Financial Planning Strategies for Young Business Owners

When it comes to starting and running a business, the financial planning aspect plays a key role in establishing a solid foundation and being able to grow from there. In this article, we will highlight the top financial planning strategies for young business owners. Focusing on young business owners allows us to put a new spin on older strategies and share our knowledge with an audience that will read it from a fresh perspective.

What Is Financial Planning?

Financial Planning is defined by Business Yield as the process of determining how a business will achieve its goals and objectives. For a business to expand, it needs financial resources, skilled staff, and the proper tools required for the production of its product or services. Without a financial plan, these decisions are not appropriately made for the good of the business.

More often than not, business owners will hire financial planners. These financial planners will be responsible for analyzing the business, identifying any business risks in the budget, establishing the business’ vision and holding stakeholders to it, calculating the budget costs of all tools and resources, quantifying production costs, which include labor, equipment, materials, etc., and developing a budget plan accordingly. 

Why Is Financial Planning Important?

A business plan isn’t the only necessity of starting a business. In addition, business owners need a strategic financial plan. This will guide business owners through the day-to-day decisions that need to be made when running your own business. It is important to compare forecast numbers to results to oversee the financial health and efficiency of the business. 

The size of the business does not matter when it comes to the need for financial planning. According to Blue Shore Financial, all business owners need financial planning in order to manage income and understand how much money needs to be allocated towards tax payments, savings and other expenses. They also need financial planning to manage cash flow and monitor spending patterns vs. expenses to limit spending and stick to a budget, and to manage capital by ensuring increased cash flow to lead to increased capital. This allows the business the opportunity to consider other investments to increase overall income and better the financial wellbeing of the business and its owner.

What Steps Do Business Owners Need to Take in Financial Planning?

A financial plan is designed to help business owners evaluate their financial standing and plan to make changes to ensure they maintain or achieve a better financial standing in the future.

1. Evaluate Current Financial Situation: By taking a detailed look at the current financial situation, you can get a solid understanding of the numbers that need to be maintained, increased, or decreased regarding savings, income, debts, expenses, etc. This is done by collecting all of the business’ financial documents, specifically listing debt balances and assets, and reviewing them to get a sense of where the business is financially and decide what changes need to be made to achieve desired financial goals.

2. Establish Financial Goals: An example of financial goals could include paying off debt, setting aside money for an emergency fund, or setting up a plan to increase profits and allocate that money towards a personal financial goal. These goals need to be realistically reachable, which is decided by the current income status and number of assets, and how these financial standings contribute to the business’ overall financial health.

3. Develop a Course of Action: A plan will not be completed successfully without a detailed course of action. The decision-making process cannot be taken lightly and a course of action ensures that important decisions are made with the knowledge and expectations necessary to gain from the said decision. A course of action can be continuing with the current plan, expanding with a continuation of Plan A, or creation of Plan B, or going back to the drawing board and developing an entirely new course of action.

4. Evaluate Alternatives: The evaluation of the previously stated courses of action is the next step in the financial planning process. Alternative plans need to be reviewed with the understanding that the business owner’s personal financial standing, values, and day-to-day life, can affect these plans. Business owners must be aware of the trade-offs involved with these decisions. For example, paying off a large debt like a mortgage or student loan is a huge financial decision and will benefit the financial health of the business, but the business owner may not be able to take a vacation, or put money towards another investment opportunity.
   
5. Implement Plan of Action: Once all of the financial goals and courses of action mentioned above have been established, it is time to implement them into an action plan. This is where you brainstorm and work towards finding specific ways to achieve the financial goals. It may be helpful to list these goals in chronological order by level of importance and check off each goal as it is completed.
   FYI – This is where a financial planning consultant is beneficial in assisting the business owner in making financial decisions for the betterment of the business.

6. Reevaluate & Revise: This is the step where business owners can breathe a sigh of relief that their financial plan is ready to go… but they can’t get too excited. A financial plan requires constant evaluation to ensure the business owner is making the right decisions, according to the plan, and therefore, the business stays on the right track. If an unexpected situation occurs resulting in a financial hit to the business, to avoid having to go back to the financial planning drawing board, by keeping up with the financial plan, cuts in budget will be made but the overall financial health of the business should remain strong if the business owner is prepared with a strong plan.

Defining the Financial Planning Process

As you read above, the financial planning process involves the outlining of how to manage a business’ finances, with regards to increasing overall income, allocating profits towards future investments, and growing stable assets. By estimating a business’ capital, the business owner can create a financial plan for the money available to fund its daily operations, payroll and opportunity for expansion.

Financial Planning for Small Business Owners

Small business owners will greatly benefit from working with a financial planner. Financial planners will provide financial support and consultancy to their clients throughout every phase of the business. According to Amanda Govaere, CFO Consultant with Roos advisors, “Keeping up with your finances is vital to the success of your business. Whether it is paying your vendors, employees or the IRS, you need to know your cash flow is there. You also cannot plan for the future if you do not know where you are and where you have been. Finances are the glue to continue holding it all together.”

5 Financial Planning Steps to Benefit Young Business Owners

1. Separate business and personal goals
2. Explore funding opportunities
3. Spend wisely and organize your financial records 
4. Consider ROI and value your time
5. Plan for retirement (and taxes)

Business Financial Goals vs. Personal Financial Goals

In general, business goals and personal goals need to be separated. If the line is not drawn between the two types of goals, then the decisions made may impact the financial goals personally and for the business. There must be a different bank account for each; and with that being said, visions and goal-setting can be done separately. For example:

• Personal Financial Goals: Where do I see myself in 5, 10, 15 years? What are my family’s priorities/Do I plan on starting a family? When do I plan to retire? What are my household expenses? What is my budget for hobbies/vacation?

• Business Financial Goals: What are the business’ priorities? Do I need to hire more employees? What benefits can I afford to offer employees? How much can I allow in the budget for marketing my business? Can I afford to set up a loyalty program for current clientele? Do I see my business expanding in 5, 10, 15 years? What other services can the business provide?

The above questions are all important and will all have an impact on the business owner personally and financially, but in order to keep things running smoothly and ensure the business doesn’t become controlled by personal priorities – and vice versa – business goals and personal goals must remain separated, especially the finances.

Find Business Operations and Financial Planning with Roos Advisors

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