Starting and running your own business is an exciting endeavor, but it also comes with a lot of financial responsibilities. As an entrepreneur or small business owner, it’s important to have a solid financial plan in place to ensure your company’s success. Proper financial planning and money management can help you achieve your business goals, weather economic downturns, and set your company up for long-term prosperity.

In this article, we’ll provide some useful financial planning tips tailored specifically for entrepreneurs and small business owners like you. Follow these recommendations to get your finances in order and build a secure financial foundation for your business.

Set Up Separate Business Accounts

One of the first steps every entrepreneur should take is establishing separate business banking and credit accounts. Make sure to:

Open a separate business checking account to use for all revenue and expenses. Never co-mingle personal and business finances.
Apply for a business credit card in your company’s name to use for business purchases only. This will help build your business’s credit profile.
Set up a business savings account to set aside cash reserves and emergency funds.

Keeping your personal and business accounts separate makes record-keeping and taxes easier while protecting your assets.

Create a Realistic Budget

Drafting a well-planned budget is crucial for any business, but especially startups with limited resources. Your budget will serve as a roadmap for your company’s financial goals and growth.

When creating your budget:

Project realistic revenue estimates. Avoid wildly optimistic projections, and research costs for your industry.
Account for all startup costs. Don’t forget expenses like equipment, inventory, insurance, rent, etc. Build in padding for unexpected costs.
Include ongoing operating expenses. Estimate costs like payroll, supplies, utilities, software subscriptions and more.
Plan for emergencies. Allocate funds for emergency situations and contingencies using a “rainy day fund.”

Stick closely to your budget, and adjust it as your business evolves. Perform regular budget reviews to keep your finances on track.

Take Advantage of Small Business Tax Deductions

As a small business owner, you can take advantage of a wide range of tax deductions and credits to reduce your taxable income. Some potential deductions include:

Startup costs like rent, supplies, legal fees and pre-launch advertising.
Equipment, office furniture, and electronics purchases.
Vehicle mileage and transportation costs.
Home office use for self-employed entrepreneurs.
Employee salaries, benefits, and retirement contributions.
Interest paid on business loans and credit cards.
Business travel and entertainment expenses.
Health insurance premiums.
Continuing education and annual conferences.
Charitable donations made through your business.

Consult a small business tax professional to maximize your deductions and stay compliant with IRS rules. Proper tax planning can save your company thousands.

Choose the Right Business Structure

Your company’s legal structure impacts everything from day-to-day operations to taxes. Common options include:

Sole Proprietorship – Simplest option for small, one-person businesses. No formal business registration required. The owner is personally responsible for all debts and liabilities.
Partnership – Two or more owners share control and personal liability. You can create a simple general partnership or formal limited partnership.
LLC – Creates a legal entity separate from the owners. Owners have protection from personal liability. Less paperwork than a corporation.
S Corporation – Another corporate structure type that offers liability protection and has tax benefits.
C Corporation – Separate legal entity that shields owners from corporate debts. Complex, strictly-regulated, and double taxation. Best for large companies aiming to go public.

Consult an attorney and accountant to choose the optimal business structure for your goals and needs.

Maintain Excellent Bookkeeping

Meticulous bookkeeping is crucial for tracking revenues, expenses, profits, losses, payments, payroll and more. Here are some bookkeeping best practices:

Record all financial transactions in your bookkeeping software in real time.
Match business expenses carefully with revenue and file receipts.
Reconcile bank and credit accounts regularly.
Use accounting software like QuickBooks or Xero to automate reporting.
Consider hiring a bookkeeper, especially if numbers aren’t your strength.
Stay organized with well-labeled folders, data backups and organized paperwork.
Review financial statements monthly to spot issues before they spiral.

Solid bookkeeping habits provide the data needed to make smart business decisions.

Manage Cash Flow Diligently

Cash flow is the lifeblood of any small business. It’s essential to:

Collect payment quickly – Bill clients immediately and institute a collections process for late invoices. Don’t let receivables languish.
Pay vendors/bills slowly – Don’t pay bills early to improve cash reserves. Opt for net-30 terms if possible.
Use invoicing and accounting software – Automated tools can send invoice reminders and provide cash flow projections.
Communicate with clients – If a client isn’t paying, speak with them professionally to remedy the issue.
Consider financing – Short-term financing like lines of credit or factoring can assist with cash flow crunches.
Accept credit cards – This provides immediate access to funds, unlike invoices. Just account for processing fees in your pricing.

With deliberate cash flow management, you can avoid missed payroll, late fees, declined purchases and other issues caused by tight cash supplies.

Build an Emergency Fund

As an entrepreneur, it’s essential to have an emergency fund or “rainy day” fund set aside in case of unexpected costs, drops in revenue, or large business outlays.

Save 3-6 months of operating expenses as your reserve fund minimum. Some recommend saving 1-2 years’ worth.
House your emergency fund in an accessible savings account. Don’t invest it since you may need quick access to the cash.
Replenish the fund immediately if you must dip into it so it’s available for the next emergency.
Resist temptation to tap your reserves for non-essential purposes.
If you can’t afford to set aside 3+ months of reserves right away, start smaller and build up.

Having an emergency fund provides a financial safety net when unforeseen circumstances strike. Don’t let a single crisis sink your business.

Obtain an Affordable Line of Credit

Qualifying for a business line of credit early on is smart financial cushioning. Lines of credit give you access to readily available funds on an as-needed basis.

Shop around at banks, credit unions, and online lenders for the most affordable rates and terms.
Only tap into your credit line when truly needed for shortfalls. Avoid maxing it out.
Make payments promptly to avoid interest and maintain a good credit standing.
Link your credit line to your business checking account for easy access when approved uses arise.
Use funds strategically, like to finance inventory orders or hire contractors for a big job.

Having an established line of credit helps cover operational cash flow gaps and growth opportunities at critical junctures.

Create Financial Projections

Financial projections forecast your company’s expected revenues and expenses over time. Common projections include:

Start-up costs -Tallies one-time launch expenses.
Profit and loss forecast – Estimates net profit/loss month-by-month or annually.
Cash flow statement – Projects cash inflows and outflows.
Balance sheet – Lists assets, liabilities, and equity.
Break-even analysis – Calculates when net income exceeds expenses.
12-month budget forecast – Monthly income and expense predictions.

Update your projections frequently as conditions evolve. Having detailed projections helps guide wise business decisions.

Manage Payroll and Personnel Costs

Payroll often represents a significant recurring expense for entrepreneurs, especially as you begin hiring employees. Some tips include:

Take advantage of payroll tax deductions as an employer and employee.
Offer attractive compensation packages, including equity in some cases, while being cost conscious.
Consider using a payroll processing service. Services like Gusto can automate payroll, withholding, and filings.
Provide clear salary and commissions policies in a documented employee handbook.
Research independent contractor laws if hiring contract workers. Misclassification can lead to penalties.
Implement HR management strategies to boost retention and productivity.

Control personnel costs wisely as your team grows. Your hiring budget impacts bottom-line profitability.

Invest Profits Wisely

Rather than taking all extra profits as personal income, entrepreneurs should make strategic investments back into their business:

Pay down high-interest debt to reduce finance costs.
Fund emergency reserves until you hit your 3-6 month target minimum.
Expand operations by purchasing more equipment, upgrading software, hiring staff, or developing new products.
Pursue new opportunities like new locations, partnerships, marketing campaigns, or acquisitions.
Establish a retirement fund like a SEP IRA or solo 401k to let profits grow tax deferred.
Consider diversifying into other income streams through real estate, securities, or business ventures. This provides protection if your main business falters.
Invest in professional development through courses, conferences, mentors, and books. An investment in yourself can yield major dividends.

Reinvesting profits propels growth rather than simply lining your pockets short term. The savviest entrepreneurs take the long view.

Maintain Good Business Credit

Your business credit reports and scores determine eligibility for financing, terms for business credit cards and loans, and more. To build great business credit:

Get a federal EIN to establish your business identity early.
Apply for credit cards and loans in the business name and make payments on time.
Check credit reports regularly and dispute any errors.
Establish trade lines by taking out small loans and making timely payments.
Limit credit checks by lenders to avoid too many “hard inquiries” that ding your scores.
Don’t co-mingle personal and business credit – get accounts solely in your company’s name.

Great business credit gives your company access to more plentiful, affordable financing options.

Set Financial Goals

Setting clear short and long-term financial goals keeps your business focused and motivated. Financial goals to consider:

Revenue targets – Most businesses track monthly, quarterly, and annual sales goals.
Profitability milestones – Target a net profit percentage or amount.
Funding objectives – Seek a certain dollar amount from investors within a set timeframe.
New market entry – Outline a timeline for expanding into a new region or country.
Product development – Set release dates for new products or features.
Benchmarking – Compare your metrics like revenue growth, inventory turnover, or debt ratios to competitors.

Share your financial goals with employees to align efforts. Review them routinely to gauge your progress.

Adopt the Latest Technology

Today’s financial, accounting and operations technology lets entrepreneurs efficiently handle back-office tasks on an affordable budget.

Accounting software like QuickBooks Online or Xero manages invoicing, expenses, payroll and more.
CRM platforms like Salesforce track sales pipelines and customer data.
POS systems like Square integrate in-store and online sales.
Inventory management software helps track stock levels.
HR technology assists with recruiting, onboarding and performance management.
Cloud-based phone service offers call routing, voicemail transcriptions and virtual receptionists.

Take advantage of today’s range of technologies to work smarter, not harder managing administrivia.

Consider Hiring a Financial Professional

At some point in your company’s growth, it may make sense to hand over financial management to a qualified professional like:

Certified accountant – For tax preparation and filing, financial statement generation, and general bookkeeping assistance.
Bookkeeper – Handles day-to-day tasks like recording transactions, processing payroll, and reconciling accounts.
Business tax professional – Provides strategic tax-lowering assistance and helps you capitalize on credits and deductions.
Business lawyer – Helps with matters like business formation, partnerships, intellectual property, and commercial leases.
Financial advisor – Advises on investments, retirement accounts, insurance needs and developing an overall financial plan.

Delegating financial functions to pros lets you focus on higher-level strategic priorities.

Plan for Long-Term Exit and Succession

Having an exit strategy helps ensure your business lives on if you decide to sell or retire in the future. Start planning early for your ideal departure:

Set target valuation – What is your minimum acceptable selling price? Take steps to steadily increase business value.
Groom successors – Appoint and train potential successors from your management team if you aim to promote from within.
Consider family succession – Passing the business to your children may provide tax benefits. Start getting them involved.
Allow lead time to find outside buyers – It can take years to find the right strategic buyer and negotiate favorable terms.

With proper succession planning, you can achieve a rewarding exit and a satisfying post-retirement second act.

In Summary

By being proactive and following these tips, entrepreneurs and small business owners can put their company on solid financial footing for the long haul. Set up separate accounts, create realistic budgets and projections, maximize tax deductions, manage cash flow diligently, obtain credit lines, reinvest profits strategically, embrace technology and more. Make financial fitness a priority, so your business can thrive for decades to come.