If you’re a small business owner, it’s likely that you have felt that successfully growing your business is one of the most important things in life. It’s also expected that you have poured quite a bit of your own personal resources into it. For these reasons, it’s crucial to have a strong financial plan so your business can build on a solid foundation.
Having a well-thought-out financial plan when you are your own boss is critical to the long-term viability of your business. Every financial decision you make will have a direct impact on the success of your venture. Whether you are in the early stages of entrepreneurship focusing on creating cash flow, or you have scaled quickly, it’s crucial that you update your financial plan to fit this stage of your life.
If you’re feeling a bit overwhelmed because you’ve heard of the benefits of financial planning (especially when you’re an entrepreneur) but don’t yet know how to better manage your finances, continue reading. We’ll explain how to establish your business priorities that will give you greater control over your company and more peace of mind.
Take stock of your expenses
When you think of your business expenses, you should separate them into two cost categories. Your operating expenses as well as your startup expenses, which include any costs of getting your business up and running. Examples of these include:
Of course, this is just a short sample of startup expenses. You can expect your own list to grow quite quickly as your business takes off.
On the other hand, operating expenses are the costs that are required to keep your business running. The best way to think of these is as your monthly expenses. Operating expenses may include:
- Salaries (including your own)
- Rent or mortgage payments
- Communication expenses (internet, telephone services, etc.)
- Office supplies
- General maintenance
Once again, keep in mind this is simply a partial list. After you have listed all of your operating expenses, you will have a total that will reflect the monthly cost of running your business. We recommend multiplying this number by 6, so you have a six-month estimate. If you add this to your startup expenses, you will have a ballpark amount for your total startup costs. Now you can begin to build your financial plan knowing this information.
Establish your emergency savings
Many small business owners have chosen the route of entrepreneurship for the freedom of being their own boss. However, the downside to this is an unpredictable income, especially in the early stages. When bills begin to pile up, it can cause serious difficulties for your financial plan and your business.
We suggest having your emergency fund built and ready before you officially dive into the journey of opening your business. This will allow you to be prepared for the time between just starting out and making a profit. Y