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Smart Financial Planning for Small Businesses and Startups

Before you settle into your work routine for the day, try asking yourself this question: When was the last time I thought critically about my financial planning? If you’re a part of the many small business owners who neglect to create a budget, this question is likely long overdue for an answer.

Whether you’ve been running your business for the past 10 years or are operating an up-and-coming startup, savvy financing is the key to generating success today and success for years to come. This is because smaller organizations, which seldom have a large pool of cash reserves, are much less durable in the event of financial catastrophe.

Between supporting your employees and tackling the immediate needs of your clients, you might feel that all of your time and energy is already spent before you’re able to even consider combing through your finances. To help you balance your front- and back-end business needs, we’ve created a list of critical strategies that will help you finance your business smarter, not harder.



Personal Financial Planning

One of the key differentiators between a small business owner and a larger corporate entity is that the longevity of your business is innately tied to your own personal finances. The better you can manage your own financial situation, the more resources you will have on hand for your business. Let’s look at a few examples:


Smarter Savings

As a small business owner, you’re likely the first one in the office in the morning and the last one to get paid. A majority of SMB owners don’t pay themselves for the sake of their business, with 26% of entrepreneurs going up to 6 months without a cent of income. The decision to go without pay is often a necessity for newer organizations, as their owners instead opt to devote their salary toward pressing expenses or further investments.

This means you’ll need a solid well of personal savings to draw from if you hope to last several months without any semblance of a stable income.

Fortunately, there are a number of smart ways that you can begin saving your cash today. One of the best methods for saving that requires little-to-no added effort is to refinance your existing debts. Depending on your current arrangements, there are a number of refinancing opportunities that you could be qualified to use. Student loan refinancing, for example, is a great option for individuals who are saddled with high-interest loans from school, and no-closing-cost refinances for mortgages can help SMB owners who have homes tackle their short- and long-term savings goals.


Personal Credit Score

Similarly, the current state of your credit and outstanding debts can carry an enormous impact on your business finances. Although an excellent credit score isn’t a requirement to receive small business loans or other funding opportunities, poor credit often means lower loan amounts, higher interest rates, more fees, and a shorter repayment period.

That’s why it’s vital to work on actively improving your own credit score. There is no easy or quick solution to turning around your credit, so instead resolve to get current with your existing bills and pay them on a regular basis. Keeping balances low on your credit cards can help you avoid further damaging your score, so long as you avoid opening or closing multiple accounts as a temporary fix.



Business Financial Planning

Now that you have your personal financial planning in order, let’s look at two of the most critical features within every small businesses’ financial plan and strategy.


Cash Flow Management

Cash Flow management—or the process of keeping money entering the business to match the amount flowing out—is one of the greatest challenges that smaller businesses face on a month-to-month basis. Poor cash flow management is a symptom of a larger broken business process, where the procedures for collecting payments, tending to the books, and determining competitive pricing are not owned or defined. This makes it difficult or impossible to ensure that you have the funds you need to stay afloat from one billing cycle to the next.

Although the solutions to inefficient cash flow are as varied as the problems that cause it, the key is to map out your cash flow process with efficiency and cost in mind. Business mapping helps small businesses both identify weaknesses in their current operations and pinpoint who specifically will take ownership in solving them. This means that you’ll rarely again run into the issue of a long-forgotten invoice that was never paid off or cash flow that seemingly doesn’t line up with your expenses come the end of the month.


Reducing Overhead

The less money you spend on regular expenses, the more cash you will have on-hand to invest in yourself and your business. Lowering your regular expenses is quite simple in concept, but it proves to be much more difficult in execution. This is because overhead costs, by their very definition, do not directly contribute to your profits—regardless of how critical they are to your auxiliary business needs.



Once again, the best way to identify excess overhead and cut it out of your operations is to rely on strategic process mapping. As you calculate your business process cost, you can highlight unnecessary overhead by identifying what is known as support costs. These expenses include management wages, administrative costs, business technology infrastructure, and any other line on your monthly bill that helps keep the lights on. Once you’ve compiled a working list of your support costs, you can then perform an audit of your existing overhead by looking for inefficiencies, places to consolidate or simplify, and cheaper alternatives to your current vendors. Not only will reducing your unwanted overhead costs simplify your bookkeeping, but it will also help you maximize your return on each dollar spent toward the business’s success.


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