Jovan Johnson, MBA, CFP®, CPA/PFS
The journey of entrepreneurship is unique and understood by only a few. Owning a business can be very exciting. However, it is not without its challenges, especially when it comes to finances. For many entrepreneurs, cash flow can be unpredictable, making traditional financial planning methods less effective.
To reach your personal goals, you must get your business finances in order first. In this article, we will explain some key aspects of comprehensive financial planning for entrepreneurs.
Comprehensive Financial Planning for Entrepreneurs:
Cash Flow Management and Budgeting
Comprehensive financial planning for entrepreneurs demands a foundational focus on cash flow management and budgeting. As per SCORE’s 2024 findings, a staggering 82% of small businesses fail due to cash flow problems. To reach your business and personal goals, you must understand how money moves in and out of your business. It is the foundation for strategic decision-making and sustainable growth.
Implementing a business budget or cash flow management system can help. Trying to run your business without understanding the numbers is like driving blindfolded.
Should you need assistance with creating an effective cash flow management system, consider seeking support from a qualified financial professional.
Retirement Planning
Retirement planning can be tough for entrepreneurs, as the responsibility falls solely on their shoulders. It is easy to get caught up in the day-to-day operations of your business, but saving for retirement should not take a back seat. Even if you think selling your business will fund your retirement, there is no guarantee. Having a retirement account not only serves as a safety net, but also as a way to reduce taxable income in your high-earning years.
Fortunately, there are many retirement options for entrepreneurs such as the solo 401(k), traditional 401(k), SEP IRA, SIMPE IRA, Roth IRA, and Traditional IRA. You can start by using a free online retirement calculator to estimate how much you will need to fund your retirement.
It is also a great idea to seek advice from a financial planner or CPA who can help you choose the best retirement plan for you based on your business and personal goals.
Insurance and Risk Management
As entrepreneurs, we work hard to start and build our businesses. Without adequate insurance coverage, a single lawsuit could put you out of business. Insurance is an essential investment that protects your business and personal assets from an array of potential risks, such as lawsuits, liability claims, and property damage.
The specific insurance coverage you will need varies depending on factors like the nature of your business and its location. Common types of insurance for small businesses include:
1.) General Liability Insurance
2.) Professional Liability Insurance (Errors and Omissions Insurance)
3.) Business Owner’s Policy (BOP)
4.) Product Liability Insurance
It is crucial to carefully assess your insurance needs, ensuring you maintain adequate coverage. Regularly reviewing and updating your insurance policies is essential for ongoing protection.
By securing adequate business insurance coverage, you not only mitigate potential financial risks but also ensure the long-term stability and resilience of your small business.
Tax Planning
One thing that every entrepreneur learns fast is how complicated taxes are. Tax planning for entrepreneurs can be very challenging, yet it is a key piece to achieving your financial goals. As a business owner, you must become familiar with various taxes, including federal, state, and local income taxes, along with self-employment and sales taxes. In addition, the concept of quarterly estimated tax payments may be unfamiliar to some.
As you can see, taxes will likely be your greatest business expense. However, with proper tax planning, you can find strategic ways to reduce your tax bill. Whether it involves contributing to a self-employed retirement plan or deferring business expenses to future high-income years, tax planning is crucial to reaching your goals. Find a CPA or financial planner that is equipped to help you with tax planning.
Estate Planning
Estate planning often ranks low on an entrepreneur’s list of priorities, yet it is a crucial aspect of financial planning. It requires deep reflection and planning surrounding the future of your business. Establishing a business succession plan is essential. This plan outlines your wishes for your business if something were to happen to you. Here is a list of a few key components of an estate plan:
- Designate beneficiaries for investment, retirement, and bank accounts
- Last Will and Testament
- Revocable Living Trust
- Financial Power of Attorney
- Succession Plan
- Digital estate planning document
- Life insurance for estate liquidity (business debts, payroll, etc.)
Given that your business is likely your most valuable asset, careful consideration within your estate plan ensures a seamless transition of ownership and management in the event of incapacity or death. Estate planning for entrepreneurs is very complex, requiring assistance from a qualified estate planning attorney.
Final Thoughts
Establishing a comprehensive financial plan as an entrepreneur can you help you reach your business and personal goals. Comprehensive financial planning should be unique to your specific financial and life goals. Consider partnering with a qualified professional that can help you build a comprehensive financial plan tailored to your goals.
Are you ready to partner with someone to help you build a comprehensive financial plan? If so, book a Free Consultation with us to see if we are the right fit for you and your business.
Disclosures
None of the information provided is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Piece of Wealth Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein.
