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How to Do Proper Financial Planning for Your Small Business


June 8, 2020 ( Newswire) For most small business owners, there's a very thin line that separates their personal and professional lives. Many of them have quit successful corporate careers or taken the decision not to go down that path. Several of them are innovators and inventors, with only their passion and vision to motivate them. When they transform themselves into entrepreneurs, they rarely spare much thought for financial security, or business management practices.

Yet the fact is, whatever the size of the business, there are certain fiduciary obligations to be met, funds to be managed, and people on your payroll that you are responsible for.

Running a small business also means strategizing for the future, because the "small" business could be just the start of a bigger one. The bottom line is money, and financial planning is the cornerstone of any successful enterprise.

Studies show that small business owners typically sink all their savings and retirement funds into their venture, take out loans, and use personal assets and property as collateral. This is a huge risk, and unless the business is successful, they face enormous financial losses. Industry experts report that only 50% of small businesses¹ survive the five-year mark.

The best way to handle the risk is to ensure top quality financial planning so that you minimize the stress and threat of failure.

What Is Financial Planning?

Financial planning involves seeing both the big picture and the small details, managing your funds properly, staying in compliance with the financial and tax regulations prevalent in your state and country, and achieving your personal and professional goals.

The process consists mainly of:

  • Assessing your current financial position
  • Setting achievable goals both personal and financial
  • Install a proper budgeting system
  • Designing the appropriate plan to achieve them
  • Deploying the plan
  • Being flexible enough to take cognizance of changing goals, inflation, and altered circumstances
  • Ensuring that the plan remains on track
  • Meeting your tax obligations
  • Strategizing for the future

The plan represents a roadmap for the future, and it helps the business owner keep track of cash flow and manage it better, so that you can prepare for lean periods, emergencies, etc. Financial plans are an integral component of the overall planning process.

The plan also helps you to review the previous year's expenses and evaluate whether you could have made better decisions. You may have overpaid suppliers, spent too much in certain areas and not enough in some others, missed alternative funding options, etc.

Do You Need A Financial Adviser?

It's a fact that a large proportion of small business owners have neither the time nor the opportunity to estimate what's the kind of money they'll need when they're no longer able to work. Even fewer small business owners put in a viable plan to transfer the running or ownership of their business to a younger person as they approach the age of retirement.

These aspects give a good idea of how much the business means to them and how reluctant they are to give up control. However, if it entails very little time given to taking care of personal wealth and retirement funds, there could come a time when they face a serious financial crisis.

Juggling multiple roles is challenging. You need to oversee marketing, production and product development, sales, research, HR, innovations, IT support, besides the financial side of the business. In new start-ups, the situation may demand that you do the packaging and delivery yourself, along with property maintenance and some amount of direct sales and marketing. Some typical reasons why small businesses fail include mismanagement of cash flow and lack of funding/capital, among other things. It's difficult to keep track of how much revenue is generated; there could be errors in pricing of products/services, get funding for expansion, etc. These are typical areas where it's important to get the right advice from the best financial advisor in San Jose so that you get an objective, professional and accurate reading of your current and future financial affairs.

How To Do Proper Financial Planning

Small business owners are usually creative, committed, and passionate individuals who may or may not have a background in financial planning. Keeping these tips in mind can supplement the inputs that your financial adviser can give you.

  1. Get a more comprehensive view: Small business owners may often miss the wood for the trees. They get caught up in the nitty-gritty of everyday running of the business that they often fail to take a 360° view of things. You need to deal equally with all areas of finance, such as insurance, investments, tax planning, cash flow, expansion plans, retirement plans, etc. This makes you feel on top of things, and it also ensures that you meet your fiduciary obligations in time.
  2. Take a hard-line approach to record-keeping: Ensure that you don't fall behind when it comes to record-keeping, documentation, and other administrative tasks. Though these are routine and boring, they fulfill a crucial function in your staying alive as a legitimate business. You can hire a full-time bookkeeper or get someone to come in part-time according to your needs, preferences, and budget. This exercise helps you to retain control of where the money goes and comes.
  3. Planning for the unexpected: Risk management strategies, preparing for external and internal problems, assessing potential problem areas, etc. are part of smart financial planning. Without getting paranoid and completely risk-averse, it's possible to ensure the safety and health of your small business and protect it from uncertainties. It also helps you to recognize the warning signs when something may pose a danger to your business. Financial planning creates the buffers that you can use to create a monetary moat for yourself in a crisis.
  4. Retirement and Estate Planning: It's possible that you started your business when you were relatively young. At that age, no one wants to think about retiring. However, that's precisely the age when you should think about it. Not being someone who works at a regular, pensionable 9-5 job, a small business owner may feel that they can go on working for as long as they want/can. But a financial advisor can make it easier for you to handle aging, illness, and disability if and when they arrive by ensuring that you put away enough for yourself and your family.

Reference for fact 50% of small businesses¹ survive the five-year mark


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