Beginning a small business can be overwhelming and exhilarating. It is tempting to devote the share of time and effort to developing your product or service, recruiting the right people and finding clients. But it is important to carve out some time to tend to the financial health of the company. Remember that you cannot fulfill your customers’ needs or empower employees if you find yourself in a liquidity crisis suddenly.
While several aspects of small business financial planning are same as handling personal finances — think creating a risk management, budget, tax and investment strategies and estate planning and retirement— there are some significant differences.
Joseph Stone Capital talks about the reasons why financial planning is essential for small business owners:
- If small business owners do not have a financial plan, their long and short term financial objectives can get hazy between business and personal objectives. Having a plan can help to make sure significant personal targets like family finances or retirement planning would not fall by the wayside.
- A small business owner needs to plan and manage for a lot more risks than an individual. These comprise disability or death of someone central to the business’ illness, success, lawsuits, property ownership loss (personal and business), and interruption of the business because of outside factors. This necessitates specialized insurance protection to include the business, and coverage for workers’ compensation for all employees.
- A common business mistake is to put too much focus on daily problems or issues, neglecting forward planning and long term growth. A financial plan assists business owners pay attention on the future by making clear what expenses are needed to keep the company developing and enhancing its performance.
- With several decisions taken regularly, business owners can struggle to see which choices worked for the company’s financial success and which did not. If your financial plan comprises sales records and quantifiable targets, you can find out which individual products and which initiatives are more profitable, and adjust your marketing strategy appropriately. You can also determine, for instance, if an increased marketing budget resulted in an augment in sales.
- Financial planning is helpful when you need to submit your tax returns or if you sell the company. You can find out if you are paying too much tax, or if you must increase superannuation contributions. If you increase your annual contribution you can save in payable tax and enhance your retirement plan.
- It is vital for small businesses to preserve their finances by prioritizing significant expenses and identifying those that are less significant. The financial plan is a basic exercise for a small business owner to think about spending priorities. In fact, even large organizations have a prioritization system which totals a cost/benefit analysis for each possible expense. A common mistake for small businesses to make is underestimate the amount required for regular business operations.
This is why Joseph Stone Capital believes that financial plans are vital to the success of small businesses. This is not an area to cut corners, and it can be advantageous to seek professional advice to ensure your business has every chance of success.