Small Business, Big Presence
A small business is often characterized as having 500 or fewer employees. That may not sound small, but when you consider that Amazon has ~1.5 million employees globally, 500 seems minute. According to the US Small Business Administration Office of Advocacy, out of the 33.2 million small businesses in America, roughly 80% have no employees. Regardless of where you fall or hope to fall on that employee number spectrum, running a small business is a challenging endeavor that requires juggling various financial aspects. Even though the news is inundated with stories on FANG (now known as “MAMMA”) businesses, 99.9% of the businesses in the US fall into the “small” category. Given this incredible statistic, we thought it would be helpful to compile a list of the top 10 most critical financial considerations for small business owners.
Craft a Solid Financial Plan
A comprehensive financial plan is the backbone of your business's success. Start by creating a budget that outlines your projected income, expenses, and expected profits. Regularly review and adapt your financial plan to ensure it aligns with your business goals.
Understand Tax Implications
Taxes are a constant presence in the world of small business. Familiarize yourself with the tax implications associated with your business structure, income, and expenses. Seeking guidance from a certified public accountant (CPA) can help you navigate tax compliance, deductions, and credits.
Choose the Right Business Structure
Your business's legal structure has far-reaching consequences, impacting personal liability, taxation, and access to financing. Seek legal counsel to determine the optimal structure, whether it's a sole proprietorship, LLC, corporation, or partnership.
Master Cash Flow Management
Cash flow management can be a constant struggle for small businesses. Create a cash reserve to cover unexpected expenses and closely monitor your cash flow to meet essential financial obligations.
Strategic Investment for Growth
Reinvesting profits is a common strategy for small business growth. Determine when and where to allocate funds for marketing, staff expansion, technology upgrades, or scaling operations. Consult financial experts to guide your investment strategies.
Efficient Debt Management
If your business carries debt, develop a clear repayment strategy. Whether it's a business loan, credit line, or equipment financing, efficient debt management can free up capital for business development. Prioritize higher-interest debts to reduce your liability.
Prioritize Retirement Planning
Actively plan for your retirement. Explore retirement account options like a Simplified Employee Pension (SEP) IRA or a Solo 401(k) to benefit from tax-deferred growth. Maximize your contributions to secure your financial future.
Mitigate Risks with Adequate Insurance
Protect your business and personal assets with the right insurance coverage. Depending on your industry, you may need liability insurance, property insurance, or professional indemnity insurance. Collaborate with an insurance professional to determine your unique needs.
Maintain Impeccable Financial Records
Keep precise financial records. Invest in reliable accounting software or enlist an experienced bookkeeper to track income, expenses, and taxes. Organized records are indispensable for audits, financial analysis, and decision-making.
Plan Your Exit Strategy
Consider your long-term exit strategy. Whether you plan to sell the business, pass it on to a family member, or gradually wind it down, having a well-defined exit plan can help you maximize the value of your business when the time comes.