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10 Financial Planning Tips for Business Owners

Creating a stable future for you and your business

For many entrepreneurs, owning a business is a dream come true. It’s the culmination of years of work, tons of passion and the tenacity to push through the lean years. It’s truly something to be proud of – if there was ever a chance to sit down and reflect. 

But the life of an entrepreneur is a busy one, and there’s seldom time to sit back and feel that pride. There are employees to deal with, cash flow worries, and all the other details no one else sees that seem to add up so fast. 

If you let them, a business can become a time sink with greater pull than a black hole. This leaves many entrepreneurs so wrapped up making sure their business has a firm foundation for today, tomorrow, and beyond, that they forget to take care of their own financial foundation.

Don’t let today’s busyness lead to tomorrow’s regret

There’s always tomorrow. That’s what we tell ourselves when something comes up that we know we need to do but just can’t seem to find the time for today. Many business owners put off financial planning until tomorrow when they’ll have the time to deal with it properly. But the sad truth is, tomorrow is always a day away, so unless you commit to sitting down and planning out your own, personal financial future, you’re never going to get ahead of it. 

That leads to business owners either planning their, and their family’s, financial future off the cuff, or worse, never looking at it at all. That’s a sure recipe for regret. 

But by setting aside time and sticking to it, you can make the right decisions. To help you make those decisions, we’ve compiled ten tips to effectively manage your personal finances while running a business.

1. Keep control of your debt levels

In the beginning, a business will demand everything of you – from the hours of the day to the bills in your pocket. Personal financing may be the simplest way to supply your company with capital, but sacrificing everything to the business is not sustainable. Before you try emulating ‘The Giving Tree’, consider your, and your family’s future. 

2. Pay yourself

The easiest place to save is always in your own salary. After all, if you live at work you won’t need to rent, right? Not only does that give your business more money to survive, but it allows you to minimize personal payroll and income taxes. While that seems great at tax time, it makes it challenging to build your retirement savings (or savings for anything else) if you barely have enough to simply get by. And that will lead to regret down the line.

3. Make your own goals

You’ve already outlined your business plan for years, charting where it should be going and how long each step should take, but have you put any thought to your own, personal plans. Just like you did for your business, find out what you want to achieve in your life, and set a reasonable timeline. Talk to family members or other advisors to help you focus on you what you want, and avoid defaulting to thinking about the business. And remember, just like with your business plan, don’t set unachievable or unreasonable goals – they will just lead to disappointment.

4. Create a personal retirement plan

You and your business will not always be tied at the hip. Eventually, you will retire or otherwise move on from your business, and you need to have a plan to make the transition smooth. Keep an eye on your expenses, noting which will continue when you move on, and which will rise or lower, so you can calculate how much you need to have saved to retire, or move on to your next step, comfortably. Whether you make use of apps, spreadsheets, or a professional, having an exit strategy is critical to successfully leading your business.

5. Understand that your business equity is not retirement savings

Remember, your business is not a savings account. There are too many unknowns to rely solely on the equity in your business to fund your retirement. Automatic withdrawals from your account into a savings plan is the easiest way to save for your retirement, but with the highs and lows of owning a business sometimes that kind of stability isn’t possible. If ups and downs do tend to affect your savings efforts, try making a yearly or tri-yearly goal to make sure you don’t get blown off course. 

6. Diversify your assets

You have a plan, and you’ve started saving, but are you keeping tabs on where your savings are going. Make sure your plan is properly diversified and works within the amount of risk you are willing to bear. Once you have your plan and savings properly sorted, you can free up your time to focus on running your business.

7. Balance risk 

Starting a business is an exercise in balancing risk with reward, and oftentimes that scale can be heavy on the risk side. However, just because you can deal with risk doesn’t mean you should subject your family to it. Life insurance, buy-sell agreements, which dictate the buyout of a deceased partner, and disability insurance can help your loved ones make it through if the worst happens.

8. Don’t leave succession to chance

A strong business will continue to survive long after the person who founded it has moved on. Whether you’re planning to sell, or pass on your business, a proper succession plan will make it more valuable, and your transition out smoother.

9. Make sure to arrange your estate

It doesn’t matter how young you are, or how many years you expect to have left, all business owners should meet with an attorney and estate-planning specialist to ensure their goals and wishes, regarding their assets and their business, is properly planned for. Without a proper plan, business owners put both their business and their family at risk.

10. Engage the services of a trusted financial advisor

This may seem slightly self-serving, Financial Advisors as we are, but business owners have a lot on their plate, and things can so easily slip through the cracks. But, as with everything, Financial Advisors are not all created equal. Make sure to do your research and find a Financial Advisor that not only specializes in helping business owners, but also has a good reputation. 

Finding success through separation

You and your business are not the same, and it helps to keep your finances separate and well-managed for both. Though it may seem like a good plan at the time, going all in may end in erasing both your savings and yourself, leaving no one to lead should the business take off. 

For more tips on how to maintain your personal wealth as you create, and build your business, give us a call!