Whether you are a small business owner or inspiring entrepreneur, it is vital to have a financial plan for your business. Simply put, a financial plan is a plan of action for your finances. It’s a strategy that helps business owners achieve their goals.
Looking at the overall health of the business, a strong financial plan will take into account the budget, investments, future goals (such as retirement), and preferred profit that will help business owners forge a pathway to not only financial security for their business but for their personal finances as well.
There are three main reasons that every entrepreneur or small business owner should have a well laid out financial business plan: organization, risk, and confidence.
Organization is Key
When just starting out, a small business owner will choose what type of company to establish: a sole proprietorship, LLC, or partnership. Creating a well-established, transparent, and separate form of business and personal finances will keep the financial waters from becoming too muddy. From the beginning, it is wise to be able to see how well the business is doing versus how the personal finances are faring. When the two become mixed, it can spell a recipe for financial disaster for both the business and a person’s finances.
Risk Mitigation is Non-Negotiable
Leaving a secure paying job and diving head first into a business is definitely taking on risk. To mitigate that risk and bring a sense of security is to have a plan in place for using savings. For example, a person who has saved up enough money to pay the bills for nine months can create a plan that states that if in nine months there is not enough profit taken in to pay themselves a salary that will cover the bills will have to go back to a more secure way of making money.
Please don’t confuse this with giving up on your dreams. It’s just the opposite. By crunching the numbers, having savings in place, and having a “Plan B” in place from the beginning, if the business does not do as expected at the beginning, it allows you to regroup, rethink, and reform the business, so that on the next go-around, you will have even more stability to make your dreams work.
Confidence Keeps You Going
It’s hard to make important decisions when fear drives a business owner to make poor short-term business decisions that can adversely affect the long-term goals of their business. Having a plan in place provides a sense of comfort and allows for the best decisions to be made for the long-term.
Having financial allies, such as an accountant and attorney, to help tackle and understand the best moves to make for the business definitely boosts confidence. In addition, having a good understanding of the personal finances in addition to the business-related finances is a perfect first step to running a successful business for now and the future.