Starting a new business creates feelings of excitement, nervousness, and hope in the hearts and minds of business owners. We are going on a new endeavor, and we want nothing more than to succeed professionally and personally.
You want to avoid potential problems and setbacks in your new business. You want to be successful entrepreneurs. Success all starts with establishing ideal financial management within your small business.
Making the right financial decisions is very important when starting a new small business. Wouldn’t you like to know the risks you face and prepare for any outcome as a business leader? Would you like to adopt positive financial practices for your small businesses to thrive?
If so, continue reading this guide to learn some financial tips for small business owners. You will learn all about what financial strategies to take as a business owner and how developing a strong financial plan can boost a small business’ profits.
Determining Your Business Structure
The first thing to do when deciding to start a new business is to determine what type of business it is. The type of business will determine what income tax form will be filed in the future. It will also affect your personal liability and assets, as well as how you make money.
The following business or entity structures are the most common structures to choose from when starting a new business. Once you establish your business type, you can move forward with creating a solid financial strategy.
1. Sole proprietorship
Sole proprietorship is a great option for those who have a low-risk business idea or those who are testing out their business and want to see if it as a good idea as it seems.
This business structure gives you complete control of our businesses, and your business assets and liabilities are held separately from your personal ones. However, it can be harder to raise money under sole proprietorship since you can’t sell stocks, and banks don’t lend money as easily.
2. Partnership
A partnership is when two or more people are owners of a business. There are two types of partnerships that you can use a business structure.
One type of partnership is limited partnership. This is when one partner has unlimited liability, and the other partners have limited liability and less control of the business. The partner with unlimited liability also pays self-employment taxes as part of the limited partnership agreement.
The other type of partnership is limited liability partnership. This gives limited liability to every owner of the business. An LLP also protects each owner from the debts of the other owners.
3. Corporation
Corporations can be a good choice for higher-risk businesses or business owners who are planning to sell their business in the future. This business structure can also make a profit and can be held legally liable.
In a corporation, owners have the best protection for personal liability but also must keep extensive records and have longer operation processes. The cost to develop a corporation is also higher than other structures.
Some of the benefits of a corporation are that owners can raise funds through stock sales, and shareholders are kept separate from the company.
4. Limited Liability Company (LLC)
An LLC combines aspects of a partnership and a corporation. An LLC protects personal assets, and profits and losses go through to our personal income without us having to deal with corporate taxes. However, members of an LLC do have to pay self-employment taxes.
This business structure works best for higher-risk businesses. It also works well for business owners who want to pay a lower tax rate than what you would pay in a corporation.
Financial Tips for Small Business Owners
Once we figure out what kind of business we are going to start, we need to think about our financial plans and management. Planning out your finances, becoming more aware of your bookkeeping, and developing a contingency plan can really help our businesses in the long run.
Here is some financial advice to follow and think about when running a small business and planning for the future. These tips will teach us all there is to know about investing, measuring out risks and rewards, and seeking out a financial mentor.
1. Invest in Yourself and Growth
The daily operations of our businesses can be all-consuming at times. You need to remember to not put all your money into operations and that you should compensate yourself. If your personal finances are in good condition, your business finances are also in good shape. Money management and cash flow are a key to success.
However, while it is important to invest in yourself, you should invest in growth opportunities at the same time. Investing in increased service to customers and the careers of your employees can help your businesses grow. By putting additional funds towards growth opportunities, you are investing in the future of your company.
2. Have a Good Billing and Tax Strategy
Managing your cash flow as business leaders is key to operating a healthy business. If there are any clients or customers who are continuously late on payments, you need to analyze how you bill them.
Instead of repeatedly reaching out to clients with overdue bills, one suggestion is to change the payment terms to ‘2/10 Net 30.’ 2/10 Net 30 is the idea that if the customer pays the invoice within ten days of being billed, they receive a 2 percent discount off the total amount they owe. If they do not pay within 10 days, then full payment of the bill is due in 30 days.
If business owners have trouble with payments, especially quarterly tax payments, then try making monthly payments instead. Treating it like another monthly payment can help us remember to pay on time.
3. Measure Risks and Identify Rewards
Educating yourself on business strategies and financial planning strategies you don’t know as well is a great way to figure out risks and the rewards that come with them.
Market risks are critical to observe which scenarios can affect your businesses. Also, look at any discovered risk and see how it relates to your time, money, and quality. You need to ask yourself if the financial risks you take fall within your budget, your business timeline, and if it maintains the quality of the brand you are building.
Finally, you need to identify the rewards of our financial efforts, and if they are worth the risks you are taking.
4. Learn About Accounting and Numbers
While you don’t have to have a degree in accounting to run a business successfully, you do need to know how to speak the language.
Educating yourself on the language of accounting and knowing how to maintain proper bookkeeping of your business is very important. Even if a bookkeeper is hired to maintain finances, it is still prudent to be aware of the numbers in your finances.
Accounting for every one of your expenses and your profits keeps you transparent with your employees and partners, as well as keeps your business financially healthy. The more knowledge you gain on the ins and outs of your small business finances and their trajectory, can ensure you are getting ahead of any possible obstacles or problems.
5. Seek Sound Financial Advice
One of the best things we can do when starting a small business is to seek advice from experienced professionals.
Looking for a management company that provides wealth management, attorney access, and accountant services can be a great asset to use. A financial advisor can act with fiduciary duty and can be a trustworthy and reliable source of knowledge.
For small business owners, a wealth management company can help with the setup of new business, contribution plans, benefit pension plans, and accounting outsourcing.
A financial advisor can also help us with succession planning and an exit strategy for our business, which can give us peace of mind for the future.
Start Planning a Small Business Today
Now that you know more about starting a small business and you have gone over some financial tips for small business owners, you are on our way to creating and maintaining a profitable business!
Starting a small business is no easy feat. There are so many obstacles that can arise while we plan things out. You need to take financial advice from professionals and get help when making good financial decisions. These decisions can impact yourself, your partners, your employees and your customers.
Contact us to find out more about how we can help you on your small business journey. Our goal is to establish a healthy financial plan for small business owners to follow. We believe personalized and holistic financial management is key to developing a flourishing business.
