9 financial planning tips for small business owners

It can be both exhilarating and overwhelming to start a new business. It will be tempting to spend the majority of your time and energy on developing your services or products, finding great employees, and finding customers.

However, it’s important to also set aside time and capacity to take care of the financial health and stability of your business. After all, you won’t satisfy your customers or empower your employees if your business suddenly finds itself in a financial crisis due to, for example, a lack of financial planning ideas.

What is business financial planning?

Financial planning for small businesses is bigger than mere offhand cashflow tips; rather, it is a continuous process that requires regular nurturing by the business owner. It involves setting short-term and long-term business and financial goals and developing tactics to achieve them. Consider your funding options and do some strategic planning to better understand the financial barriers at each stage of your business growth.

How small business owners can benefit from financial planning

There are many similarities between small business planning and financial planning, such as creating a budget and having a risk management strategy based around business insurance*. Both also involve tax and investment strategies, as well as retirement and estate planning. That said, there are some differences.

Here are nine money management tips that you may benefit from integrating into your financial planning to help you achieve your business goals.

1. Separate your business goals from personal goals

If you blur the line between your personal and professional goals, it could lead to sacrificing one aspect of your finances in favor of another. You may want to add another product or service, but you also want to put money aside for a vacation with the family. Which is more important?

You’re building your business to earn money in order to achieve your financial goals, but if you fail to distinguish between your personal goals and business goals, you could end up compromising both.

As we will discuss, it’s not only about segregating your finances. Having separate accounts for personal use and business use can be an important financial planning idea, but you may also ask yourself these questions:

  • what are my current personal priorities?
  • what is my five-year and 10-year plan?
  • what is my immediate business priority?
  • How and when do I want to exit my business?

2. Consider your financing options

Bootstrapping is a common method of funding small businesses. This is when the owners’ personal funds are their only or main source of capital. Bootstrapping is a great way to grow your business organically and slowly while also ensuring its financial viability.

When bootstrapping, you’re not properly diversified. As such, you may be at risk of financial strife if you use credit cards or savings to fund your business. You can reduce some of these risks by seeking additional funding sources.

There are many other ways to raise capital. Outside sources such as business loans, customer presales, recurring sales, or offering equity in exchange for a product or service, can provide a steady inflow of capital.

3. Focus on liquidity

Your balance sheet may show that your business has a healthy financial standing, but this does not mean that your assets are liquid. It is important to have more assets than liabilities to ensure you can meet your short-term obligations.

Some small business owners may even form a “cash-committee” that will closely monitor daily metrics and provide a report on the liquidity status.

4. Cash flow is king

Perhaps the most important cashflow tip is to remember that cash flow (not cash) is king. This can be important when it comes to helping you meet your current financial obligations, such as paying employees or purchasing equipment or raw materials. It also allows you to build up a reserve that can be used for emergencies and investments. This is important because if cash flow is an issue, you will have difficulty growing your business.

A formal cash flow report will show you the amount of money that is coming in and going out of your business, which can help you to plan your business accordingly.

5. Tax planning

A key part of your business financial planning is developing strategic financial planning ideas, and that includes how you will manage your tax obligations. Tax planning for small businesses can be complex if you’re doing it yourself. Tax planning and preparation can be outsourced to a tax accountant or another financial professional. This will not only save you time, but it may also reduce your tax liability.

6. Business insurance and risk management

It is important for every small business owner to identify and mitigate risk, but this important business task can often get pushed towards the bottom of the priority list.

While it is difficult to eliminate every risk that may impact your business, you can narrow down the list by putting risk management strategies in place. These may include business insurance products, such as Business Insurance, Public Liability, and Professional Indemnity, and Cyber Liability.

7. Create an exit or succession plan

Financial goals for a small business owner invariably lead to a strategic succession plan or a way to neatly exit the business. These are two different scenarios. In succession planning, you hand over the reins to the new owner. An exit plan is when you sell or close the business.

  1. Exit Plan: You need to know the value of your business if you want to sell it. Even if you don’t plan to sell your business, it is smart to have an idea of its market value. You may look at recent sales of similar businesses to gauge how to price your business if you intend to sell it.
  2. Succession Plan: A succession plan is a way to transfer control of your business to one or several people. In this case you will need to decide if the business will be passed to an employee or a member of your family. Then, you can begin the transfer process. You may benefit from engaging a financial planner or a tax accountant in this process.

8. Plan your retirement

Everyone, whether they own a business or don’t, can benefit from planning for retirement. An experienced financial planner can help you create a retirement plan that suits your business and personal needs.

9. Create an estate plan

Developing a defined estate plan can help you to provide for loved ones, employees, and business partners who depend on your business. It can also minimise your tax liability and provide clear instructions regarding how your business should continue. Estate plans can also be crucial in the event of your incapacitation. An estate planning lawyer can help if this is something you wish to pursue.

Reduce your exposure to risk with BizCover and small business insurance

Whatever your financial goals for a small business are, small business insurance can help you reach your preferred conclusion, whether that’s exiting the business via a sale, passing it onto to your children, or mentoring the new owner.

Choose BizCover and enjoy business insurance simplified

Explore your business insurance options with BizCover today and discover just how fast, easy, and pain-free business insurance can be when you choose BizCover. Compare competitive business insurance quotes online or call us on 1300 920 868 and enjoy a better business insurance experience today.

*This information is general only and does not take into account your objectives, financial situation or needs. It should not be relied upon as advice. As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. © 2023 BizCover Pty Limited, all rights reserved. ABN 68 127 707 975; AFSL 501769.

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