Financial Planning Tips for Entrepreneurs
Having a good financial plan as a entrepreneur is one of the ways to strengthen your business prosperity.
Financial planning for entrepreneurs is a pre-requisite to be successful and be able to scale a business to a level of financial prosperity. Owning a business can be fascinating especially with the fact that you’re your own boss, you’re in charge of your time as well as you earn based on the effort you put into your business.
However, there are other challenges that come with being an entrepreneur or a business owner such as saving for retirement, having an emergency fund, protecting your business against risk, tax planning, and overall cash flow.
At the early stage of your business, the focus is more on expanding the cash flow of your business and also scaling-up.
As your business expands and capital grows, your financial future should then become a priority. Comparing an employee in an organization with a standard benefits package to an entrepreneur, there are certain advantages the employee has over the entrepreneur, such as a pension plan, health insurance plan, etc.
These are plans that an entrepreneur should have going forward. One of the major challenges faced by an entrepreneur is an unpredictable cash flow. It’s considered a threat to financial planning and usually result in a heck of a lot of fear and doubt.
As an entrepreneur or business owner, here are six tips on what to do:
1. Have an emergency fund
An emergency fund is one of the building blocks of financial planning for entrepreneurs. This is necessary for everyone regardless of who you are, either an entrepreneur, a business owner or an individual. This is crucial to have as this will save you if there is an urgent need for cash.
There are different rules of thumb applicable to having emergency funds. Some financial planning experts would advise you to have 3 to 6 months’ worth of expense saved up. As a business owner, it’s ideal to have 6 to 12 months’ worth of expenses saved up.
2. Monitor your expense
Take time to carefully monitor the trends of your expenses as you need to judiciously make use of your hard-earned money.
Alternatively, set up an account where you deposit some amount, for instance, a certain percentage of your profit. This is If you’re not re-investing all the profit, either on a weekly or monthly basis depending on your cash flow.
3. Monitor your accounts receivable record
It’s a good business practice that your accounts receivable are updated and at the same time consider that not all clients are creditworthy in terms of repayment as of when due.
Consciously monitor your records daily especially if you’re into retail or wholesale business or other sales business. Otherwise, twice a week weekly should be good.
On the opposite side is account payables which are what your business owes to suppliers or creditors. Ensure you meet your business obligations as of when due as this will boost your business creditworthiness.
There should be a control measure in place to ensure proper checks and balances. For this to happen, you must establish a guideline or process to follow-up with clients that default in paying back their debts.
4. Understand the tax system where you operate your business
It is very important to study and understand the tax system, especially how it applies to your business in terms of the kind of tax you will be paying, tax incentives, tax breaks, rebates, and filing tax returns.
5. Have a retirement plan
This could be a pension plan or some forms of investment towards your retirement from your business.
The goal of every entrepreneur is to scale their business but there are cases where the business does not expand as expected and goes under upon retirement of the principal.
In this situation, if there is no solid plan for continuity upon the retirement of the principal. The business owner may live the rest of his life in financial hardship, as a result. Therefore, it is paramount to have a retirement plan.
So, take steps to find out about pension administrator or about the type of pension plan available for a business owner where you operate. This will be helpful in making plans toward retirement.
5. Health Insurance Policy
In some countries, you have to purchase a health insurance policy to be insured against any unforeseen health issues that may be expensive to manage. As a business owner, you would not want to file for bankruptcy due to health issues that you would have otherwise avoided with a health insurance policy.
Find out what it takes to have a health insurance policy in your country. Make an effort to have it, it would save you a lot.
Read Also: Basic guiding principles on investing
6. Insurance against risk
This is also as important as all the points highlighted above. An insurance policy can be expensive especially when you have a number of them and level of coverage. However, they are a necessary evil to have especially as a business owner.
Contact different insurance companies to find out the appropriate policy for your business. Ask questions about coverage, charges, and the hidden clauses in their contract. Then compare to know which fit your business best.
I hope this information helps. Share other financial planning tips for entrepreneurs that are not covered in this article. Share your opinion in the comment box below on other steps that an entrepreneur can take to have a solid financial plan.