At some point, business owners are stuck between a rock and a hard place when it comes to growing their business and how that growth will manifest itself financially. The pressures of managing a business often lead to neglect of the financial aspect of a business. However, an efficiently controlled financial plan is one of the most important prerequisites for the business’s prosperity in the hands of an entrepreneur. Financial advisors are an essential part of any business because they provide complex skills regarding financial decisions. Read more at Financial Planning for Entrepreneurs: The Role of a Financial Advisor.
Based on our experience in advisory, here are the five best tips that can help an entrepreneur not just survive but flourish financially. All these strategies offer a good platform for sustainable growth, wealth creation, and protection against risks.
1. Establish a Strong Financial Foundation from the Start
Financial experts advise anyone to set the right practices as soon as they get into the profession. Most people go into business without adequate knowledge of their financial status or the financial fitness of the business. This can eventually lead to wrong decisions and mismanagement of the company’s finances.
Financial experts advise that when entrepreneurs start their business, they should avoid mixing personal and business money. The use of hybrid personal business expenditures is unadvisable as it leads to problems related to taxation, confusing spending records, and even disturbing the true picture of business profitability. Financial advisors can usually assist in creating separate business and personal accounts, calculate the amount of starting capital as well as define clear-cut business expenses.
2. Diversify Your Revenue Streams
One of the major mistakes in many entrepreneurial ventures is the reliance of entrepreneurs on only one type of revenue generation. When a business is engaged in a single product or service, it is obviously easy to manage; however, it also brings more risks to the business. In this case, the failure of any one product or service will mean that the entire business has failed.
A financial advisor for entrepreneurs will advise you to avoid getting into a single income stream at the initial business stage. This could mean either making related products or venturing into other segments. Businesses can also adopt the concept of multiple income streams such as courses and subscription services. In this way, you divide the risk among multiple avenues and develop more stability. This means that the failure of any single product or service can no longer affect the whole business. Read more at Why Every Entrepreneur Needs a Financial Advisor.
3. Focus on Cash Flow, Not Just Profits
The major source of concern for most entrepreneurs is the profitability of their businesses, while little attention is paid to the company’s cash flow. However, this is not the whole truth; the fact is that even when the business earns a profit, it can be unprofitable if its cash flow is improperly managed. QuickBooks states that 30% of small businesses fail due to cash management issues, which stem from poor planning or management, hence causing financial pressures.
A financial advisor for entrepreneurs will always stress on the cash flow management. Monitoring cash flow is important for comparing your business income and expenditure on a daily basis. The advisor can show you how to work on balance sheets that will enable you to plan for the periods you expect less cash and more cash. When implemented, managing cash flow helps to forecast the availability of money for expenditure on bills as well as salaries and re-investment into the business.
Read more at Creating Accurate Cash Flow Projections for Multi-Project Construction Companies.
4. Develop a Long-Term Investment Strategy
Entrepreneurs should focus on long-term sustainable growth. This involves both strengthening the business capital and generating personal wealth. Many entrepreneurs do so with an aim of expanding the business and do not plan for the future. Business owners should consider for themselves a good investment plan that caters for the business as well as the personal financial plan.
This strategy should not only focus on the money that a business re-invests for operations. Businesses should consider a portfolio investment that has equity, fixed income, property, or any other investments. A finding from an NBER study shows that business owners with a diverse investment portfolio sustain business growth and financial stability by 25% more when economic shocks occur.
Opening retirement saving schemes should also form part of this strategy. These accounts enable business owners to save far more than most retirement plans and help ensure both their business and personal wealth. Read more at How a Business Finance Advisor Can Help Grow Your Company.
5. Plan for Taxes Early and Often
Taxation is not necessarily something business owners think about daily or hourly, but given expert advice, an active approach to taxes is always needed. Usually, entrepreneurs are held liable for both business income and taxes. These greatly differ depending on the kind of business organization (LLC, S-Corp, etc.) and others, plus the type of allowable deductions.
When consulting a financial advisor, you will be in a position to determine the various tax savings measures and credits for entrepreneurs. An advisor will assist in determining areas of deductions, which include home office expenses, health insurance, and retirement contributions, among others, which will, therefore, reduce your taxable income.
Also, proper business structure and making tax estimations during the year can help avoid large end year taxes that can affect the business. Read more at Maximize Your Returns with Expert Business Tax Preparation Services.
Conclusion
Starting and running a successful business has its own financial risks and issues. Harder strategic approaches have to be implemented in order to turn business into successful, growing ones. It is essential to get the advice of financial advisors for tackling issues such as cash management and forecasting, sources of diversified income, calculation of tax, process of investment in business and protecting personal wealth.
Using these tips, entrepreneurs can better guide their firms to opportunities and improved stability. Moreover, working with a financial advisor for entrepreneurs will enable you to develop a strong financial foundation for your business and your life.
Our principal service offering at 406 Consulting is dedicated to providing business minded individuals with solutions to their issues surrounding the financial management of new enterprise initiatives/activities. Come to us today to bring your business to the next level.
