Simple Steps to a Financially Sound Small Business

Simple Steps to a Financially Sound Small Business

Running a small business can be a rewarding experience, but without solid financial planning, it can also be a harrowing one. By working closely with a financial advisor and following a few simple rules, business owners can avoid some of the most common pitfalls.

Create a financial plan

It seems obvious, but it’s worth noting that you need a basic cash-flow and budgeting plan. Knowing your personal income and expenses helps you plan and predict business income and expenses. It also allows you to calculate how much you can afford to pay yourself. Trying to run a business without a clear financial plan is like trying to drive at night without headlights – you might get home without a scratch, but chances are you’ll hit some major obstacles.

Empower your employees

A great way to retain and instill loyalty in employees s is by offering them a diverse benefits package. Some benefits can be offered relatively inexpensively – for example, a 3% match of retirement plan contributions, based on company performance. Other common benefits include life, health and disability insurance, plus non-monetary benefits such as flex time, unlimited vacation and the ability to work remotely when appropriate.

Maximize your own contributions

In my practice, we offer a SIMPLE IRA retirement plan, with a 3% matching contribution by the employer. In 2015, a SIMPLE IRA plan has a maximum contribution of $12,500 for employees. To make this easier and to help with business and personal cash flow, break this amount into monthly contributions. Also, don’t forget to include a matching contribution for yourself as well as your employees. This match qualifies as a tax-deductible business expense.

Reinvest extra capital

If your goal is to grow your business, definitely focus on reinvesting extra capital in the company rather than pocketing it. But that can change if you’re getting ready to sell the business. In that case, the best strategy may be to focus less on reinvestment and more on compensating yourself appropriately.

Plan for the future

In addition to helping small-business owners navigate and put together benefits packages for their employees, financial advisors can help with succession and continuity planning, in order to create a smooth path for the company when the owner gets near retirement. Financial advisors can organize and lay out a plan for the owner, taking into account financial needs as well as other life goals.

Create an exit strategy

The best exit strategy is the one that fits the owner’s goals. Does holding onto the business fit those goals, or is a potential sale a better fit? One smart step is to review your vision and mission statements to remind yourself why you started this business in the first place. This should help clarify what your priorities were – and are. You might conclude that your most important goal is to leave a legacy and do good for the world, which could cause you to lean toward holding onto the business rather than selling. It’s not always about the money.

Build a dream team

Use your financial advisor as a kind of “quarterback” to assemble a team of advisors to take care of all your needs. The team members should take into account what the business owner’s goals are personally and professionally. In my practice, where we do comprehensive financial planning, we have all the details about someone’s financial picture and are able to see all the angles of the plan and determine where the land mines could be. Where we may not have complete expertise, we can help bring in experts including CPAs, attorneys, insurance agents and real estate agents. The financial advisor can also take a lead role in making sure the team communicates effectively, so that the client’s financial plan is seamless and well monitored.


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Anna Sergunina
Anna Sergunina

I'm Anna Sergunina, CFP®, President & CEO at MainStreet Financial Planning, Inc. My passion lies in serving others through financial planning, helping clients achieve their dreams like buying a home, saving for education, or retiring early. With over two decades in the industry and a CFP designation since 2009, I'm dedicated to excellence and continuous growth. Beyond work, I cherish moments with my son Liam, prioritize self-care, and engage in content creation for my Money Boss Parent Podcast and Money Library blog.

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