Starting a new business is exciting but comes with challenges, especially in the financial planning department. Entrepreneurship is the definition of taking financial risk, but that does not mean you should be reckless.
As a new entrepreneur, learning about money and planning properly helps is what can make or break your financial success, which is exactly why it is crucial to understand a very specific set of tips.
In this guide, I will discuss simple and practical financial planning tips for entrepreneurs trying to navigate towards success. With these strategies, you’ll be better prepared to handle the financial side of any risks you may take.
I am not here to talk you out of risk, but rather to help you minimize it. So, with that being said, let's jump right into it!
Things New Entrepreneurs Should Consider When Planning Financially
Here are 10 things new coming entrepreneurs should do to plan financially:
1. Setting Clear Financial Goals
Ahh, financial goals. Those things everyone always talks about, and we think we have already. But let's be honest here, how CLEAR are your financial goals? Are they measurable? Obtainable? Specific?
Clear financial goals are vital for business growth. They give direction and help you measure progress. To generate success, you need to start by setting both short-term and long-term goals.
And by goals, I mean getting down to the gritty details. When I started a gutter cleaning business a few years back, I remember walking in without a clear plan. I literally started my business blind and was hoping for the best.
Somehow, I managed to get leads, but I had no way of tracking my growth or where I was in terms of my progress. Eventually, I figured out how to properly plan by setting specific weekly goals.
My first goal I set was to obtain 3 clients a week because I knew my minimum rates were about $400 per client at the time, which was $1,200 a week. I figured this wasn't too shabby since at the time, it was only me running the business.
Anyways, I was then able to clearly see my progress as time went on. I started to go from 3 to 4, then 5 leads a week, meaning I was passing my weekly goal. It may seem small, but this really helped me see the bigger picture.
You need to start with small goals to see how well your progress is coming along. Are you meeting that goal? Why or why not? These are things every entrepreneur needs to start with to obtain those larger goals down the road. Start small and work your way up.
Short-term goals might include monthly sales targets or reducing expenses. Long-term goals could involve increasing profits over the next few years.
Write down each goal and review them regularly. This practice keeps you focused and helps you make informed decisions.
Suggested reading: How to Manage Money: The Ultimate Guide to Saving
2. Create a financial planning Budget
A budget is one of the most important financial planning tools. It helps you manage income, control expenses, and track financial performance.
Start by listing all expected revenue sources and projected expenses. This list includes fixed costs, like rent and utilities, and variable costs, like marketing.
In the beginning of my first business, I could not afford more than $400 worth of monthly expenses, so I made sure that I tracked everything using Microsoft Excel sheets.
I am talking advertising, tools, marketing, subscriptions for the business, and literally anything else I could think of. The more precise, the better. Most people tend to underestimate the reality of expenses, but I have always been completely opposite!
I like to find what my realistic expenses will cost me, and then take it a step further by adding expenses I know can make their way to my wallet. Another thing I like to do is round up by dollars, not cents.
If I think something will cost me $97.30, it's safer for me to just call it $100 rather than $98. Personally, I like to be surprised by being under budget rather than over.
Sticking to a budget allows you to allocate resources where they’re most needed. Regularly reviewing your budget helps identify areas for cost-cutting or improvement. A good budget provides a solid foundation for business success.
It ensures you don’t overspend and helps you stay financially disciplined.
Suggested reading: How to Create a budget for your business
3. Separate Personal and Business Finances
Separating personal and business finances is crucial for clarity and organization. Open a dedicated bank account for business transactions.
This separation makes it easier to track expenses and prepare for tax time. Mixing personal and business expenses creates confusion and can lead to costly mistakes.
It also complicates financial records and affects your understanding of business performance. Using a separate account gives a clear picture of your business’s financial health.
This approach helps you make informed decisions and prepares you for audits or investor reviews, ensuring transparency.
Suggested reading: Tips On How to Plan for Early Retirement
4. Monitor Cash Flow Closely
Cash flow is the lifeblood of any business. Without enough cash on hand, you can’t cover expenses, even if sales are strong. After all, the goal as an entrepreneur is never to break even or worse, fall under that line!
Track money going in and out to avoid cash shortages. Regularly review cash flow reports to identify patterns. Positive cash flow will also allow you to invest back into your business, while negative cash flow signals financial issues.
Make sure you have a buffer for slow periods or unexpected expenses. By monitoring cash flow, you can make timely adjustments. This practice helps you stay financially stable and maintain control over your business finances.
5. Minimize Debt
If you have read some of my other articles that talk about debt, then you know that as an entrepreneur, I think loans and debt are the best way to start a business or invest in an opportunity.
After all, starting a business often requires some form of debt, like loans or credit. However, it’s important to manage debt carefully to avoid financial strain. You never want to bite off more than you can chew, especially when it comes to debt.
Take risks and borrow to get ahead, but that does not mean being reckless! If you know the loan will leave you under that break- even line from the start, then you really need to think about it before you jump in.
Only borrow what you need and make sure you can handle repayments. Focus on paying down high-interest debt first to reduce overall costs.
Look for ways to fund growth without borrowing excessively, like reinvesting profits. Minimizing debt helps keep financial stress lower and allows more flexibility.
6. Build an Emergency Fund
People used to always tell me to “build an emergency fund” and… I never listened. I used to always think it was impossible when trying to invest in so many other things.
What I have found is that an emergency fund does not mean take half of your check and stash it somewhere in case a unexpected cost arrises. Even $10 of every paycheck or profits makes a huge difference!
If you saved just $10 a week for a month, that's $40, which accumulates to $480 a year. You can see how quickly that will add up over time, and I assure you, it makes everything so much less stressful when you know you have some sort of cushion.
An emergency fund provides a safety net for unexpected financial challenges. Aim to set aside enough money to cover three to six months of expenses.
This fund protects your business in case of unforeseen events, like market downturns or equipment failures.
Regularly contribute to your emergency fund, even if it’s a small amount each month. Having an emergency fund ensures your business stays operational during tough times.
7. Planning for Taxes
Taxes are an inevitable part of running a business, like it or not. If your like me, you certainly lean to the or not side. However, failing to plan for them can lead to serious financial problems. Set aside money each month for taxes based on your estimated income.
Some things to consider for taxes are your business structure, how much you earn, and what can be a write-off. Do your research and find out what applies to your specific circumstances.
Keep detailed records of all income and expenses, as these records simplify tax preparation. Consider working with an accountant to ensure you comply with tax laws and claim available deductions.
You can see what your taxes will look like with the Smart Assets tax tool.
8. Invest in Professional Advice
Professional advice can improve your financial planning, especially if you’re new to entrepreneurship. Financial advisors, accountants, and business consultants provide valuable insights and guidance.
I always prefer to learn from someone who is an expert in their field rather than guess or hear someone who is not an expert give me their “financial advice”, which, to be blunt, is no more than an opinion.
Using an expert helps to create realistic budgets, manage cash flow, and navigate tax regulations. Investing in professional help can save time and prevent costly mistakes.
Their advice often provides a return by improving financial performance and reducing stress. Consulting with professionals keeps you informed and prepared for complex financial decisions.
This support allows you to focus on business growth rather than worrying about finances.
Suggested reading: Setting Up a Business from scratch- with little to no money
9. Track and Analyze Financial Planning Performance
Tracking and analyzing your financial performance helps you understand where your business stands. Review financial statements regularly to monitor revenue, expenses, and profits.
Use this information to make informed decisions and adjust your strategies as needed. Set aside time each month to assess financial performance and identify trends.
Tracking performance also helps you spot potential issues early.
This practice keeps you proactive and improves long-term success. Regular analysis ensures that your financial planning aligns with business goals, allowing for better decision-making.
Suggested reading: Milestones For Business Growth: Startups To Scale ups
10. Plan for Retirement
Retirement planning is crucial, even for new entrepreneurs. Set aside a portion of your income for retirement savings. Options like individual retirement accounts (IRAs) and solo 401(k)s are available for self-employed individuals.
Planning for retirement early helps you build a financial future beyond your business. Consider working with a financial advisor to find the best retirement options.
Consistently saving for retirement ensures financial security in later years. Starting this habit now gives you peace of mind and reduces financial stress as your business grows.
Final Thoughts On Financial Planning For Entrepreneurs
Financial planning is essential for business success, especially for new entrepreneurs. By setting goals, creating a budget, and monitoring cash flow, you’ll be better prepared to manage finances.
Keep personal and business finances separate, minimize debt, and build an emergency fund. Plan for taxes, invest in professional advice, and track performance regularly.
Don’t forget to start retirement planning as part of your long-term financial strategy.
With these tips, you can build a financially strong business that grows and thrives over time. Sound financial planning leads to stability, growth, and long-term success.
