An Entrepreneur’s Guide to Learning Financial Planning

An Entrepreneur's Guide to Learning Financial Planning
October 21, 2021
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During your entrepreneurial journey, you may have received plenty of advice on the dos and don’ts of managing finances. Sometimes you’ve got too much advice that itself creates chaos. As an entrepreneur, you already know what roadblocks and hurdles will come your way, financial planning being one.

It’s crucial to slow down and think about whether you have a smart financial plan to establish a long-lasting business that can stand any ground. A strategic plan will not only boost your entrepreneurial career but also allow you to explore more financial opportunities that can prove imperative in expanding your business.

Financial Planning: How Is It Different for Entrepreneurs?

There is a marked difference between an entrepreneur’s financial planning and that of a non-entrepreneur. For an entrepreneur, financial planning is more difficult. They have to manage their business taxes, employees’ wages and still have some backup in case of loss. The entrepreneurs need a proper financial plan in place to attain these payoffs.

Managing these crucial business approaches make financial planning difficult for an entrepreneur. A financial plan ahead of time is crucial for a successful entrepreneurial venture.

So how can you achieve it?

Track Your Business Expenses

As an entrepreneur, it’s important to keep proper track of your business spending to make a systemic record for tax season. You can secure physical copies of receipts and paperwork or establish a digital filing system.

The important paperwork you’ll need to track is credit card and bank statements, financial statements, and tax returns. You can organize and calculate the tax manually, but it demands time and effort.

Accounting software is built to handle such complex tasks. Choosing the best accounting software for your business will help you manage financial tasks more efficiently. It can also help keep track of all your incoming and outgoing payments for accurate recordkeeping.

Search Better Investment Opportunities

Whether you are thinking of taking some risks with investment or reached a point in life where you should be more careful with investments, never shy away from searching for better investment opportunities.

You can explore stocks, bonds, IRAs, and much more. All these options come with their benefits and shortcomings depending on your financial status and where you stand in your life. Generally, young age is the best time to take risks as if anything goes wrong like a stock drops off, you will have enough time to recover. Whereas, if you are at the retirement age, it’s wise to play safe and ensure you don’t take bigger risks before you start living with a limited income.

Manage Your Taxes

Handling personal finances is much easier to do by yourself. However, tax planning for a business requires someone with expertise in managing business taxes efficiently. Outsourcing tax planning services or hiring a professional CPA (certified public accountant) or any other financial expert who can help your business is a better option. It will free up your time, and those skills may help decrease your tax liability.

A qualified CPA understands every aspect of tax law in your region and can properly guide you on different strategies, such as maximizing your qualifying business costs.

Many business owners tend to make the same mistake of structuring their businesses to minimize the tax payments. When they successfully do that, their net income often becomes zero or negative. However, that practice can lead to major issues when seeking investments or funding for your business.

Cash Flow

A healthy cash flow allows you to meet your professional obligations, such as buying raw materials and paying your employees while managing a reserve in emergencies or investments. Amassing all your business assets like inventory or real estate is great, but if managing your cash flow is a challenge for you, soon, your business will fall behind.

It’s very important to perform a formal business cash flow analysis to see incoming and outgoing cash.

That knowledge will enable you to plan and manage your cash flow efficiently. Regular evaluations can also help you get a better perspective to determine the money you need to save in reserves to survive any unpredicted expenditures.

Expand Your Investments

Entrepreneurs have a firm belief in business ventures, so they don’t hesitate while investing in them. However, sometimes things don’t work the way you think they might. After investing a hefty amount in your business, it still can struggle to generate revenue. In that case, it is vital to think of a more flexible approach to help your business cross the hurdles and get momentum eventually.

A financial planner can advise you in implementing a more sensible strategy. They guide business owners to expand or diversify their investments. If your business staggers, you can depend on more profitable investments to recover its strength. As an entrepreneur, investing all your cash into your business can be a big risk as many companies collapse in only the first few years. In case of failure, you can utilize your earing from other investments and start from scratch with a better business idea and strategy.

Retirement Plan

For young entrepreneurs, retirement is perhaps the last thing to hit the mind. After all, it’s merely the beginning of their entrepreneurial career. However, it’s always safe to have the right retirement strategy in place. Because ending up empty-handed at 65 is the last thing you want. While you have to make this decision on your own, few retirements plans will work best for you.

 

For small business owners and entrepreneurs, the three most common retirement plans are:

  • Savings Incentive Match Plan for Employees (SIMPLE) IRA
  • Simplified Employee Pension (SEP) IRA
  • Individual 401(k)

These retirement plans will provide you with everything you need after retiring. You can also leverage these retirement plans to attract and retain good employees.

Conclusion

Financial planning is the major reason behind the success and failure of any entrepreneurial business venture. A better financial plan ahead of time helps you survive in more challenging business days and provide you with enough time to think of a way to come out of it.

Entrepreneurs need to keep looking for better investment opportunities to ensure they have another source of income and can use it to take a fresh start. Make a retirement plan and stay on top of your financial planning game to never fall behind.

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