With a financial plan, you can organize your money in a way that reduces stress and builds success. In your personal finances, it acts as the financial roadmap to your long-term financial goals. As an entrepreneur, your plan is there to direct your business growth for long-term viability.
Financial planning becomes much more complex if you are an entrepreneur. It can be difficult to balance both personal and business financial goals effectively. Even though you can’t predict the future, a good plan will position both you and your business best for future success. Here are the top situations to include in your financial plan as an entrepreneur.
Plan For The Off-Season With an Emergency Fund
Whether or not you are an entrepreneur, having a rainy day fund for personal emergencies is critical. Setting aside some cash gives you some breathing room when faced with unexpected bills or unpredictable income. As an entrepreneur, you should also include an emergency fund in business financial plan.
Income from your business will come and go. Some months you’ll see greater profits than others. Some months you may see losses, particularly if your business is seasonal or influenced by unpredictable variables like weather. Planning for irregular income with an emergency fund will help you and your business thrive, even when your revenue slows.
Set Up a Retirement Fund
Just like regular employees, entrepreneurs need to prepare for retirement. Setting up a retirement account is a key factor in financial planning for small business owners. Even if you aren’t able to contribute much, it’s still better than none at all.
Some types of retirement options to consider are the SEP-IRA, Simple IRA, Solo 401(k), and a Simple 401(k). Before you pick a retirement plan, discuss your options with your financial advisor. Each one has different benefits and drawbacks. You need to know which program is best suited to your personal and business financial goals.
Have – And Keep – a Budget
A budget is key to managing your day-to-day spending and your personal finances. The same is true for your business financial goals, too. As an entrepreneur, it’s essential to examine your expenses and stick to a budget carefully.
Without a proper budget, you may not have the required cash flow to sustain business operations. Imagine not having the funds purchase new stock, pay your employees, or handle operating expenses. Having and sticking to a budget gives you greater flexibility to best grow your business.
Manage Your Benefits Package
If you’re the sole employee of your company, managing your benefits package is relatively simple. But if you’re considering hiring your first employee, or are already working with staff, it becomes more important. A desirable benefits package will result in more satisfied employees with better attendance and a higher commitment to meeting the company’s goals.
As a small business owner, you’re required to provide certain benefits to your employees such as:
- Time off to vote
- Paying your portion of Social Security and Medicare taxes
- Compliance with the Federal Family and Medical Leave Act.
Additional benefits, such as a retirement package, health plan, paid vacation time, or paid sick leave are entirely optional. However, most employers offer some or all of these benefits to attract and retain the best employees.
Accurately Understand and Manage Risk
You, like many other small business owners, know that risk is inherent in launching a new business. But you also understand that without some risk, there is no reward. By looking for the right opportunities and never betting more than you can afford to lose, you could see extraordinary growth for your business.
While it’s best to know your limits, don’t let a lack of resources get in the way of achieving your vision. Consider your plan, and have a plan B, C, D, and maybe even a plan E. That way, you’ll have options to consider in case the current pursuit doesn’t work out as planned.
Understand Social Security and Medicare Taxes
If you’ve ever worked as an employee, you understand the frustration that comes with having your take-home pay reduced due to taxes your employer withholds from your paycheck. These taxes, known as FICA withholding, are for Social Security and Medicare payroll taxes.
As an employee, you share the burden of paying these with your employer. But as an entrepreneur, you no longer have the luxury of sharing the cost of those taxes with your employer. Instead, you’re responsible for paying the employer’s portion of payroll taxes as well as the employee’s share.
To accomplish goals of any kind, you need a map to steer you in the right direction. As an entrepreneur, financial planning serves as your business success roadmap. It also helps you plan for potential roadblocks and is crucial to keep your business profits growing. To set yourself up for long-term success, you need to understand how financial planning for entrepreneurs is different. A solid financial plan for your business will give you greater stability and heighten your ability to predict and plan for potential roadblocks along the way.