Financial planning is challenging for most individuals. Personal finance is a complex topic due to the multitude of information readily available. As an entrepreneur, this can be even more challenging as you are working to grow a business while also keeping finances on track in your personal life. Being self-employed, you must find the right balance between making your money work for you while also making your money work for your business. Check out the below financial planning tips for entrepreneurs:
Determine your personal financial goals
There are many different reasons that you may have chosen to take the plunge to start your own business. Perhaps you had a great idea and knew you could capitalize on it. Maybe you are following one of your passions or inheriting a family business, or perhaps you wanted to be your own boss.
No matter what the reason and depending on where you are in your entrepreneurial journey. It is important to remember to set aside your personal goals from your business goals. Do you want to build a savings account or are you saving to purchase a big-ticket item? Do you have children that you want to fund some or all of their college expenses? What are your goals surrounding retirement in the future?
While these questions can be difficult to answer at the beginning of your journey. The cash flow in your business is unpredictable, remember to keep these goals in the back of your mind. So that when things become a bit more consistent with your business, you can start taking steps towards achieving your personal goals.
Choose your benefits wisely
One of the biggest deciding factors for individuals looking to take a job with an employer is the type of benefits they offer. Larger companies offer an array of benefits such as health-care, life insurance, long-term disability insurance, gym reimbursements and even pet insurance. However, now that you are the employer, you determine what benefits your company offers.
Remember that in most circumstances, if you are offering benefits to yourself through the company, you must also offer these same benefits to your employees.
Depending on the size of your company, in many cases, it is very expensive to offer a multitude of benefits right in the beginning. In this instance, it is usually more beneficial to obtain private benefits. Here are some benefits traditionally offered through an employer to consider purchasing to protect yourself, your family and your business:
Starting a business can be risky at times, but starting and owning a business without health-care is even riskier. Remember that maintaining optimal health is essential as a business owner. So it is important to attend annual checkups and well visits. Additionally, a large unexpected medical bill could be disastrous for your future financial planning so make sure to take some time to look into your private health insurance options if you do not plan on offering health insurance through your company.
Life insurance is another benefit that is usually offered by larger companies but can sometimes be overlooked in the private sector. As an entrepreneur, life insurance provides protection if something were to happen to you, which is why it is important to find a reliable life insurance plan. If your family depends on you and your business to provide for them, you should have a life insurance plan—this will ensure your loved ones are covered and save them from suffering a financial loss. Additionally, life insurance is essential because your net worth is directly related to your business.
While there are certain benefits offered by large companies that you can live without as an entrepreneur, disability insurance is usually not one of them. Long-term disability ensures that your income is protected in the event that you become permanently disabled. There is always the possibility that something could happen to you that could keep you from managing your business. As an entrepreneur, this is essential because you are the core person in keeping your business successful. So it is important to look into a long-term disability plan.
As an entrepreneur, you will need a personal budget to account for changes transitioning from working for someone to being your own boss. It is important to be intentional about creating and maintaining a personal budget. When you own your own business, finances can become a bit more complicated. It can be difficult to separate your business from your personal life and be tempting to want to put any additional funds back into the business. While this is admirable and can definitely help you to expand, remember to account for important expenses in your budget that you may not have had when you were not an entrepreneur.
Consider a line of credit
A line of credit could be helpful because it allows for cash to be readily available without having to tap into your personal accounts. A line of credit is somewhat like a credit card in the sense that when you pay back the amount you borrowed, the fund replenishes. This allows you to have more control over your funds to spend them the way that you see fit without any stipulations. A line of credit is also beneficial because it can be used in conjunction with other financial options available to business owners.
Track your spending within the business
As a business owner, you will want to ensure that you are reporting all expenses and continuously analyzing them for the health of the business. Check with your accountant to help you understand areas you are excelling in and areas that need improvement. Understanding your profit and loss reports can help you identify ways to improve your bottom line. You will also want to track money that is owed to you and ensure that your accounts receivable are accurate and current. Depending on your industry, it can be helpful to invest in enterprise solutions to make your business more seamless and efficient early on. You will want to make a habit of running your numbers on a weekly basis to keep track of the funds that are going in and the funds that are going out.
Remember to recharge
As an entrepreneur, you are clearly self-driven by default. While this is a wonderful trait to have, it can sometimes be difficult to take a break and recharge your batteries. Oftentimes entrepreneurs skip out on vacations and put all of their time and energy into the business. It is important to allow some time to maintain your personal wellbeing to become a better business owner. By having a solid financial plan in place, you have the ability to take some time for yourself without worrying that your business will suffer when you are not there.
Whatever industry you are in, being an entrepreneur can have its challenges but also can provide wonderful opportunities. You would not be able to achieve these opportunities without taking the initiative to be self-employed. Remember that by having solid financial planning in both your personal and professional life, you are setting yourself (and your business) up for long-term success.