In this era of inflation, many people are ditching the thought of working 9 to 5 to start their own business. Did you know almost 400 million small businesses are running worldwide, and more are ready for launch? A comprehensive financial plan is mandatory for success if you plan to create your own.
What is meant by comprehensive financial Planning?
Comprehensive financial planning is following a methodical process to come up with a detailed plan for every financial aspect of your business to help maintain control of financial situation and challenges and achieve both short-term and long-term goals.
You can do your own financial planning, using the tips we will give below or you can hire services of a financial advisor. Regardless of which option you chose, and how much money you have to manage, comprehensive financial planning is much desired.
Comprehensive financial planning addresses all areas of your business and your life in case of personal financial planning because of the holistic approach it revolves around.
One of the biggest plus of having this big-picture financial plan with you is that it keeps the clear picture of your finances, challenges and risks very clear to you. This will protect you against undue anxiety, stress and uncertainty.
Today, we will talk about the most important financial planning tips that help you start a small business that enables you to improve your business position and handle money better.
Financial Planning Tips for Small Businesses
These tips will help you keep your business running and also set parameters for long-term success. Let’s begin.
Take Inventory of Your Situation
The first and perhaps most important step towards creating a comprehensive financial plan is taking stock of your present situation and understand where you are at this time. This will be the foundation on which your holistic plan will be based on.
Have a clear picture of your assets and cash flows. Coming up with a balance sheet and cash flow statement will give you a solid picture of your financial situation. It is also vital that you have a crisp and detailed picture of your debt and liabilities. You can then calculate your net worth by subtracting your liabilities from your assets.
Keep Your Business and Personal Goals Apart
A lot of people who fail in their business ventures report the inability to keep their personal and private endeavors apart. What should you do with the money that comes from sales? Buy new inventory? Or spend it on something like a television?
Since you are building a business, the best practice is to focus on what the company needs and have a clear financial plan. Put a more significant portion of your sales towards restocking or any business–related emergencies. After splitting money for business, keep some funds for personal and family use.
Apart from money, separate your business and personal account, transaction cards, and tax statements for better clarity. It also helps keep your business and personal goals apart.
Find Out Who Can Fund Your Business
Unlike large corporations, SMEs have minimal funding options. In most cases, personal funding is the only option for most people, or you may ask your loved ones and acquaintances for a quick loan. This term is known as bootstrapping. Small businesses can slowly gain an organic base by injecting funds in the right direction.
While your loved ones can compromise on interest and return date, there might not be a lot of options. Some people also feel shy to ask others. The best way to counter your business-related expenses is to have a good amount of savings. As you grow, more people will feel confident in helping add money to the business. Make sure to send them reports and statements, so they know where the money is being spent.
If you have an excellent financial and tax record, getting a loan for a small business becomes more effortless. They just need a bit more assurance regarding success and growth.
Maintain Adequate Liquidity
Have you ever seen businesses that show a reasonable amount of assets but cannot survive in the long run? The simple answer to this is low liquidity. In an ideal situation, you need more assets than liabilities to counter any unexpected mishap or emergency.
However, as part of financial planning process, make sure that the assets can easily be converted into cash. For instance, cash is the most liquid item as it’s readily available and easy to use. Similarly, things like cheques and mature bonds are also liquid. On the flip side, something like properties and vehicles that take time to convert into cash is less liquid.
Always ensure that your business has adequate cash flow and funds ready to counter any kind of emergency. This takes us back to the second point having savings to fund your business.
Manage and Pay Taxes On Time
The rules might differ based on the country you live in, but it is inevitable for small businesses to avoid taxes. As a growing owner, you must present your taxes and company statements professionally updated and organized manner.
Doing the taxes yourself can be a bit hard, especially for businesses with no experience in account management. You can hire a taxation expert to plan your annual taxes and help reduce your liabilities.
Now, your business does not need a full-time tax professional onboard. You can seek services when needed and pay them for the time they put in for your tax planning. We recommend keeping one person who knows about your financial condition and business inside out rather than choosing someone new every session.
Understand the Risks Your Business Might Encounter
It is usual for small businesses to skip things like risk management. Unfortunately, this ‘we will see when it happens’ approach is not helpful. You need to identify and mitigate the potential risks and create a strategy to counter them.
Now that we think, it can be quite a hefty task and a bit challenging to address every other risk with a solution. But you can pen down the most common risks associated with your small business.
For instance, in a baking business, some major risk factors could be:
- Damage to equipment
- Lack of ingredients in case of bulk orders
- The phone not working to take orders
All these risks are genuine concerns for someone who just started an online baking business. If we look closer, there is a solution to every potential issue:
- Damage to equipment: Keep the warranty cards and contact numbers in a safe place and ask for routine checkups every month or two months.
- Lack of ingredients in case of bulk orders: Always keep a separate stash to counter a large volume of orders. Mention your daily order limit on social media and plan accordingly.
- Phone not working: Install a second line, inform current customers, and open social media DMs for orders. Contact the company to fix it.
Always give yourself and the employees enough compensation to keep them motivated and manage risks. Make sure to enter a business in which you have some kind of experience to counter the threats. Also, you need to keep an emergency stash in case of disasters and emergencies.
Plan When to Close or Sell the Business
This is the last option for many people to sell the little empire they worked so hard on. However, we live in the real world, and you need to have this in your financial plan. When deciding to sell or close the business, consider our future plans.
Are you old and want to retire? Do you have anyone in the family who can take it over as you leave? Are there any potential buyers who might be interested?
If you wish to exit the business by selling it, find someone willing to pay and compensate you a fair price. Check out what similar companies have been recently sold and at what cost. Hire a broker to determine the value, and they will give you a fair price. For clarity, everything should be in a written contract with terms from both ends.
Owners who wish to pass on their company to someone in the family or office should train them and motivate them to maintain their quality standards. You can also sign a contract to receive a percentage of profits every interval.
Key Takeaways
People are starting their own small businesses to boost income. It is essential to implement a worthwhile financial plan to give yourself a successful start. Finance management, prioritizing business needs, and maintaining liquidity are critical to keeping things functional.
Also, as an owner, you need to have the right contractual and profit plan in case of leaving the business. We hope these simple tips will help you start a business with maximum transparency.