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9 Financial Planning & Personal Finance Tips for Small Business Owners

9 Financial Planning & Personal Finance Tips for Small Business Owners

October 21, 2022

As a small business owner, planning for the future of your business is important, but balancing that with personal financial planning goals is essential. Whatever you're looking towards in the future, these 9 financial planning tips for small business owners will ensure you're covering all of your bases and setting yourself up for success down the road – both personally and professionally.

1. Distinguish Between Personal and Business Goals

One of the best things you can do for your small business finances is to separate them from your personal ones. While your business may be a personal ambition, your business-related financial goals must be distinguished from your personal ones. As a business owner, it's essential to balance both sides of your finances, ensuring that decisions consider implications for your business and personal life in the ways they each need. Consider reinvesting money into your business, long-term personal goals, business growth, and your family. Each of these considerations plays a crucial role in how and why you use your finances as you do.

2. Explore Other Funding Options for Your Business

Funding means your business can benefit in many ways that don't require you to go without a paycheck. Getting financing for your business means you have the opportunity to grow with things like new equipment, expanded services, adding team members, and more. You can also use this funding to supplement your slower months if your business goes through busy seasons.

Before you decide to apply for a business loan or explore other funding options, it is recommended you seek assistance from a financial services professional like Pathway Financial to help you get your books in order.

3. Arrange an Estate Plan

The best way to prepare for the future is to create an estate plan that leaves zero room for guessing down the line. By creating a will and family trust, you can ensure that your personal and business assets are appropriately managed in the event of serious illness or death. This outlines your financial goals, how your family will be taken care of, and details what to do with your business assets.

4. Have a Strategic Tax Plan

As a small business owner, you should always consider your personal and business tax liability. By working with an accountant and financial planner, you can be proactive about lowering your taxes and writing off all relevant business expenses. An advisor can help you determine how to set up your business and tax things strategically. The right tax-advantaged strategies vary dramatically depending on your situation.

5. Planning for Risk Management

You should plan for risks and the unexpected in your personal and business life. This includes everything from insurance and investing to lawsuits, damage, injury, and more. Write out possible scenarios that could influence your personal and business lives. Then, how can you prepare accordingly for each situation?

Consider things like:

  • Natural disasters
  • Insurance needs
  • Property damage
  • Employee injuries

Think about each of these issues and ensure you have the right insurance policies and risk plans to preserve your business and care for you and your family.

6. Planning for Cash Flow

When a business starts, more than just start-up costs are needed to succeed. A small business must also have the cash flow available to care for things, including charges, invoices, employees, and day-to-day operations. While planning for these is crucial, as a business owner, you also don't want to sacrifice areas of your personal life to care for your business. Don't compromise on your family and personal goals to keep your business afloat. Instead, plan for cash flow and take a slow and steady approach to growing your company.

7. Establish Business Credit as Soon as Possible

Credit is essential for small businesses, and you must also ensure your personal credit is solid when applying for business lines. This means that personally, it's vital that you pay your bills on time and don't have excessive debt. So even when money is tight, prioritize always paying your bills on time – and more than the minimum amount if you can. As soon as you're able to, and in a good place with your personal finances, apply for a business line of credit to establish your company and provide room for growth through new funds.

8. Be Careful About Financing Your Business Personally

Many entrepreneurs finance their own businesses, and using savings, personal loans, or credit cards is often essential as you try to get your business off the ground. But ultimately, you want to avoid carrying personal liability and financial risk for business debts and overinvesting in things prematurely. Try to explore less risky funding options, like bringing in investing partners who put money into the business in exchange for a share of the profits. Additionally, consider incorporating or establishing your business as a Limited Liability Company (LLC), so you can take out loans in the business's name without incurring personal liability.

9. Diversify Your Assets but Consider Wisely

One additional tip we share with all small business owners to live by is to diversify your investments. Entrepreneurs tend to reinvest their personal capital in their business, but diversifying assets helps eliminate some of the risk with this approach. While investing in your business will help you grow, you shouldn't put all your personal assets towards one bet. You're giving yourself some breathing room by allocating funds into other types of businesses, a side business, alternative investments, or just putting aside cash in a savings account. If you need to close up shop for some reason, not all your personal assets will be tied up in a failed business.

Need additional help with your business finances and financial plans?

Pathway Financial is here to help. We specialize in helping small business owners navigate the complexities of financial planning and personal finance. Contact our team today to learn more about our services and support.