Financial planning for small business owners can be intimidating. Because of that, it’s tempting for some new entrepreneurs to “wing it” and run their company without a formal plan. But taking time to think ahead sets successful new businesses apart from their competitors—and a financial plan is the cornerstone of these efforts.
The good news is that this process can be simplified. Instead of tackling financial plan creation as one monolithic job, you can make this task more manageable by breaking it down into steps. Keep reading for the information you need to start your small business financial planning efforts.
Start Sooner Rather Than Later
Are you wondering about the best time to build a financial plan for your business? The answer to this question is simple: as soon as possible. By establishing a financial plan before formally going into business, you can:
- Make the most of your income. Most small businesses bring in a varying amount of money from one year to the next. Your financial plan can account for these highs and lows, allowing you to thrive even when you’re dealing with a temporary downturn.
- Prioritize your expenses. Let’s face it—some small business expenses are more crucial than others. A well-made financial plan will help you determine what you need to put resources into now and what can wait until later.
- Stick to your long-term goals. When dealing with the day-to-day routine of running a company, keeping the bigger picture in mind can be tricky. Adding long-term goals to your financial plan will help you consider them as you operate your business.
- Measure the consequences of your decisions. Any choice made by a small business owner can have a positive or negative effect. Carefully tracking your revenue as part of your financial plan will make the impact of your decisions clear—and help you make wise adjustments in the future.
If you’ve already been running your business for years without a proper financial plan, it’s not too late to get started. Implementing a financial plan right away can help you chart a course for your company’s future.
Plan for Expenses
As a small business owner, you have quite a few expenses to consider when creating your financial plan. Do your research and make sure you’re bringing in enough to cover costs like:
- Contractors and employees. After all, the people working for you deserve fair compensation for their efforts.
- Inventory. This expense goes beyond just the costs associated with keeping products in stock. It’s also wise to invest in a robust inventory management system.
- Storefront/warehouse space. Most businesses need some type of physical space to operate from, and that comes with a price tag. On top of your monthly rent, you’ll need to afford expenses like electricity, plumbing, and trash removal.
- A website. These days, your business will need a solid digital marketing strategy to stand out. As part of that, you’ll want to build a quality website.
- Other marketing costs. Depending on your business needs and target audience, you may want to invest in email/text marketing, a presence on social media, or “traditional” marketing platforms like TV and print.
Plan for Buffer
When you consider the expenses listed above, you’ll take an essential step toward ensuring your company’s success. But as any small business owner knows, it’s wise to expect the unexpected. While you can’t make a plan for every possibility, you can give yourself a leg up on these situations with a bit of forethought.
The best way to deal with unknown future expenses is to earn and save some extra money. That way, you’ll create a financial buffer that can make things easier for your company in the future. If possible, adding 20 percent to your first-year budget for unexpected costs is a good idea. By building this buffer, you’ll be in good shape no matter what happens.
Plan for Taxes
No one likes dealing with income taxes. Still, tax season can be a particularly unpleasant time of year if you handle all your own financial planning for small business purposes. If your small business operates under a DBA or LLC, you must withhold payroll income taxes. That can be a time-consuming process, but it’s worth it to avoid any unpleasant surprises the next time April 15 rolls around.
It may feel like income tax withholding is enough to deal with on its own. Even so, S corporations and C corporations are also required to pay other taxes. Are you responsible for a company that falls into one of these categories? If you are, plan to withhold these taxes, too.
Plan for Paying Yourself
Even after you’ve completed all the previous steps, there’s still one person left to pay—the person who’s invested more time and money than anyone else toward getting your company off the ground. Of course, we’re talking about you.
It’s all too common for small business owners to focus so heavily on their company’s success that they have trouble paying themselves. To avoid this, figure out how much you need to earn to cover your own expenses. When you’ve found this number, make it part of your overall financial plan.
Want Some Help With Your Financial Plan?
As an entrepreneur, there’s a good chance you’re used to doing everything by yourself. While this mindset can be helpful, there are some tasks you’ll definitely want assistance with—and financial planning for small business purposes is one of them.
At Janney, the Laurel Highlands Wealth Advisory Group specializes in helping small business owners prepare for their financial futures. Do you have any questions regarding your financial plan? If that’s the case, our Financial Advisors will happily answer them and give you the advice you need to succeed. Get in touch today, and we’ll set up a time to chat with you!
