Financial planning for entrepreneurs is very important so that they can successfully build their businesses. As an entrepreneur, you are responsible for funding your retirement plan, healthcare, and other benefits. In addition, it is up to you to ensure that the financial aspects of the business are cared for appropriately. Entrepreneurs take on many roles.
There were 804,398 new entrepreneurial businesses opened in 2020, the highest number since 1994. Thanks to The Great Resignation, now might be the perfect time for you to start your own business. In this article, you will get all the information that you need including financial planning tips for entrepreneurs as well as the best courses, best books, and best tools for entrepreneurs.
Top 5 Financial Planning Tips for Entrepreneurs
Knowing that a personal financial plan can benefit your business is one thing, but putting a proper business plan together is another. This task may seem a bit overwhelming, especially if you’re unsure of where to start. You can, however, learn from the financial planning strategies we have briefly explained below to prepare for your financial future.
1. Have a Plan
You can begin by categorizing your short, medium, and long-term goals and needs in order of priority. Doing this before you embark on your entrepreneurial journey is a good choice. Many new entrepreneurs give themselves a hard deadline from the get-go. If their business fails to generate a target income by a specific time, they return to regular employment.
2. Make Adjustments When Necessary
Circumstances can often change unexpectedly. In the case that this happens, you will have to adjust your financial plan to suit the new situation. Having contingency plans can help cushion the effects of unexpected changes and increase business continuity. Since life can bring about natural changes, it’s best to have an idea of what you want at different stages of life and what that means for your business.
3. Prioritize Financial and Educational Objectives Accordingly
Financial objectives may not always go hand in hand with personal goals. Entrepreneurs must also figure out how much of their time they will need to spend chasing educational opportunities and boosting their profiles without earning money. The concept of prioritizing time over making money may not be easy to understand for new entrepreneurs. This is why setting a deadline can help them stay focused.
4. Understand That Financial Well-Being Is Important
Concerns about money are a leading cause of stress. When you take care of your finances, you’re also taking care of yourself. Taking your time to understand your financial position and planning accordingly is a great way to look after yourself. Investing in your financial well-being as an entrepreneur will make your business more sustainable.
5. Spend and Save Wisely
Many business owners who are just starting out want to spend a fortune on fancy office spaces and expensive furniture. However, this might not be in their best interest. You can start from humble beginnings and then grow from there. You should also not bother having a large amount of stock available. Instead, you should figure out what exactly your customers need and make adjustments as demand changes.
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5 Financial Mistakes to Avoid for Entrepreneurs
Knowing what to do as an entrepreneur is not enough. You also need to have an understanding of certain pitfalls you should avoid. This is necessary for you to become a successful entrepreneur. It is not necessarily a bad thing to have some trial and error but the goal is to minimize these errors and avoid making a bad choice when it comes to finances.
1. Concentrating Your Risk
Many entrepreneurs make the mistake of assuming that their business will serve as a perfect retirement plan, even though this might take decades to accomplish. This is not a wise choice as the rate of business failure makes putting all your eggs in one basket a huge risk to take. A good way to strike balance is by also having an investment account and an emergency fund.
2. Trying to Do Everything by Yourself
You should distinguish between what you can do best and what you have to do because it needs to be taken care of. Spending a lot of time on a task that does not fall within your strengths is a waste of time and money. Outsource work to more competent hands in other areas so you can focus on your strengths. It may be wise to hire a financial planner or financial advisor.
3. Failing to Do Cash Flow Analysis
Entrepreneurs must manage and analyze their cash flow so that they can efficiently control cash outflow and inflow. This may be done on a daily, weekly, or monthly basis depending on the sensitivity of finances. This is highly important as a study from QuickBooks found that 61 percent of small businesses worldwide have difficulty with their cash flow.
4. Focusing Only on Fundraising
Many entrepreneurs think that raising more money from an angel investor will solve all their financial troubles. They do not understand that it is more important to focus on how to create more value within the company. Concentrating on building a great product, serving customers, having good economics, and respectfully treating employees should be a priority. A great foundation will help your business grow.
5. Failing to Pay Yourself
Many entrepreneurs treat their businesses like their children. They focus on taking care of the needs of the business like parents would do for kids and forget to cater to their own needs. Prioritizing personal finance is as important as business finances. As an entrepreneur, you should make sure to pay yourself as you earn.
How to Make an Entrepreneurial Budget
A business budget is a very important element for ensuring your business turns out successful. It is an overview of a business’s finances that outlines the income and expenses and helps you calculate profit. It is also important that you have a proper personal budget for your income, determine fixed costs and variable personal expenses, and put it all together to calculate your net profit. It should also include tax planning.
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Entrepreneur Sample Budget
|Expense or Income||Amount|
|Total Monthly Income||+$20,000|
|Personal Rent||– $1,600|
|Office Space Rent||– $1,200|
|Utilities and Bills||– $1,600|
|Debt Payments||– $2,500|
|Key Employee Part-Time Monthly Salary||– $2,500|
|Office and Business Supplies||– $800|
|Packaging and Shipping||– $400|
Financial Planning Resources for Entrepreneurs
When trying to learn how to become a successful entrepreneur, you can find a wide range of useful resources that can help you, from books to courses to financial tools that can make financial planning and organization easier. Check out some of these financial resources that can ease your entrepreneurial journey.
Financial Classes for Entrepreneurs
- Financial Analysis for Decision Making from Babson Online. This course is helpful if you want to understand the financial elements of starting a company. This course will help you make the right business decisions. It runs for a period of four weeks at two to four hours per week.
- Creativity & Entrepreneurship from Berklee Online. This course will help you make the most of your creativity. It approaches entrepreneurship as a creative process, drawing from concepts in the music world. The course runs for four weeks at three to five hours per week.
- The Essential Guide to Entrepreneurship by Guy Kawasaki. Famous entrepreneur and investor, Guy Kawasaki, runs this course. It explains the nitty-gritty of starting up a business, from launching to team building and product marketing. You can choose the duration of the course as it is self-paced.
- Becoming an Entrepreneur from MIT Launch. This class combines exercises and videos to give you the best in entrepreneurship studies. You will learn the common myths surrounding entrepreneurship as well as how to identify opportunities, how to pitch to sellers, and more. The duration is six weeks at one to two hours per day.
- Entrepreneurial Finance from MIT OpenCourseWare. This course is helpful for entrepreneurs who are looking to do more than just invest. It addresses the main financial challenges that business founders face when they want to fund their startups. This course is self-paced.
Financial Planning Books for Entrepreneurs
- Rich Dad, Poor Dad. This book can start you on your quest to learn about entrepreneurship and personal finance. It’s an excellent jumping-off point.
- Get a Financial Life: Personal Finance In Your Twenties and Thirties. This book points out all the basics of personal finance and how to manage money. The book contains a lot of highly valuable tips.
- I Will Teach You to be Rich. This book teaches you how to automate your savings via an efficient system. The book hinges on the four pillars of personal finance which include banking, budgeting, investing, and saving.
- The Lean Startup. This book will inspire you to operate your own business. An important aspect of the book focuses on managing finances. You will find the book beneficial as it will help you lay a proper foundation for your company.
- Predictable Revenue. This book is excellent for startups that use a business-to-business sales process and that are looking to utilize a more modern approach to lead generation to drive up more revenue.
Financial Planning Software for Entrepreneurs
- FreeAgent. FreeAgent is an online accounting software for freelance workers and small business owners along with their accountants. This software helps organize business processes more efficiently.
- Float. Float is software for forecasting cash flow and scenario planning. Users of this software get a visual view of what happens with their cash flow. This can help build confidence and decision-making.
- Xero. Xero is a cloud-based accounting platform. It grants access to real-time information on cash flow. This platform can automate business tasks and help run your business from any location of your choice.
- Gusto. This platform is multi-functional. You can get all the tools and services that your business requires to grow. Tools on the platform include a burn rate calculator and salary comparison tool.
- Expensify. This is the leading application in the world for receipt and expense management. This app allows you to automate each step of expense management such as receipt tracking, mileage, and syncing with other relevant software.
Meet Your Entrepreneurial Financial Goals in 2022
Generally in life, for you to get to where you’re going, you must first understand your starting point and then plan the rest of your journey. Entrepreneurs must make the effort to invest in their financial life. This is what will make your business more sustainable and make you achieve long-term success. It may also be beneficial to take financial management courses to better equip yourself with the knowledge and tools you need.
Financial Planning for Entrepreneurs FAQ
A good way to do financial planning is to avoid any bad debt traps. Try to only take loans that are necessary for you to run your business venture. Do not take loans that are not adding any direct or indirect value to sales. It is best to be frugal and debt-free.
Entrepreneurs need to have a business plan as it establishes the financial goals of the company and helps with risk management. Financial planning will also help ensure that the financial future of your business is secure and that you won’t run into cash flow problems or other financial business hardships.
Financial planning is a step-by-step approach that an entrepreneur takes to meet their business goals. It is also a crucial part of a business plan. Business planning allows you to control your income and expenses so that you can manage money.
Another name for a financial plan is an investment plan. However, in personal finance, a financial plan may focus on other aspects of life such as retirement planning.
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