Financial Planning for Business Owners: 4 Essential Considerations

If you’re an entrepreneur, financial planning can get a little complicated. Not only do you have to manage your own money, but you also need to make financial decisions for your business. 

Some aspects of personal and business financial planning are the same — balancing cash flow, managing debt, and making smart spending decisions are things you have to do at home and at work. But there are also several unique financial elements that are only relevant to your business. 

Let’s look at how to address those essential considerations via comprehensive financial planning for business owners.

Business Finance Consideration #1: Company Valuation

One of the first things to think about is your company’s financial worth. This isn’t just a vanity metric! Knowing your company’s value is crucial for making informed decisions. 

If you don’t know how much your company is worth, it’s difficult to make decisions about investments and growth opportunities. You can’t really determine if an investment is worth the risk if you don’t understand the impact of the investment and the potential outcomes (good and bad). 

How do you figure out what your company is worth? There are several factors involved — it’s about more than just the monetary value of your company’s assets and liabilities. Past performance, market conditions, and industry trends all play a part. You also need to account for intangible assets, such as brand reputation and intellectual property.

While you may be able to estimate your company’s approximate worth, it’s a good idea to work with a professional. A certified business valuator has the knowledge and tools to give you an accurate assessment of how much your company is worth. 

Once you have the initial valuation completed, create a schedule for regular reassessments. That way, you can always have an accurate understanding of the financial worth of your company.

Business Finance Consideration #2: Retirement Focus

One of the most common issues business owners have is not taking care of themselves financially. They pay everyone else’s salary and pay vendors, and while the business oftentimes can pay handsomely, they often neglect things like retirement accounts. Nothing is more frustrating than considering retirement and realizing you could have saved more if you had worked at a company and regularly contributed to a 401(k).

The easiest way to figure out how much you need to save for retirement is to do a financial plan. This will give you a roadmap of what the business needs to provide to you so you know you will have enough money to retire. If the business grows even more or you sell it, that’s the cherry on top. The idea here, though, is to make sure your and your family’s basic needs will be met as you age!

One of the primary benefits of a financial plan is making sure your business can support your current lifestyle — and your future retirement. This kind of plan can bring a sense of relief and security that can often be hard to find as a business owner.

Business Finance Consideration #3: Exit Strategy

Do you have an exit strategy for your business? More importantly, is it tax-efficient?

If you don’t consider tax laws, you might be in for an unpleasant surprise when you sell your business or retire. Even passing your company on to your children can have significant tax consequences, especially if you don’t prepare ahead of time.

An experienced tax professional can help you understand the potential tax consequences of your exit strategies and develop a plan to minimize your tax liability. Look for a tax advisor who specializes in exit planning — they have in-depth knowledge of crucial factors like capital gains and estate tax codes.

Business Finance Consideration #4: Succession Planning

Although some elements of succession planning can overlap with exit strategy, these two areas aren’t exactly the same. Succession planning involves identifying the people you want to take over your business when you (and other crucial executives) leave, retire, or pass away. 

Succession planning is important for all types of businesses, but it’s especially crucial for small and/or family-owned companies. A clear plan reduces the risk of a contentious transition.

As you think about the future of your company after you leave, consider whether there are any potential successors among your team members. If you identify any individuals who could be good executives, start investing in their career development now. Consider providing them with advanced training and/or involving them in a mentorship program.

Get Comprehensive Financial Guidance for Yourself and Your Business

When it comes to managing your business’s finances, there are some basic principles that overlap with your personal money management. Creating and following a budget, saving for a rainy day, and managing debt are all crucial for your business and household finances.

But there are several additional considerations that can impact your business financial plan. You need to think about current elements, like risk management and valuation. And you also need to prepare for the future by having a tax-efficient exit strategy and a clear succession plan.

Do you want expert guidance for your home and business finances? We are here to help! Our team has the knowledge and practical experience to guide you in making the best decisions with your money.

We’ll help you identify your top business and personal financial goals and work with you to gain a clear understanding of your situation. Then, we’ll create a customized plan to help you reach those personal goals and keep your business on track as well. If you’re ready for personalized financial guidance from an expert, schedule a consultation!