Financial Advice for Business Owners: Strategic Tips for Small Business Owners & Entrepreneurs
- Troné Fossum
- Jul 10, 2024
- 6 min read
Updated: Jan 29
Running a successful small business is a significant achievement.
However, the more successful your business, the greater the challenges and complexity.
Business owners doing $1M or more in gross revenue per year face financial challenges and opportunities that require strategic management and forward-thinking. This post will cover essential financial advice that may help business owners navigate these complexities and work towards long-term financial success.
However, this post is not a substitute for working with a business financial advisor or advisory firm specializing in wealth management for business owners.
If you’re a business owner who needs help with your financial planning, retirement planning, or exit planning, we recommend that you get in touch with a fiduciary financial advisor.
10 Money Tips for Business Owners
1. Create a Realistic Budget for Your Business and Life
Creating a budget is essential to prevent your business from accumulating unnecessary debt.
Having a budget helps you differentiate essential expenses from non-essential ones. A well-planned budget can guide your spending, ensuring that you allocate resources efficiently.
It's just as important to have a budget for your personal finances as it is to have one for your business. The stronger your personal financial plan, the more comfortable you're likely to feel when running your business and taking well-calculated risks.
2. Save Money for the Future
Prepare for seasonal fluctuations or market downturns by building an emergency fund for your business and personal expenses.
This fund can provide peace of mind and ensure your business can handle unexpected challenges without compromising stability.
You will inevitably face financial setbacks. Being prepared enables you to navigate these challenges without jeopardizing your business's future.
3. Reinvest in the Business
When your business experiences growth and increased profit, celebrate these successes.
However, maintain focus on your long-term objectives. Reinvest capital back into the company to sustain growth.
Consider using profits to hire the right people, invest in marketing, or explore new technologies. This approach helps your business continue its growth trajectory. Consider performing cost-benefit analyses before making significant investments to ensure they align with long-term goals.
4. Don’t Ignore Your Personal Finances
Running a business requires dedication. And it’s easy to overlook one’s personal finances.
Many business owners neglect their retirement savings and don’t invest regularly. But it’s important to establish and regularly contribute to retirement accounts such as a SEP IRA, SIMPLE IRA, or Solo 401(k).
While most of your wealth may be tied up in your business, it's still wise to diversify and have a retirement and financial plan that goes beyond selling your business.
5. Seek Professional Guidance from an Experienced Team
Many successful entrepreneurs feel they lack financial or accounting knowledge, so they often put off doing their financial planning and investing. (+)
Consider seeking the guidance of a fiduciary financial advisor who offers comprehensive services. Having a specialist on your side may help you to make informed decisions based on data and best practices rather than emotions.
A team that practices holistic wealth management will assist you with your tax planning, estate planning, financial planning, and retirement planning.
In addition, we recommend seeking the guidance of a fiduciary financial advisor, as they have a legal obligation to provide you with the best possible advice. Some advisors are only guided by a "suitability standard," which is different from a fiduciary duty.
For more on this topic, read our article about fiduciary financial advisors HERE >
6. Implement Efficient Financial Reporting
While you most likely have an accounting firm or in-house accountant taking care of your books.
It's still wise to stay on top of what's coming in and going out. Consider conducting monthly and quarterly financial reviews to monitor performance and make strategic decisions.
7. Aim to Optimize Your Tax Planning
Work with a tax advisor to maximize deductions relevant to your industry.
Explore credits for research and development, energy efficiency, and other applicable areas to reduce your tax burden. Implement quarterly tax reviews to avoid year-end surprises. Utilize tax-advantaged accounts and investment vehicles to optimize your tax situation and improve cash flow.
In addition, make sure that your financial advisor is helping you with your personal tax planning each year with the aim of minimizing your tax burden and saving more money. Nobody wants to overpay their taxes, and having a professional help you with this may make a big difference.
8. Manage Personal and Business Debt Wisely
Understand the terms and conditions of different financing options.
Use debt strategically to leverage growth opportunities without overextending your financial capacity.
Prioritize high-interest debt for early repayment and consider refinancing options to reduce interest rates and improve terms. This approach helps manage cash flow and reduces financial stress.
9. Protect Your Business with Insurance
Assess the necessity of various insurance policies, including liability, property, and business interruption insurance.
Regularly review and update policies to match your current business needs.
In addition to insurance, Implement risk management processes to identify and mitigate potential threats. Develop a crisis management plan to handle unexpected disruptions and ensure business continuity.
10. Consider the Strategic Use of Business Loans
While many entrepreneurs use loans to expand their businesses, it's crucial to avoid taking on debt without a clear plan.
Use loans strategically and focus on long-term investments like upgrading technology. It's never wise to be over-leveraged.
Common Questions Business Owners Have about Personal and Business Financial Planning
1. How can small businesses improve their financial health?
Small businesses can improve their financial health by regularly reviewing financial statements and ensuring accurate record-keeping.
These regular reviews help identify areas where business owners can cut costs and improve profitability. Additionally, focusing on business financial planning can aid in setting long-term goals and creating a roadmap to move toward achieving them.
2. What resources does the Small Business Administration offer for small business owners?
The Small Business Administration (SBA) offers a variety of resources for small business owners, including loans, grants, and advisory services.
They also provide educational materials on topics such as cash flow problems and strategies for improving financial management.
3. Are there specific tax benefits and credits available for small businesses?
Yes, there are numerous tax benefits available for small businesses.
These can include deductions for business expenses, credits for hiring employees, and benefits for investing in renewable energy. It’s essential to consult with a tax advisor to ensure you're taking full advantage of these benefits.
4. Why is business financial planning crucial for long-term success?
Financial planning is crucial for long-term success because it helps businesses set realistic goals, allocate resources efficiently, and prepare for future challenges.
It ensures that all financial aspects of the business are aligned with its overall objectives, providing a clear path towards growth and stability.
5. Do small businesses need workers compensation insurance?
Small businesses typically need workers compensation insurance to cover medical expenses and lost wages for employees who get injured on the job.
Worker's compensation insurance is a legal requirement in most states and protects businesses from potential lawsuits related to workplace injuries.
6. How can business owners align their personal financial goals with business objectives?
Business owners can align their personal financial goals with their business objectives by creating a comprehensive financial plan that integrates both personal and business finances.
This includes setting aside savings for personal needs while also investing in the growth of the business. Consulting with a fiduciary financial advisor can help in balancing these goals effectively.
These questions address common concerns among business owners and highlight important aspects of managing personal and business finances.
Final Thoughts
Managing personal and business finances effectively is crucial for sustained success as a business owner.
By implementing these strategic tips, you can navigate financial challenges, capitalize on opportunities, and secure a prosperous future for yourself and your business. Remember, partnering with financial experts and regularly reviewing your financial plans will provide the guidance and insights needed to thrive in today's competitive landscape.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
