Financial Planning Tips for Small Business Owners: Books, Budgets, and More Resources
Financial plans and risk management are essential for the survival of every small business. Whether you’re managing business assets, business taxes, or source of capital, financial planning for small business owners is imperative, helping you avoid the worst-case scenario of liquidation.
In this guide, we will include financial planning tips for small business owners, alongside resources like the best financial planning books for small business owners. We’ll also discuss how you can learn financial management or employ a financial advisor to evaluate your business expenses, cash flow projection, and financial risks to build a sustainable business.
Top 5 Financial Planning Tips for Small Business Owners
Below are the top five financial planning tips for small business owners. Employ these tips in your business plans to maintain optimal financial health and thrive in your business goals. You can also customize these tips to meet your current financial planning strategies.
1. Keep Track of Your Business Finances
The first financial planning tip requires you to be aware and updated on all aspects of your business finances. The financial success of any small business derives from the proper allocation of financial resources and cash flow management. Firstly, you should open a separate business bank account and invest in automated accounting software to keep track of business expenses.
It is vital to have a credible and updated financial record documenting your business income and expenses. This will help you manage your business loan, build a cash cushion, better predict your future earnings, and maintain good financial health.
2. Risk Management Plan
According to the COVID-19 Impact Survey by the National Small Business Association, 77 percent of small business survey participants reported a negative economic impact caused by the pandemic. Be it unforeseen circumstances such as the current pandemic, legal liabilities, or uncertain market conditions, there is a wide range of risk exposure factors that can cause businesses to fail.
To protect your business, you should conduct a strength, weakness, opportunity, and threat (SWOT) analysis and form a risk management plan that incorporates risk measurement, risk monitoring, risk identification, and risk mitigation factors.
3. Employ a Conservative Financing Approach in the Early Years
According to the Bureau of Labor Statistics’ Business Employment Dynamics data, only 36.6 percent of businesses that opened in March 2012 have survived till March 2021. This statistic is prevalent across several other annual opening data tables. Among several other risk factors, small businesses fail due to finance mismanagement and lack of capital.
To ensure the survival of your company in its initial years, it is crucial to employ a conservative financing approach. This means being vigilant about short-term expenditures and mitigating short-term capital risks. You can employ an aggressive financing approach once your business starts to yield higher revenues.
4. Business Succession Plan and Exit Strategy
Business failure or dissolution is a reality that requires extensive planning. As a small business owner, your business survival rate can often be slim. To safeguard your personal finances and business finances, it is essential to engage in business succession planning.
Whether it’s a planned retirement or an unexpected circumstance, having a competent successor to your role within the business will ensure a smooth transition without any operational glitches. A business exit strategy is also pivotal to avoid any negative consequences for your personal finances. Depending on the circumstances, you will need to prepare for liquidation, acquisition, or buyouts.
5. Hire a Financial Expert
Last but not least, managing a business and business finances can be a strenuous task and can lead to errors. Whether you are a small business owner with or without a finance background, adding a financial advisor to your team will increase your business’s chances of financial success. You can either hire a full-time finance manager or contract out for regular financial assessment.
5 Financial Mistakes to Avoid for Small Business Owners
Read below to find the top five financial mistakes to avoid for small business owners to ensure the longevity and survival of your small business. You can personalize the list below to match your business goals, financial plans, and business capital.
1. Not Taking Heed of the Current Business Financial Situation
Disregarding or mismanaging business finances is indisputably detrimental to the survival of a small business. Taking heed of incoming cash flow, the current capital, business funding, and operational costs is essential. You need to regularly update yourself on your capital-to-cash flow ratio for adept business financial planning.
2. Not Sticking to Your Budget
Documenting and sticking to a business budget is another pivotal factor that will help you get a clear picture of your business performance. It can be tempting to go over your budget to enhance business performance and returns. However, not sticking to your calculated budget can be a major risk for your business and personal finances. It can diminish savings, increase debt, and hinder your overall business growth.
3. Merging Business and Personal Finances
The drive to build your own business from scratch can be overpowering and force owners to invest all their personal capital and assets into the business. This is not a good idea, as the certainty of a business’s success is often extremely volatile and not having a personal financial security net is a great risk.
Try to seek out a trustworthy loan plan or an investment opportunity as your primary source of business funding. Although, adding your own capital into the business can still be a viable option if you have enough savings.
You will also need to avoid merging business and personal finances after the business has taken off to avoid financial mismanagement, like missing business deductions or tax and audit issues.
4. Banking Everything on a Positive Projected Cash Flow and Revenue
Harboring an optimistic attitude is important for business success but being realistic is even more crucial. Calculating cash flow and revenue projections help your business’s financial planning and are crucial for identifying any cash shortcomings.
Despite this, you should avoid making big purchases by banking on positive cash flow and revenue projections. These forecasts can be inaccurate, and making advance decisions can put you in financial turmoil.
5. Mismanaging Business Financials
The mismanagement of business financials can be a grave mistake made by business owners, leading to eventual business failure. Not allocating appropriate operational costs, not sticking to the budget, not maintaining an accurate record, and mispricing services are mistakes you need to avoid.
The consequences of mismanagement can be dire and lead to more debts, cash flow issues, personal financial risks, bad credit, and eventual failure. Be mindful of resources, time, budget, and operational constraints to avoid financial mismanagement.
How to Make a Small Business Owner’s Budget
In this section, we’ll explain how to make a small business owner’s budget. A financially efficient small business must take fixed, variable, and unexpected costs and revenue into account when forming a financial budget. Creating a budget also includes factoring in risk management, cash flow projections, profit-loss statements, and human and tech error elements.
Below is a small business owner sample budget you can use as a guide to draft your business’s financial budgets. This budget planning example is best suited for those who want to become an entrepreneur or are new business owners.
Small Business Owners Sample Budget
|Expense or Income||Amount|
|Total Monthly Income||+ 70,000|
|One-Time Security Rental Deposit||– 3,000|
|Monthly Rent||– 1,500|
|Monthly Internet, Phone, and Other Utilities and Bills||– 1,000|
|Monthly Debt Payments||– 4,000|
|Monthly Total Employee Payroll||– 37,500|
|Monthly Business Owner Salary||– 4,500|
|Yearly Legal and Professional Costs||– 3,000|
|One-Time Raw Materials||– 6,000|
|Monthly Maintenance||– 500|
|Monthly Insurance||– 250|
|Annual Marketing||– 2,000|
|Contingency Costs||– 2,000|
|Total Remaining||+ 4,750|
Financial Planning Resources for Small Business Owners
Having access to essential financial resources and learning financial management is necessary for a small business owner. A business requires you to have in-depth marketing, business, and financial skills for its success.
Below are the best courses, books, and software you can use to enhance your financial planning abilities. Choose the best resources to further aid your skills, depending on your professional and educational background.
Financial Classes for Small Business Owners
- Finance for Entrepreneurs and Small Businesses on Udemy. If you are new to the finance and business sector, then an introductory course covering the essentials of business finance is your starting point. This Udemy course teaches you financial statements, ratio analysis, asset valuation, budgeting, and forecasting.
- Fundamentals of Financial and Management Accounting on Coursera. This is another beginner class suited for non-finance business owners. It covers foundational accounting, financial reports, management accounting, and long-term financial decision-making.
- Budgeting Essentials and Development on Coursera. If you have a basic understanding of finance and accounting, then a budgeting course will help further your skills. This course covers budget strategy, corporate budgeting, budget development, financial model, budget control, and budget evolution.
- Fintech: Foundations, Payments, and Regulations on Coursera. Understanding Fintech applications is essential to navigating today’s tech-heavy financial and business sectors. This course will teach you the essentials of Fintech, payment methods, and financial regulations. Understanding these Fintech elements is crucial to a smooth business operation.
- Introduction to Negotiation: A Strategic Playbook for Becoming a Principled and Persuasive Negotiator on Coursera. Negotiation capabilities are a required skill for any business owner since these skills will help you facilitate profitable deals. If you have an intermediate finance understanding, then this negotiation course is for you. It covers negotiation cases and strategies.
Financial Planning Books for Small Business Owners
- Profit First by Mike Michalowicz. Profit First is an accounting and financial advice book that offers small business owners tips to bring more revenue and mitigate business expenses.
- Found Money by Steve Wilkinhoff. Found Money is another financial advice book that will help you increase your overall cash flow. The book offers guidance on how to find revenue opportunities using their business strategies.
- Financial Intelligence by Karen Berman, Joe Knight, and John Case. Financial Intelligence is an informative book that helps small business owners manage company performance and financial records. It helps non-finance professionals navigate through financial jargon and yield higher revenues.
- Best Budgeting for Your Finances: Your Money or Your Life by Vicki Robin and Joe Dominguez. Establishing a positive relationship with your business finances is vital for budget management. This book helps you achieve that. It covers debt management, savings investment, and financial management.
- Taxes for Small Businesses Quickstart Guide by ClydeBank Business. Filing taxes accurately can often be confusing, especially if you are a new small business owner. This book will teach you US tax guidelines, tax expenditure, and tax planning.
Financial Planning Software for Small Business Owners
- Vena. Vena is a business and financial planning SaaS platform that offers operational planning, budgeting planning, and financial planning features.
- Float Cash Flow Forecasting. If you are in search of a cash management and cash flow forecasting tool, this software is for you. It offers budgeting, projection, and management features.
- LivePlan. Pitching for business funding or creating a financial roadmap in person is more difficult due to remote offices. LivePlan helps you plan, manage, create, and pitch your financial plans live and seamlessly.
- Jedox. Investing in multifarious software is a smart decision for a small business. Jedox offers human resources, company performance, and budget management, along with financial planning features.
- Casual. Casual is an interactive financial modeling software that offers sensitivity analysis, budget management, cash flow projection, and accounting management features.
Meet Your Small Business Owners Financial Goals in 2022
This guide to financial planning is the first resource you should use to help you meet your small business owner’s financial goals in 2022. Master financial and accounting skills to make informed business decisions and watch your business thrive.
Financial Planning for Small Business Owners FAQ
Yes, financial planning is necessary for a small business owner to mitigate financial risks, avoid debt cycles, and efficiently manage a set budget.
Small business owners need to learn financial management and invest in financial software for a good financial planning process.
To properly plan for a small business’s finances, you need to regularly update financial records, conduct risk management, and stick to a strict budget.
Yes, small business owners should hire or contract a financial advisor to provide accurate financial planning, tax advice, and budget management advice.