convenient. At the very least, it will help you spot market trends affecting your business over time.

3. Prepare an Income Statement

financial planning for small business owners

A balance sheet is nice, but an income statement is possibly better when handling your small business financial plan. It needs to display profit, expenses, and revenue for a certain period of time. Many businesses do these yearly or quarterly, but a small business that has limited cash flow might find it beneficial to create statements for even shorter periods. If your retirement planning relies on your small business doing well over time, then you need to make sure the income turns into sustainable and growing revenue over many years.

4. Prepare a Balance Sheet

A balance sheet for small businesses won't cover a risk management plan or business partners, but it will reveal business assets, equity, and liability. List out all your small business assets and their current market values before outlining all liabilities and debts. Subtract the liabilities from the totality of your assets to determine the net worth of your small business. This is also known as the equity of the organization.

5. Prepare a Cash Flow Statement

Other business owners will tell you that just looking at business income is enough to determine your financial health, but many business owners also know better because they've learned that you need a cash flow statement that covers income and expenses. Income and revenue are always desirable, but expenses can drown them out. A healthy cash flow gives flexibility, the power to pay employees on time, and the funds you need to operate your business.

6. Project Your Future Earnings

While a healthy cash flow is crucial to a solid financial plan, your business plan should project what your earnings will be in the future. A solid financial plan will include an earnings forecast. Company performance in the past should be able to let you make predictions about your future earnings likely in a specific future period. If you need help growing your business, then check out what options the Small Business Administration might have available for you.

7 Financial Planning Tips for Small Businesses

financial planning small business

There's never any guarantee that your financial plan for your small business will happen exactly as you plan it. However, the more planning you do, the more influence and control you will have over your future direction and success. Whether you work with a financial planner or not, there are several different steps you can take to create a plan.

Tip #1. Separate Your Business and Personal Goals

If you feel like you need to keep your business alive because of your finances, then you might have a problem. Business goals only happen after sound financial decisions, and if your personal and business goals are mixed, then you're putting yourself in a tight spot. You might find yourself having to choose between saving for your kid's college education or adding a new product or service to your company's inventory. It might be impossible to completely separate personal and business goals, but you need to have some way to distinguish between the two before you wind up hurting both of them.

Tip #2. Set Attainable Goals and Strategies

A good financial planner will help a new business set realistic foundations for near-term planning. Many businesses fail because they don't pay enough attention to their operating expenses and don't keep up with them. However, once that is settled, it's time to remember your dreams again. Where do you want your business to be a year from now? Are there specific things or possibilities that you would like to invest in? The point of paying attention to your practical needs now is to find opportunities for growth and advancement in the future. Then, you can start setting goals that are attainable as parts of strategies that take your business in those directions.

Tip #3. Think of Your Funding Options

How much of your cash position and company's assets came out of your own pocket? Inventory costs happen a lot earlier than any net profit, so you might be like many other small business owners who self-fund, also known as bootstrapping.

If you put money back into your business, you can grow your business slowly and organically while finding a financially viable model for your business. Unfortunately, you won't have a diverse set of funding options. Offset some of your risks by looking for other places to generate capital.

Tip #4. Set Up Tax Planning

financial planning small business

Poor planning and not keeping your bank statements can make it hard to keep up with your business financial goals. You can't afford to be at all lax regarding tax planning. Outsourcing tax preparation and planning to a qualified CPA is a smart move. You'll free up your own time, and they'll have the expertise to possibly minimize your tax liability.

They will know the laws of the area your business exists and operates. They can provide you with various strategies that help you navigate complicated tax situations that keep you out of trouble. Some businesses aim for zero or negative net income to minimize tax payments, but that can result in serious issues when trying to fund investment in their businesses.

Tip #5. Consider Risk Management

Your financial plans should help you take advantage of tax benefits, but you'll also see fixed costs you have to pay every month or at other intervals. It can be tempting to save money by skimping on insurance coverage, but you need to always consider risk management.

Identifying and then mitigating risk is something any small business should do. However, it frequently falls down the list just because it's a massive undertaking to come up with a plan that deals with all possible risks and perils. In fact, it's impossible to address everything. Then again, there are safeguards and insurance that can be put into place. Cybersecurity to physical threats is all things that you need to consider at some point or another.

Tip #6. Refresh Your Financial Plan Upon Changes in Your Industry

One of the most costly mistakes you can make in any business is not keeping up with industry changes that happen. Things always change, and you never know when it might impact your net income or break-even point. The start of any new calendar year is when a lot of this might happen because that's when new rules, laws, and regulations set or passed in the previous year wind up going into effect.

Changes can be positive or negative in how they impact your business. The most complicated ones might wind up doing both at the same time. Keeping two lists is a good idea. One is the required changes you have no choice but to comply with. The other would be recommended improvements that you can benefit from when you have the time and resources to follow them.

Tip #7. Don’t Forget about an Exit Plan

Don’t Forget about an Exit Plan

Your potential exit plan can take two different routes, and you'll need to identify areas of opportunity for both. Your retirement plan might involve succession where someone else becomes the next business leader. However, your retirement plans might involve shutting down the business or selling it.

Either financial situation involves answering several questions. The most basic is whether or not you're ready to retire and when you would be willing to do so. If you do pass on to a successor, will you stick around as a mentor or advisor or wash your hands completely of the business? This is typically the case when you sell. In either case, you might need to ascertain your business value and what form of payment you would take for the sale of your market value.

Trust Your Financial Planning to a Certified Expert!

From a succession plan to dealing with interest rates and the capital required to start or keep a company going, many businesses require financial planning. You don't have to deal with all this on your own. Get professional help by hiring a certified public accountant (CPA) you can work with, just contact us.

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