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Personal Financial Planning for Entrepreneurs/Business Owners

by Amarachukwu
8 Financial Planning Mistakes You're Probably Making

For entrepreneurs and business owners, personal financial planning is critical to ongoing success. But too often, this important task is neglected in favor of more pressing demands on time and energy. Yet neglecting your finances can have disastrous consequences down the road. 

There are a million things to worry about and keep track of – from sales and marketing goals to hiring the right team to make sure your product is top-notch. But one thing that often gets overlooked in the hustle and bustle of launching a business is personal financial planning. That’s a mistake, though, because having a solid financial plan in place is essential for entrepreneurs. Here are some tips for creating a successful personal financial plan for entrepreneurs.

First, make a budget and stick to it. List your income and expenses, and be realistic about what you can afford. If you’re not sure where to start, there are plenty of online resources available.

Second, make sure you’re saving for retirement. Many small businesses don’t offer retirement plans, so it’s up to entrepreneurs to save on their own. Try to contribute as much as possible to a 401(k) or IRA account.

Finally, figure out what you need: The first step in creating a financial plan is figuring out how much money you need each month to live comfortably. This includes estimating your regular expenses as well.

Get a clear understanding of your personal financial situation

You can’t make informed decisions about your financial future if you don’t have a clear understanding of your personal financial situation. That’s why it’s important to take stock of your assets and liabilities, as well as your monthly income and expenses. By doing this, you’ll be able to develop a budget and save for the future. So, gather your financial documents and get started.

The number one thing that will help people understand their money better, is if they take the time to truly analyze how much debt there currently exists in their lives as well as all other aspects such as savings accounts or investments.

Have an emergency fund for unexpected expenses

Unexpected expenses can pop up at any time like a car repair, a medical bill, or a home repair, Whatever it is, if you don’t have the money saved up to cover it, or and if you’re not prepared, you’re going to have to put it on your credit card and risk going into debt or else they can cause a lot of stress. 

That’s why it’s important to have an emergency fund. A rainy day fund can help you avoid financial disaster in case of an unexpected expense. It’s not easy to save for a rainy day, but it’s worth it.

Review your finances regularly and make changes as needed

If you want to get a handle on your business finances, start by looking at it’s income and expenses and making changes as needed. You may also want to consider creating a budget and investing money wisely. By staying on top of your finances, you can make sure that you have enough money to meet your goals. By doing this, you can get yourself back on track and start working towards your financial goals. 

Have a plan – know what your goals are and how you’re going to achieve them

Too often, people start businesses without having a plan. They may have grand goals, but they don’t know how to achieve them. This can lead to frustration and failure. If you want your business to be successful, you need to have a plan – know what your goals are and how you’re going to achieve them. This doesn’t mean you can’t change your course as needed – but having a general idea of what you want will help keep you on track. So, What are your business goals? What steps will you take to achieve them? Knowing the answers to these questions is essential for any entrepreneur or a business owner.”

Track your spending – be mindful of where your money is going

Financial mindfulness is key for anyone looking to improve their financial situation. By tracking your spending, you can get a better idea of where your money is going and make adjustments accordingly. This can be helpful for entrepreneurs and business owners who want to keep tight reins on their expenses. Fortunately, there are many ways to track your spending – from simple spreadsheets to comprehensive apps. Whichever method you choose, being mindful of your spending is a critical step on the road to financial success.

Make a budget and stick to it

You must have a calculation of your company’s assets, that is, all of your assets minus all of your liabilities, everything you own minus all you owe. This computation might provide a value of positive, negative, or 0 as a result. If you have negative figures, I propose that you set a goal in your financial planning to reverse that trend and pay off all your obligations. If your venture is new, you may be at zero. Either way, you must understand your financial position precisely.

Similarly, you must keep your budget on hand, a record of all your financial transactions.

With these two numbers in hand, you may begin planning your financial future. To do so, you must respond to the following four questions:

What objectives do I want to accomplish?

Often, we have a clear vision of what we want to do, whether it’s establishing a company, purchasing an office, renting a bigger one, purchasing equipment, paying off debt, saving for maintenance, or taking a work vacation.

How many resources am I going to require?

After defining our objectives, we must determine the financial resources required to accomplish them.

At this point, it is unnecessary to specify how the money will be earned; all that is important is to understand that you must get that sum in order to accomplish the objective.

Additionally, have you ever mixed your personal funds with those of your business? Put an end to it.

How am I to do this?

Here, we will outline the steps necessary to accomplish our goals, which we refer to as strategies or financial alternatives.

Among these possibilities include saving, getting a loan, or selling an item we no longer need. Additionally, we may use our expertise and engage in another activity that generates additional revenue. When you use not just one, but multiple financial options concurrently, your financial situation improves.

It all relies on your objectives, your available alternatives, and the route that is the best fit for you.

The critical step is to develop a plan, while constantly keeping in mind that your route may be flexible and that unanticipated events may occur or your demands may alter over time.

How much time would I need to do this?

Once the above is specified, we must determine the timeline for achieving these business goals.

The objectives might be short, medium, or long-term in nature, depending on the time required to accomplish them.

A short-term goal is one we accomplish in less than a year, a medium-term goal is one we accomplish between one and five years, and a long-term goal is one we accomplish in more than five years.

It is worth noting that the longer the time required to obtain the resources, the more variables that may affect our ability to achieve our business objectives negatively or positively. These variables may include inflation, the rate of return on certain investments, and even the country’s economic situation.

Financial planning enables you to make informed choices and take the required activities to accomplish your objectives, maximizing the use of your resources to provide a more secure and stable future, while preventing excessive wear and tear or money leaks.

Analyze your project costs

“To manage the treasury effectively, it is necessary to devote time to conducting a thorough cost analysis. This is especially true in knowledge-intensive sectors such as professional services, consulting, and software, where a diagnosis must be made, a proposal to the client must be made, and which require several days of work. You need to know how much that project costs you in order to pass it on later on the final price,” De Pablo explains.

“We discover deviations in service companies that, after six months, have run out of cash because, where they expected to earn $100, they have lost $50. Why? Because they have deviated in the hours of the projects. If you leave in hours, it is the same as leaving in materials, and it has a cost,” explains Txaparro.

Increase your financial requirements by 15%

“When calculating your financial needs, it is prudent to add 15% for unforeseen events; if you have more experience, you can reduce this percentage to 10%, but not less; and if you have doubts and are unsure how to proceed, it is prudent to add up to 20%. This ensures that you have a mattress if things go wrong. And if things go well, you have a margin of additional cash. And the way to materialize it is, once again, in a treasury

Invest in short-term research and development

“When you invest in R&D, the result has to be on the market within a certain time frame; you cannot extend it any further, as doing so will result in cost overruns that will cost you a fortune to amortize. The interesting thing is to constrain the investment: by that date, I have to have this product on the market and with these R&D costs to obtain this profitability.

“Remember that R&D investments must be amortized over a five-year period; after five years, they penalize the income statement; and it is not the same to sell something for 10 that cost you 80 to produce as it is to sell something for 10 that cost you 200,” he advises.

Charge your consumers as quickly as possible

What alternatives exist to third-party financing? The first is your clients. “We always want payment in cash or, at the very least, money that covers the cost of goods. If we offer a budget, we ask for at least 60%-65% since we know that in this manner we would save money “The monetary risks,” Apraiz explains.

Andrea Uribarri, a business owner, points out that “Due to the high cost of certain of our services, we provide the customer the option of paying in three different methods. One alternative is to pay in cash at the start, with an extra 2% discount. Another time, at the start and halfway during therapy. Finally, funding will be available in three to six months.”

Postpone payment to suppliers

Borja Recolons observes that “If you want to maintain strong relationships with your suppliers, you must negotiate with them and seek a win-win situation for both sides. And it is preferable not to work if there is no consensus. If they want to charge you in cash but don’t provide you any discounts, you’re just not interested in dealing with them.”

“All suppliers enable us to pay within 30 days of the invoice date from the start. The most significant ones enable us to define our own deadlines (30, 45, 60, and up to 75 days invoice date) based on our demands. In these circumstances, we evaluate how long it will take to recoup the product investment in order to determine payment terms “Uribarri explains.

Conclusion

Financial objectives should not be in opposition to one another, but instead, work in tandem and empower one another.

Write down all of your objectives first, then prioritize and pick three for each time period: three short-term goals, three medium-term goals, and three long-term goals. This enables you to concentrate and redirect your energy rather than dispersing your efforts and achieving nothing.

 

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