By 360 Financial, Big Picture Planning and Wealth Management
Let’s be honest - as a business owner, you’re busy.
You probably don’t have time to sit around optimizing your investments or coming up with a comprehensive retirement plan. That’s where working with the right team comes into play.
While this post will give you a clear outline of steps that are important to take for your financial health, it’s not a substitute for professional one-on-one guidance.
If you’re searching for guidance on small business financial planning, you’re likely focused on how to build a strong financial foundation that supports both your personal and business goals.
In this post, we cover 14 financial planning tips for small business owners. However, if you’re looking for a financial advisor or planner, we recommend reading our post on fiduciary financial advisors HERE.
Table of Contents
Why a Financial Plan Is Important for Your Business
A financial plan is like a GPS for your business.
As a small business owner, having a financial plan helps you understand where you’re headed, how to avoid obstacles, and when to adjust course. Without a plan, your business might drift, making it harder to work towards your goals.
A financial plan sets measurable targets and provides clarity on your income, expenses, and growth potential. It also prepares you for unexpected events, like market shifts or emergencies.
By creating a plan, you’re giving your business the structure it needs to thrive.
What Is Small Business Financial Planning?
Small business financial planning is organizing your money to work smarter, not harder.
This process includes budgeting, managing debt, and planning for taxes. Financial planning also means tracking cash flow to ensure you have enough funds to cover expenses and invest in growth. Think of it as building a safety net while also laying the groundwork for expansion.
It’s not just about avoiding financial trouble—it’s about unlocking opportunities. Tools like accounting software can make this process easier and more effective.
Working with a financial advisor and accountant is also important when doing small business financial planning.
What Is Personal Financial Planning for a Business Owner?
Personal financial planning ties your business success to your personal goals.
As a business owner, your financial well-being is often connected to your business finances. Personal financial planning seeks to ensure you’re saving for retirement, covering your expenses, and building wealth outside of your business. This might involve diversifying investments, setting up a 401(k), or building an emergency fund.
(There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. )
The goal is to create financial stability for yourself and your family while keeping your business goals on track. Balancing both sides takes careful planning, but it’s essential for long-term security.
If you run a highly successful business and earn a high income, then wealth management may also be important to you. Consider business wealth management services if you’re a business owner or entrepreneur running a seven-figure business and earning high six figures.
Wealth management is beneficial for anyone with a highly complex financial situation.
Benefits of a Solid Financial Plan
A solid financial plan aims to give your business direction and stability.
It helps you make informed decisions about spending, saving, and investing. You’ll likely gain better control over cash flow, ensuring you can pay bills and cover unexpected expenses. Planning also helps you spot growth opportunities.
A financial plan reduces stress by preparing you for tax time and economic downturns. Plus, it can make securing loans or investors easier since lenders value businesses with clear strategies.
Ultimately, a financial plan keeps you focused on long-term success instead of short-term challenges.
14 Small Business Financial Planning Tips
1. Create a Clear Financial Plan
A detailed financial plan is your blueprint for success.
It outlines specific goals, budgets, and forecasts to guide your decisions. By knowing where you’re headed financially, you can allocate resources wisely and prepare for future opportunities or challenges, keeping your business on a stable and sustainable growth path.
2. Align Business and Personal Financial Goals
Your business and personal finances are deeply connected.
Aligning these goals seeks to ensure both areas thrive. For example, set savings targets that support retirement plans while reinvesting in your business. This harmony creates a foundation for long-term financial security in both your professional and personal life.
3. Manage Cash Flow Effectively
Cash flow is the lifeblood of your business.
Monitor cash flow regularly to stay ahead of expenses and avoid cash shortages. Use tools like cash flow statements and forecasts to identify trends. Proper cash flow management ensures you can meet obligations, seize growth opportunities, and handle emergencies.
4. Separate Personal and Business Finances
Keeping finances separate simplifies your life.
Use distinct bank accounts for personal and business transactions to avoid confusion and potential legal issues. This separation makes tracking expenses easier, simplifies tax preparation, and ensures your business is seen as a professional entity in the eyes of lenders and investors.
5. Plan for Taxes and Debt Management
Stay proactive with taxes and debt.
Set aside funds for taxes throughout the year to avoid surprises. Use tools or professionals to organize records. Manage debt by prioritizing high-interest loans and avoiding unnecessary borrowing. These habits keep liabilities in check and ensure your business remains financially strong.
It’s important to note that tax laws and regulations vary by region and jurisdiction.
To ensure you’re taking full advantage of available deductions, credits, and compliance requirements, it’s critical to consult a local tax professional or certified public accountant (CPA®) familiar with the tax rules in your area. This can help you avoid potential penalties and optimize your tax strategy.
6. Prepare for Retirement and Succession
Your future needs planning, too.
Set up retirement savings as soon as possible, like a SEP IRA or Solo 401(k). Think about succession planning to secure your business’s legacy. This aims to ensure your financial independence and the continuity of your business for employees or family members.
7. Stay Flexible and Adapt Your Plan
A good financial plan evolves with your business.
Regularly review your plan to adapt to new challenges and opportunities. Business conditions change, and staying flexible ensures you can pivot quickly. Update goals, budgets, and forecasts as needed to keep your business on the path to success.
8. Review Financial Goals Annually
Annual reviews keep your financial goals relevant.
Assess your progress each year and adjust your strategies to match current business realities. Align personal and business objectives, considering changes like market trends or new expenses. This habit ensures you stay focused and achieve meaningful growth.
9. Build an Emergency Fund for Your Business
An emergency fund protects your business from surprises.
Set aside three to six months of operating expenses to cover unexpected events like a slow season or equipment failure. This financial cushion can keep your business running smoothly and prevent setbacks during challenging times.
10. Invest in Insurance for Risk Management
Insurance safeguards your business against the unexpected.
Coverage like liability, property, or workers’ compensation protects against risks that could cause financial strain. It ensures you’re prepared for accidents, lawsuits, or damages, providing peace of mind and helping your business recover quickly if challenges arise.
11. Optimize Financial Statements and Record-Keeping
Accurate records are the backbone of financial success.
Maintain clear and organized financial statements to track income, expenses, and profitability. Proper record-keeping supports informed decision-making, ensures compliance with tax laws, and builds credibility with lenders and investors. It also simplifies audits and reduces stress during tax season.
12. Be Aware of Tax Deductions and Credits for Small Businesses
Tax benefits can save your business serious money.
Take advantage of deductions like office expenses, travel, and equipment purchases. Explore credits for hiring employees or going green. These can significantly reduce your tax bill and free up funds to invest back into your business’s growth.
13. Consider Exit Strategies
An exit strategy prepares you for the future.
Plan early for how you’ll leave your business, whether through a sale, merger or passing it to family. A well-thought-out strategy seeks to ensure you maximize the value of your business and secure financial stability for your next chapter.
14. Seek Professional Financial Advice
Professional guidance will likely save you time and money.
A financial advisor with small business expertise can provide personalized strategies and help avoid costly mistakes. They can assist with everything from tax planning to investment decisions as they work to help you and your business stay financially healthy.
It's critical that you have a personal financial plan as well as a plan for your business. Working with an advisor can help you stay on track as you move toward your long-term goals.
Common Questions
Why is it important for small business owners to work with a financial advisor?
A financial advisor provides experienced guidance to help you make informed decisions about budgeting, investments, and long-term planning.
They can identify opportunities, reduce risks, and ensure your business aligns with personal financial goals, giving you confidence and a clearer path to success.
How can small business owners choose the right financial advisor for their needs?
Look for an advisor with experience in small business financial planning.
Check their credentials, ask for references, and ensure they understand your industry. Choose someone who listens to your goals, communicates clearly, and offers transparent pricing for their services.
What is the most important marker of a business's financial health?
Cash flow is the best marker of financial health.
Consistent, positive cash flow ensures your business can pay expenses, handle emergencies, and invest in growth. Regularly tracking it helps you stay financially secure and avoid potential setbacks.
Who can help me with tax planning for my small business?
A certified public accountant (CPA) or tax advisor specializing in small businesses can assist with tax planning.
They can identify deductions, ensure compliance, and create strategies to minimize your tax liability while keeping your finances organized.
Can an accountant help me assess if my cash flow is healthy?
Yes, an accountant can review your cash flow statements to determine if your income is covering expenses and leaving room for growth.
They can also suggest ways to optimize cash flow by managing receivables, payables, and expenses effectively.
How often should I review my profit and loss statement?
You should review your profit and loss statement monthly.
Regular reviews help you track income and expenses, identify trends, and make adjustments to ensure profitability. Monthly monitoring keeps you informed and supports better decision-making.
What are some important tax benefits for business owners to know about?
Tax benefits include deductions for office expenses, employee wages, equipment purchases, and travel.
Tax credits for hiring, going green, or research and development can also reduce your tax bill. Knowing these helps free up funds for your business.
Is it important for business owners to have financial plans?
Yes, a financial plan is crucial for guiding your business toward success.
It helps you set goals, manage cash flow, and prepare for challenges. A solid plan provides direction, seeks to ensure resources are allocated wisely and supports long-term growth and stability.
How often should I review my business's cash flow statement?
You should review your cash flow statement monthly.
Regular reviews help you monitor income and expenses and identify potential shortfalls.
When to Work with a Financial Advisor for Your Business and Personal Finances
Consider working with a business financial advisor when managing finances feels overwhelming or when your business and personal goals intertwine.
Major life events like expanding operations or planning for retirement are key moments to seek help. An advisor can assist with tax strategies, investment planning, and aligning your personal and business financial objectives. They’re especially helpful during transitions, like selling your business or navigating economic changes.
Regular check-ins with an advisor ensure you have accountability and are working toward your most important financial goals.
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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.
