Why Is Small Business Financial Planning Essential?
Every year, anywhere from 7 to 9% of American businesses shut down for good for a number of different reasons. According to the U.S. Small Business Administration, approximately 25% of them close as a result of cash flow problems.
Keeping a close eye on your business income and expenses is important if you’re a small business owner. But it can be difficult to do it when you have so many other things on your plate at any given time.
A financial planner can help you with this. They can set you up with the small business financial planning that you need to run a successful company that stands the test of time.
A financial planner can also benefit your business in so many other ways. Let’s take a look at why small business financial planning is so essential to those trying to keep their businesses afloat for the long haul.
Allows You to Monitor Income
When a small business is first getting off the ground, it’s not all that difficult for the owner of it to monitor how much money is coming in every month. Since there’s usually not a whole lot of income being generated at the beginning, it’s simple enough to do.
But as a small business grows, it can become harder and harder for a small business owner to monitor income, especially when it’s coming from a variety of different sources. This is where a financial planner can work their magic.
When you find the best financial planner in your area, they can help you make sense of your business income by letting you know:
- How much income you’re bringing in every month
- Where that income is coming from
- How much income should come in during future months
The goal will be to create positive cash flow for your small business, and the only way you’re going to do it is by knowing how much money you have coming in versus how much money you have going out.
Lets You Keep Tabs on Overhead and Operating Expenses
Speaking of “money you have going out,” that’s obviously going to be an important part of small business financial planning. Your business expenses are going to help determine how much of your income you can keep.
Just like with income, it can be difficult for small business owners to keep tabs on how many expenses they have. They need to account for both overhead and operating expenses at all times.
Overhead expenses are things like:
Operating expenses, meanwhile, are things like:
- Office supplies
- Materials necessary for the production process
- Tools and equipment
As you might imagine, it can be very challenging to keep all the expenses associated with running a small business straight. A financial planner can help you sort them out and find ways to scale back expenses to increase cash flow.
Helps You Fulfill Your Tax Obligations
Turning a profit is the name of the game when you’re running a small business. It’s what you work so hard to do, so you should celebrate it once it finally starts to happen.
But you should also be prepared to pay Uncle Sam once your business is profitable. There are all kinds of tax obligations that your small business will have each year.
The last thing you want to do is not pay your business taxes and end up putting your company is a position where it owes the IRS a significant amount of money. A financial planner can make sure your tax obligations are met before you start getting too excited about how much money you’re making.
Makes Sure You’re Prepared for the Slow Times
Your small business might be bringing in tons of money every month and spending just a small percentage of it on your expenses right now. But there is a good chance that this isn’t going to last forever.
At some point in the near future, your business might slow down because of an economic downturn. It also might slow down because people don’t need the product or service that you provide during certain times of the year.
Whatever the case, it’s important to be prepared for the slow times. A financial planner can help you put money away for a rainy day.
You won’t have to stress out about a slow month or even a slow year when you know you have more than enough money in your business bank account.
Keeps You Focused on the Future
Outside of simply making as much money as they can, one of the other goals that most small business owners have is trying to get their companies to grow. Many of them want to start offering more products and services than they do now and expand into different markets.
Small business financial planning will give you and your company the tools that you need to grow. A financial planner can sit and listen to your long-term goals and show you ways to give your company the best future possible.
It’s going to be almost impossible for your small business to grow the way you want it to without a strong financial plan in place. Your company will have a much brighter future overall when you have a financial planner by your side.
Begin Using Small Business Financial Planning to Your Advantage
Small businesses don’t become successful on accident. Rather, they turn into success stories when the people who own them work hard to plan ahead.
Is your company taking small business financial planning seriously enough right now? If you feel like you could be doing better in this department, it’s time to bring a financial planner in and let them get to work.
Your financial planner can evaluate your income and your expenses and show you how to generate larger profits. They can also provide you with a blueprint for how to scale your business without getting too far ahead of yourself at any time.
Read our blog for more tips on managing your small business’ finances more effectively.