Statistics show that business owners and entrepreneurs do not focus much on planning their businesses’ financials; instead, they concentrate on growing their companies. Nevertheless, even a successful business can face severe problems in financial planning if it lacks a proper financial plan. A financial advisor for entrepreneurs may be the most important person who can help an entrepreneur achieve steady growth and success while choosing the correct course of action for cost control, taxes, investments, and retirement plans.
A financial advisor plays a significant role in an entrepreneur’s journey. They help them with comprehensive financial planning and can benefit both their personal and business finances.
Why Financial Planning is Crucial for Entrepreneurs
A survey conducted by the U.S. Small Business Administration (SBA) shows that approximately 80% small businesses fail within their first eighteen months of operation. The major causes of failure include poor records and financial management. Owners of businesses, at times, have to deal with family and business expenses. Therefore, sometimes even well-established and profitable businesses can end up as a financial mess if there is no good working financial plan in place.
A financial advisor for entrepreneurs develops recommendations to achieve their financial vision, business goals, and personal goals. The advisors make strategies that safeguard entrepreneurs' personal wealth and ensure that their businesses have sufficient resources to grow in the future. Read more at Why Every Entrepreneur Needs a Financial Advisor.
Key Areas of Financial Planning for Entrepreneurs
Cash Flow Management and Budgeting
QuickBooks survey shows that 61% of small business failures result from inadequate cash flow. Poor cash flow management is one of the most common reasons for business failure. Financial management starts with money management – literally – with cash. A financial advisor assists in making certain that your business organization has an adequate amount of cash flows to balance short-term commitments as well as in the provision of making long-term plans.
For instance, an advisor can assist in building a cash flow forecast which accounts for seasonal fluctuations so that you are ready for periods of little cash instead of experiencing cash deficiencies. A financial advisor helps one allocate resources more effectively to avoid emergencies. Read more at Creating Accurate Cash Flow Projections for Multi-Project Construction Companies
Tax Planning and Strategies
Due to poor planning, most business people end up paying more taxes than they should. A financial advisor for entrepreneurs can assist in dealing with business taxes. They also guide on matters such as how an entrepreneur can take advantage of the tax credits for businesses. They also advise how to structure the business entity legally to reduce taxes.
The IRS provides figures showing that small businesses lose billions every year because they miss tax deductions due to lack of knowledge. On average, small businesses overpay $1,000 or more every year in tax credits or deductions. A financial advisor can help businesses avoid such losses by giving expert advice. Read more at Maximize Your Returns with Expert Business Tax Preparation Services.
Investment Planning and Diversification
Entrepreneurs are always eager to reinvest the profits in their business ventures. In doing so, they miss better investment diversification opportunities. According to research conducted by the National Bureau of Economic Research, having multiple sources of income makes a business 23% more likely to operate for more than five years.
A financial advisor helps establish a diversified investment portfolio of stocks, bonds, and other securities. This diversification serves as a safety net in case a business is faced with problems. Such types of diversification can help manage market fluctuations and generate passive income, maintaining a healthy long-term financial portfolio.
Read more at Top 5 Tips for Entrepreneurs from Expert Financial Advisors.
Retirement Planning for Entrepreneurs
Some business owners fail to make any provisions for their retirement other than waiting for their business to appreciate in value and ultimately sell the company. A Global Entrepreneurship Monitor (GEM) survey showed that about 54% of entrepreneurs had no retirement saving plan in place. A financial advisor for entrepreneurs emphasizes the importance of such retirement plans which pay out more than traditional ones.
Insurance and Risk Management
Entrepreneurs are exposed to uncommon risks that should be underwritten by insurance policies. According to Hiscox, 45% of small businesses are subjected to some form of litigation, which clearly affects their cash flow. In such cases, insurance coverage such as business liability insurance, property insurance, or key person insurance lowers the chance of any loss. A financial advisor will advise on such risks so that they are well covered, and any personal or business loss can be avoided.
How a Financial Advisor Can Help You Stay on Track
Being an entrepreneur’s financial advisor involves more than just drawing up a financial plan. They are a companion who guides them throughout about how things should be done as businesses develop new strategies for expansion or face new challenges. Due to constant changes in the flow of funds, reviews and adjustments ensure that the goals are according to business objectives.
For instance, if your company records higher earnings than before, your financial advisor will advise whether you should put back the money, pay your debt, or invest it. The role of a financial advisor is to regularly review your budget and decisions to ensure you are making no mistakes.
Case Study: How Financial Planning Helped a Growing Business
Consider a new business owner who needs the services of an advisor after noting that solving cash flows’ problems was rapidly becoming a challenge. The advisor came up with a tight financial plan, guide them on what to claim as deductions, and lay out a plan on how to manage emergencies. This led to the healthy working capital or the cash flow, less tax burden and secure business foundation.
Also, the advisor helped the entrepreneur to prepare the retirement savings plan so that the individual was not compromising their savings for personal issues while concentrating on growing the business. Read more at How a Business Finance Advisor Can Help Grow Your Company
Conclusion
Financial planning forms an important part of the overall entrepreneurial strategy. SCORE’s research shows that the chances of success and growth are boosted by as much as 30% based on companies that have a detailed financial plan. Without it, the businessman faces low profitability and even business failure. By engaging the professional services of a financial advisor, you get what you need to succeed in the financial world and secure both your personal and business finances.
This is one of the important areas of focus at 406 Consulting where our core business is to assist business owners in financial management. Our advisors help you design a customized financial road map based on your company’s needs and ensure a financially secure future. Contact us today to find out how we may help you.
