Being a business owner is stressful. You’re constantly trying to keep up with the latest trends, taxes, equipment purchases and employee schedules. It can be difficult to think about a company’s finances beyond what’s on the surface. But if you don’t think about your financial situation as a whole, you could put yourself in a bad spot. Even if you have built a successful company, if your finances don’t balance out over time, you could be putting your business at risk for failure.

Financial Planning Tips for Business Owners

Separate your personal and business goals

One of the biggest mistakes business owners can make is to not separate their personal and business goals.

It’s easy to get caught up in the idea that you don’t want to miss out on any of the perks of being a business owner, but it’s important to be realistic about what you can and can’t do with your money.

One way to separate your personal and business goals is by using different financial accounts for each. You can even set up separate savings accounts or credit cards if you want to keep things really separate. You can also just keep track of these things in a notebook or spreadsheet, but having them all in one place will make it easier on you when it comes time to pay bills or make other large purchases for both parts of your life.

One of the biggest mistakes business owners make is combining their personal and business finances. While it may be tempting to think that all of your money is “business” money, especially if you’re a solopreneur, the truth is that your personal and business finances are often very different.

While it’s true that you should keep an eye on both your personal and business savings accounts and investments, they don’t always need to be combined. Your business goals might not align with your personal goals—and vice versa!

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Build emergency fund

One of the best financial planning tips for business owners is to build an emergency fund. This means saving money in a separate account that you can access if you need to cover unexpected expenses, like car repairs or medical bills. Having this fund will help ensure that you don’t take on debt in order to cover these expenses, which can lead to problems later on down the line.

Business owners know that they need to keep a reserve of money in the bank to ensure their companies are stable and secure. But what if you have an emergency fund? The best way to create an emergency fund is to start small and build up over time. If you can’t save up all the money at once, don’t worry! Just try saving a little each month until you get enough.

Another tip is to try saving different amounts of money for different kinds of emergencies. For example, if your business is doing well, you might want to set aside a certain amount for tax season or other financial obligations that come around every year; then save another portion of your earnings for unexpected expenses like fixing broken equipment or covering employee absences.

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Go Cashless

The number one financial planning tip for business owners is to go cashless.

It’s a simple idea, but it can make a huge difference to your bottom line. You might be thinking, “but what about tips?” Well, if you’re worried about that, you can set up an app to let people leave tips on their credit cards or PayPal—it’s easy! You won’t even have to worry about collecting the money yourself.

The other thing you can do is charge a fee if someone wants to use cash. Just make sure it’s not too much of a hassle for them—you don’t want them to stop tipping altogether because they don’t want to mess with paying in cash and then having your employees count it out for them later (and then dealing with the hassle of putting all that money away).

Cash is expensive, and it’s also risky. You can’t make change for $100 bills if you don’t have them on hand, and you can’t take credit card payments if you don’t have a working credit card machine. Cash is also inconvenient—you’ll need to get a bank deposit every day or two to keep track of your funds.

But what if there were a better way? What if there was an app that let you accept credit card payments from your customers and send them their reciepts immediately? And what if it also told you when your money was coming in so that you didn’t have to worry about running out of cash?

Hire an Accountant

If your company is just getting off the ground, you might not want to pay someone else, yet hiring an accountant is a wise investment. By reducing the stress of money management, working with an experienced professional can free you up to concentrate on expanding your business.

Put Aside Money for Taxes

When you work for yourself, taxes are not deducted from your paychecks. You can work with an accountant to figure out how much money to set aside, but a decent starting point is 25 to 30 percent of your monthly income.

Taxes for self-employed people must be filed periodically as well. You’ll avoid penalties and costs as well as being saddled with a hefty tax payment each year if you do this.

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Cash Flow Management Strategies for Small Business

Paying closer attention to cash flow in the first place is the first step to increasing it. With the help of cash flow analysis, you can keep tabs on how money enters and leaves your company while ensuring that you have enough on hand to cover all of your bases. Examine both your inflows—where you anticipate receiving money from sales—and your outflows—where you actually spend money on things like bills, wages, and other expenses.

It’s crucial to understand your condition both now and in the future as part of this review.

People often compare their current bank balance to their bills, but it is not cash flow management, according to Weil. “Knowing what you can count on to arrive is what cash flow management is.

You may be able to anticipate problems in advance by paying closer attention to your cash flow and attempting to predict future trends: If you anticipate having a cash shortage in the next weeks, you can start making preparations now. You could utilize accounting programs like Xero and QuickBooks for assistance. These apps keep tabs on your transactions in real time. Based on this data, some also provide predictions about your future monetary position.

Anticipate Future Needs

Prevent surprises. Nothing is more challenging or discouraging than looking for money while you’re in a tight spot. Start by maintaining precise, timely accounting records, which are crucial for comprehending your company’s financial situation. To determine the amount of available cash and forecast the expected outcomes for the next three to six months, use your historical monthly income and cash flow statements, balance sheet, and both. These pro forma statements can assist in forewarning you of any deficiencies, allowing you time to plan for them.

Some business owners establish a relationship with a bank for payroll and general company accounts in advance of a requirement and provide the bank executives with operating statements on a regular basis to foster trust. These efforts, however, are not always successful depending on the power of the bank official. Make it obvious to your banker that the purpose of the relationship is to have access to funding if necessary when you let them know that you want to eventually apply for a loan to increase your chances. Prior to requesting any company line of credit, it is always preferable to establish a long-lasting relationship with New Zealand banks.

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Build Connections With Lenders

The chances of being able to borrow money or persuade investors to invest more in your business when you really need them are slim. Since their primary goal is to be paid back, bankers are least interested in lending to a company that is in dire straits. Build relationships with people in the financial sector before you require their assistance rather than after, and you might be able to obtain a commitment for future loans.

Instead of borrowing against their accounts receivable, some business owners choose to factor their receivables, or sell them to a third party. The third party, or “factor,” and the company will discuss the specific terms, such as the value ratio paid for each invoice, whether the sale is “recourse” or “non-recourse,” and any costs that may need to be paid to establish and uphold the relationship between the firm and factor. The factor looks first at the creditworthiness of the consumer who owes the money rather than the company that offers the AR, which is advantageous for a firm, especially if it is new or has damaged credit.

Keep Your Cash Working

You may find interest-earning accounts at most banks, so keep your cash amounts there. You can come upon a minimum balance requirement occasionally. Consider keeping the majority of your money in higher-paying accounts, though, and then transferring money to meet the minimum balance requirement in your interest-bearing trading account because interest rates on these accounts are frequently lower than those on savings accounts, certificates of deposit (CDs), or money market accounts (plus the total payments due that week or month). Avoid long-term certificates of deposit (term deposits), which tie you down for a set amount of time and may cost you interest if redeemed early. Either put money into penalty-free certificates or into the area of your account that you won’t likely need to access for the duration of the CD.

Create a distinct payroll account and decide on a bimonthly cycle. Bi-monthly payroll systems only need 24 pay cycles each year, whereas bi-weekly payroll systems need 26, therefore they save on the additional administrative costs of gathering, confirming, and tabulating payroll data. Finally, to keep your cash generating interest, transfer payroll payments as soon as payment is due.

Speed Up Customer Payments

The objective of a small business owner is to receive money for their services or goods prior to or soon after incurring the costs of creating or delivering them. Receiving payment upon delivery (COD) is the ideal result, but it’s not always feasible. The day you deliver your product, send your consumers an invoice with the note “payment is expected on invoice receipt.” Don’t propose that you can wait until the end of the month. Include a statement to the effect that late payments will incur interest and that legal action may be taken to recover unpaid amounts. Maintain an established procedure for monitoring your accounts receivable aging, a report that classifies accounts receivable based on how long bills have been unpaid.

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Factor Invoices

Transferring an unpaid client invoice to a financing business, often known as the factor, is the process of factoring bills. Around 80% of the fee is paid to you in advance by the factor, who is then in charge of obtaining payment from the client. You would receive the remaining funds when the client has paid, less the factor’s fee.

Because they are taking on the debt, “this puts the factor’s risk of collection onto the factor,” according to Weil.

You not only receive the money faster, but there is also no risk of the client skipping a payment. This small business cash flow management technique doesn’t work well for low-margin transactions because the factor charge can be significant—possibly 5% or more of the invoice amount. You require a sufficient profit.

Conclusion

Taking care of your personal finances can be difficult and confusing. We’ve tried to simplify the financial advice for business owners by tackling each issue one step at a time. Hopefully, the article above gives you a general idea of what is involved in the financial planning process. Ultimately, it’s up to you to decide if the advice we’ve given is right for you or not. You should always take your own individual circumstances into consideration when making financial decisions, including issues related to taxes, laws, regulations, and any other legal concerns that may affect your business. Nevertheless, we hope this article provides you with some helpful tips on where you can start with regard to financial planning.”

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