Running a business demands astute financial planning and resourcefulness. However, this doesn’t come naturally to many people, even bright entrepreneurs.
It’s easy to get lost in the complex maze of finances for even a small operation, and the consequences of minor mistakes can be dire.
What can we learn from successful business owners about financial planning, and what principles of personal finance can we apply to running a company?
Here are some tips from entrepreneurs who know the ins and outs of budgeting, accounting, and all things money management.
Long Term Vision
Successful business people agree that short-term thinking leads to poor results in all areas of business, particularly in financial planning. This applies to things like management and succession as well – think long term to win.
“When you’re starting out, thinking about who will one day take the reins of your business may be furthest from your mind,” said Tyler Forte, Founder and CEO of Felix Homes. “But planning for who will take over key leadership roles can help ensure its future. So, it’s a good idea to hire highly qualified employees and invest in their continued training. Offering mentoring and coaching and providing them with leadership opportunities will further develop their skills and grow their confidence in handling challenges. Succession planning today can help make sure your business is around tomorrow.”
Don’t be caught off guard when it’s time to pass the torch or make major financial decisions. Plan ahead on every front and leave nothing to chance.
Chalk Up Wins
Like all things in business, momentum is the key to mastery. Making smart financial decisions early on will compound quickly as your company grows, and that momentum will carry you through difficult times and obstacles.
“Small wins lead to big goals,” said Bari Medgaus, COO of Stabili-Teeth. “Have a timeline on where you want to have your business set, and keep to that timeline. Have a dedicated team who are able to track financial records for you to help stay on those goals.”
Timelines, tracking, and goal-oriented financial management will make you and your team unstoppable, so set those systems in place to prosper.
Budget Flexibility
A static budget can be restrictive and limiting in a dynamic business environment. Try a flexible approach to budgeting that offers wiggle room when you encounter the unpredictable costs of running a company.
“This past year has been abundant with surprises and uncertainties,” said Roy Ferman, CEO of Seek Capital. “A great way to prepare your finances is by establishing a rolling budget. Budget in a way that accounts for multiple scenarios without fully fixating on a singular predicted outcome. It’s like having a plan A, B, C & D for all of your financial choices and ventures. You want each plan fully mapped out as if it was plan A to keep you on top of the discrepancies that are bound to occur. Allow yourself to come up with different variations, negative and positive, and allocate your funds appropriately for those variations.”
It’s also important to forecast finances to an acute degree, with accurate predictions and emergency action plans.
Think Big, Move Quick
When your financial strategy spans months and years ahead, you can drill down on the small yet significant daily decisions that matter for business success.
This isn’t to say you should take a hands-off approach to money management, but the more you plan ahead, the more energy and effort you can apply to your to-do list each day.
“Long-term thinking and planning enhances short-term decision making,” said Author and Entrepreneur Manoj Arora. “Make sure you have a plan of your life in your hand, and that includes the financial plan and your mission.”
Entrepreneurs find that personal and business finances often mix, so best practices are universal.
Redefine Success
There is much more to financial management than accounting and budgeting. Smart business owners set clear goals and track metrics to achieve their own definitions of financial success and retain momentum.
“Success is more than just money; it looks at whether you are running your business the way you envisioned it and with a schedule based on your work hours,” said Rym Selmi, Founder of MiiRO. “You control its operations and not the other way around. The best way for this to happen is with a team to help minimize the workload, give you the freedom to network, and let you take time off.”
You may find that freedom becomes more important than money after some time, so always be ready to reimagine what success means to you.
Precise Targeting
Smart financial management starts with a strong business model and intelligent marketing. Focus on targeting the right people so you can hit your revenue targets each month.
“If you want to make yourself stand out from your competition, then target your market,” said Robert Applebaum MD, Owner of Applebaum MD. Determine which niche market you want to serve and attend networking events they frequent. Educate yourself on your market so it’s easier for you to connect with that group. You want to create genuine relationships with people who can potentially become your clients.”
More money doesn’t really mean more problems – quite the opposite!
Master One Niche
When your business is firing on all cylinders, you can put financial best practices on autopilot and seamlessly cruise your way to success. This starts with picking a niche and going all-in with your business plan.
“Find a target market and get an understanding of their needs so you’ll know how to best serve them,” said Carrie Derocher, CMO of TextSanity. “Get involved through community events, volunteer work, and organizations that have a large portion of your market. Once you connect with them, you’ll build relationships and even learn more about your market through conversations.”
Obstacles are more easily overcome when your business is working well, so keep the focus on the fundamentals.
Discipline and Execution
There are no shortcuts in business, and never believe anyone who says otherwise. Successful business owners know all about the grind, walking the narrow path, and performing at a high level for a prolonged period of time. That’s what it takes!
“Financial planning comes down to having a strategy, being disciplined and executing that strategy,” said Aidan Cole, Co-Founder of HIDE. “If all financial categories are planned out you will know exactly where funds are going. Let’s use a business example, when a check comes into the business, that check should be divided up by each business need. Portions of that check should go to marketing, debt, future purchases, insurance, etc. This way your financial planning is always active and you are being proactive instead of reactive.”
Without discipline, none of this happens in the first place, so build that master skill that dictates success.
Carve Out a Space
It’s easy to get caught up in the weeds of financial planning and forget to keep your business running optimally. Never forget the business basics that matter most and keep the revenue flowing.
“Focus on a specific market when getting clients, such as lawyers, doctors, or young people,” said Haim Medine, Co-Founder and Creative Director at Mark Henry Jewelry. “Discuss what’s important to your client, making sure to learn about their goals and values. Build your network through volunteering to develop relationships and connecting with other advisors.”
Financial goals will fall into place when you’ve got rock-solid fundamentals driving your business forward.
Don’t Skip Payday
Sacrifice is part of the game when starting a business out of thin air, but there’s no glory in suffering for no reason. Give yourself the money you need to cover personal expenses and enjoy life as well.
“One thing new entrepreneurs need to remember is to pay themselves,” said Dr. Zachary Okhah, Founder and Chief Surgeon at PH-1 Miami. “When you’re committed to your vision and making it happen, you can lose sight of life’s everyday practicalities. So, in your financial plan, be sure to include a modest salary for yourself. Less stress at home allows you to focus on your business goals better.”
We all have to go into Ramen Noodle mode now and then, but don’t stay in that zone for too long.
Maximize Financial Literacy
What is your definition of financial literacy, and how can you improve this skill set in your personal and business life? Do whatever it takes to learn and apply these principles ASAP, because they can make or break your path to success.
“If you understand how money can work for and against you, you can make better decisions,” said Mellody Hobson, former Chairwoman of DreamWorks Animation. “Financial literacy is not about wealth but about understanding money regardless of the amount. It’s about how you treat it and how you maximize opportunities.”
Everyone has gaps in their financial skillset – identify them and shape up fast.
Bring in a Pro
Struggling to wrap your head around the complexities of money management for your business? Instead of floundering around, have someone help you out. No shame in that.
“Have a financial planner on your team,” said Eric Gist, Co-Founder of Awesome OS. “This will help save you tons of time and resources when you have a dedicated person who is able to help with planning. They will be able to see where things are headed and how to stay on track.”
A 30-minute consultation can save you so much hassle and headache – why wouldn’t you do it?
Variables and Volatility
Part of financial planning is accounting for everything that can possibly disrupt your business and “baking it into the cake” of your strategy. At the very least, you’ll be prepared if something goes wrong.
“When your business relies on your sustainable crops, damage to your raw materials or disruptions to your supply chain can bring your business to a halt,” said Jared Pobre, CEO and Co-Founder of Caldera + Lab. “So, it is critical to your financial plan to consider environmental risks like drought, freeze, and disease. For example, crop insurance can protect your business against revenue losses that occur during that crop year. In addition, having crop insurance can help your sustainable farm in its recovery from volatile market fluctuations.”
2020 was a major eye-opener for risk management, so don’t get caught tripping.
Digital Gold
Forward-thinking business owners are always looking for an edge in marketing, product development, and financial management. This means knowing about new technologies and jumping out ahead of trends.
“A great way to diversify your portfolio is investing in cryptocurrencies,” said Jason Butcher, CEO of CoinPayments. “Cryptocurrencies are a new method of currency and have risen in popularity over the years. Investing a small portion of your money in these cryptos can prove very profitable if the market for them continues on the path it’s on.”
Extensive research is key for crypto and other emerging financial trends, but it’s definitely worth considering.
Plan for Pivots
Things can change in the blink of an eye, and your business might be on the chopping block if you’re not prepared with at least plan B and C. Nobody is invincible in this economy, so be ready.
“Always plan for the unexpected,” said Peter Horvath, CEO of High Times. “Financially you should always be prepared for black swan events. The pandemic proved that anything can happen in business and businesses should be prepared for these types of events financially.”
The peace of mind from planning is worth the effort in itself, so put together your plan sooner than later.
Clarity of Direction
Where do you want your business to go, and what do you aim to achieve in real terms? These seem like obvious questions, but they can reveal a lot about how to manage finances and allocate funds.
“The best way to financially plan is to know exactly what’s coming in the door and where it’s going next,” said Aidan Cole, Co-Founder of TatBrow. “Make sure to have a budget that is actively updated weekly. Break down each category and label when it is due and for how much. A fantastic way to keep most business or personal expenses in line is to automate as much as possible. This way you will not have to physically push a payment to a vendor when things become due. This saves me a ton of time and stress, I know expenses will always be paid because they are automated.”
Make things easy on yourself by creating strong boundaries and goals that you track to the letter.
Small Steps, Consistently
Aspiring entrepreneurs sometimes get caught up in the trap of comparison and trying to be an overnight success. In truth, the journey to the top will take time, and smart financial planning will help you navigate.
“Know where you are wanting the company to go and create small steps to reach those goals financially,” said Guy Bar, Founder of Hygear. “Keep a strong track record of where everything is going and where you may need to cut back on. It is okay to fail, just fail forward.”
Remember that failing is fine, as long as you learn your lesson and keep pushing.
Proven Financial Tools
There is a laundry list of financial planning tools and technologies designed to make your life easier when running a business. The competition is using them, and so should you.
“A great way to financially plan for your future is to set up a 401k,” said Chris Gadek, Head of Growth at AdQuick. “This can be a great way to set yourself up for retirement. A 401k takes a small portion of your income and invests it for you and is very easy to manage. I recommend everyone has one.”
There’s no such thing as a magic pill or instant fix for financial planning – hard work and skill development are the only answers. However, once you get the basics down, it becomes so much easier to automate and navigate your business finances.
