Financial planning is a crucial part of growing one’s business. It involves setting personal financial goals, creating strategies to achieve them, and organizing a roadmap for managing a business. This involves learning and practicing strategies such as budgeting, investment planning, and cash management. Staying on top of these goals allows entrepreneurs to grow their businesses sustainably, ensure financial stability even during challenging times, and make better financial decisions to achieve their personal and professional goals.
Key financial strategies for small business owners
1. Setting financial goals
The first step to securing the business’ future is by setting clear financial goals. This gives the business direction and results in focused efforts to achieve set targets.
Use the SMART goal-setting technique to do so. “SMART” is an acronym for Specific, Measurable, Achievable, Relevant, and Time-bound goals. Let these goals serve as a roadmap for all important business decisions.
It’s also important to remember that goals can and do change as a business grows and evolves. When setting goals, consider short-term and long-term strategies and revisit them whenever necessary to align them with current circumstances.
2. Working with a detailed budget
While goals are important for setting business aspirations, entrepreneurs also need a more precise, practical budget to run their organization efficiently. Pay close attention to estimated costs, including salaries, operational expenses, marketing costs, loan payouts, etc., to create a detailed budget. Leave some extra room in the budget for any unexpected expenses that may arise during the term.
3. Expense tracking
In addition to setting a budget, entrepreneurs and small business owners must monitor their real-time expenses closely. This is known as expense tracking, and it helps owners stay aware of where money is coming from and going. Over time, this information can be used to make more strategic investments and cut costs to improve profits.
4. Creating an emergency fund
The economy is quite unpredictable. As a result, entrepreneurs may be hit by periods of uncertainty or financial instability when running a business. To keep their boats from sinking, business owners must create an emergency fund and contingency plan. This must be large enough to cover several months of operational costs to provide a safety net during challenging times, allowing businesses to survive.
5. Investing
Investing is essential for small business owners who want to compound wealth and maximize profits. It’s important to note that there are two aspects to this—one that focuses on personal investments for entrepreneurs and the other that looks at business investments. To avoid any confusion, these accounts must be kept separate from each other.
The ideal investment strategy for businesses and individuals depends largely on one’s current financial situation and risk appetite. Ideally, experts recommend investing in various options such as stocks, bonds, real estate, mutual funds, etc. This helps diversify one’s portfolio. Look for the right balance of low-, medium-, and high-risk investments that suit one’s financial needs and plans. The right investments can go a long way in helping small businesses build long-term financial stability and security.
6. Utilizing tax-saving strategies effectively
In a bid to motivate small and upcoming businesses, governments at the state and federal levels offer several benefits in the form of tax credits, rebates, and deductions. By properly planning their taxes, entrepreneurs can make use of these benefits to minimize their tax liabilities. That being said, it is essential to understand that to effectively use these benefits, entrepreneurs and small business owners must ensure that all their business-related expenses are properly accounted for.
7. Managing debt
The word “debt” may sound negatively charged, but it can be a smart way to grow a small business to the next level. That being said, owners must know how to manage this debt strategically. To begin with, they must start by understanding their debt, that is, learn about the interest rates, repayment terms, balance owed, etc. Then, the focus must shift to clearing off high-interest debt as soon as possible, as this would stop the snowball effect on interest payments.
Business owners must also be wary of accumulating too much debt, as this could crush the business. In times of financial uncertainty, it may be better to opt for debt reduction options, such as negotiating with creditors or consolidating various debts.
8. Seeking professional advice
Running a business is no small feat. Learning how to manage business finances effectively can be challenging for entrepreneurs. To make their job easier, business owners should consider enlisting the help of financial advisors and professionals. Look for a consultant who specializes in working with entrepreneurs to ensure they understand the challenges of running a small business. Finding the right advisors can help entrepreneurs better manage their personal and professional finances and make informed decisions in the future.
They may also be equipped to assist business owners in creating contingency plans for “worst-case scenarios.” While these unexpected circumstances are unpleasant to think about, preparing a plan can offer owners some peace of mind when navigating the challenges of running their companies. In the long run, this also helps entrepreneurs focus on what truly matters—innovating and growing their business so that it can scale new heights.
