Image via Unsplash
Financial planning doesn’t only matter for big corporations. Medium and small businesses also need comprehensive and fully-thought financial planning to grow and thrive in the crowded industry.
Small businesses risk running into cash flow problems without a clear financial roadmap. And you don’t want to experience this, as going back on track would be as challenging as starting your business from scratch.
We’ve rounded up six financial planning tips for small businesses to help you steer your business toward long-term success. From setting achievable goals to tracking every dollar spent, here’s the list for you!
Tips #1. Separate Business and Personal Finances
Mixing personal and business finances might seem harmless at first, but it can lead to a tangled mess of records. It’s harder for you to track expenses, manage budgets, and file taxes accurately.
What you should do first is open an account using your business name. Then, deposit your initial investment and pay all business-related expenses from this account. You should avoid dipping into business funds for personal use to maintain clarity and control.
A business bank account makes your operations appear more credible to clients, vendors, and potential investors. Moreover, you’ll have accurate records for claiming deductions and calculating taxes, which simplifies tracking and categorizing transactions.
Tips #2. Create a Detailed Budget
A well-thought-out budget is the foundation of smart financial planning. It shows you where your money is going and helps you make informed decisions about where to spend, save, and invest it.
Creating a detailed budget may take more time than you think. You can follow these steps:
- List your income sources, such as sales revenue, loans, or any additional funding sources.
- Identify fixed costs, including recurring expenses like rent, salaries, and utilities.
- Track variable costs. You can pen down marketing campaigns, supplies, or shipping fees, which fluctuate over time.
- Plan for unexpected expenses. Set aside a portion of your budget as a contingency fund.
A detailed budget helps you spot unnecessary expenses and allocate resources toward growth opportunities. Regularly analyze your budget to confirm it reflects current business conditions.
Tips #3. Monitor Cash Flow Regularly
Cash flow is the money flowing in and out of your operations. You must have a positive cash flow to pay bills, invest in growth, and weather downturns.
Consider reviewing cash flow weekly or bi-weekly to catch potential shortfalls early. You can invest in finance tools like QuickBooks, Xero, or Wave to help you with accounting. They’re convenient for automating recurring invoices, tracking expenses, and generating financial reports.
If you’re short on budget, Wave is an excellent choice as it’s a free option for basic accounting needs. However, choose software that fits your business size and needs, and take time to learn its features.
Tips #4. Build an Emergency Fund
Businesses are prone to unforeseen circumstances like equipment breakdowns, economic downturns, or even a sudden drop in sales can strain your business. An emergency fund is the safety net for your business.
Without a business savings account, you may struggle to cover basic expenses like rent or payroll. When such issues happen, they force you to rely on loans or cutbacks, which isn’t good for long-term success.
To build an emergency fund for your small business, you can use these steps:
- Begin small by setting aside a portion of your monthly profits (5–10%) of your earnings can accumulate over time.
- Aim to save three to six months’ worth of operating expenses to stay afloat during tough times.
- Use a dedicated account to keep your emergency fund separate from your regular business account.
Many businesses treat their emergency fund like a non-negotiable expense, which is a great strategy. Once you use it, prioritize replenishing it as soon as possible to give you peace of mind.
Tips #5. Plan for Taxes
Taxes can be a heavy financial burden if you don’t plan ahead. Many small businesses struggle during tax season because they fail to account for their annual tax obligations.
Proactive tax planning helps you avoid surprises and potentially reduces your tax liability. First and foremost, you must understand your tax obligations by researching the types of taxes your business is responsible for (income tax, sales tax, payroll taxes, etc.)
If you don’t want to be around the hassle, a financial consultant or tax advisor can help you maximize deductions and ensure compliance. They can help you identify tax-saving opportunities, like credits or deferred payment options.
For a more budget-friendly option, use accounting software to track your income and expenses year-round. Many tools can generate reports to simplify tax filing and ensure accuracy.
Tips #6. Set Clear Financial Goals
Without clear financial goals, your business is like a ship without a destination. Financial goals give you a sense of direction, and it’s always better to set specific, achievable goals.
For example, avoid vague goals like “increase sales.” Instead, aim for something measurable, like “grow revenue by 20% in the next fiscal year.” Clear financial goals can also guide the development of presentation videos, effectively showcasing your business’s financial plan or achievements to stakeholders.
Moreover, assign realistic deadlines to your goals. Divide larger and longer goals into smaller, actionable steps. Typically, short-term goals focus on monthly budgets, while long-term goals may involve scaling your business over several years.
Takeaway
A solid financial strategy helps your business manage money, avoid costly mistakes, and plan effectively for long-term growth. These best practices allow you to navigate challenges while seizing expansion opportunities.
In addition to the above strategies, regularly reviewing your financial performance and diversifying income streams can strengthen your business further. Reinvesting profits wisely into growth areas like technology, marketing, or staff development ensures your business stays competitive.