Financial Planning for Small Business Owners: 3 Fundamentals for Long-term Growth

Financial Planning for Small Business Owners represented by a small business owner in his store, on the phone with a supplier.

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As we’re sure you know, running a small business comes with both great rewards and enormous challenges, and requires a careful balance between long-term growth and day-to-day financial management. One of the key contributing factors to that balance, regardless of your industry, is whether or not you have a financial plan that works for you.

With well-researched financial strategies in place, you can help to safeguard your business against unexpected downturns, create opportunities for growth, and build for long-term financial stability. To put it bluntly, getting the fundamentals of financial planning for small business owners in place could potentially be the difference between actively thriving and merely surviving.

In this post, we will explore three effective cornerstones that small business owners can use to steward their company’s finances well:

  • optimizing cash flow,
  • offering competitive retirement packages to attract top talent, and
  • employing investment strategies to overcome the impact of inflation.
 

By integrating these strategies into your financial planning practice, you can help to set your business up for robust success, both now and in the years to come.

Financial Planning for Small Business Owners: (1) Cash Flow Strategies

Human heart displayed on a stand as a visual representation of cash flow in financial planning for small business owners
Financial Planning for Small Business Owners: Optimizing Cash Flow

Cash flow management is arguably the most important aspect of financial planning for small business owners. Without adequate cash flow, even profitable businesses can face financial distress. Indeed, if cash flow issues become a regular occurrence, they can inflict an inreasingly painful financial headache with each passing day.

To use a bodily metaphor, cash flow is the lifeblood of your business: unless your ‘blood’ is flowing properly, with the right viscosity (liquidity), you may not even be able to work through basic day-to-day operations — not to mention monthly payroll and any of a number of unexpected expenses you can expect in a volatile business environment. When cash flow gets stuck, so does everything else.

With that in mind, here are three key cash flow strategies to help you manage your business finances more effectively (if you’re not aware of them already)…

A. Forecasting and Monitoring Cash Flow

One of the best ways to stay on top of your cash flow is to regularly forecast and monitor it. Cash flow forecasting involves projecting your incoming and outgoing cash over a specific period—typically monthly or quarterly. By anticipating your cash flow needs, you can plan for any potential shortfalls and take proactive steps to address them.

Monitoring your cash flow is equally important. You could use accounting software like QuickBooks or Xero, or you can work with an in-person accountant to track cash incoming and outgoing payments.

Keeping an eye on this real-time information can help you identify patterns, avoid cash shortages, and make informed decisions about when to make capital purchases or pay down debts.

B. Invoicing and Payment Strategies

Efficient invoicing and payment collection are also vital to maintaining a healthy cash flow. Small businesses often struggle with late payments, which can create cash flow gaps. To mitigate this, you might want to consider the following strategies:

  • Incentivize early payments: Offer discounts to customers who pay early, which increases the likelihood of timely payments.
  • Set clear payment terms: Ensure that your payment terms are stated clearly and upfront on every invoice. Consider setting shorter payment terms (e.g. “net 15” or “net 30”) to receive funds faster.
  • Automate invoicing: Use automated invoicing tools to send invoices immediately after a job is completed or a product is delivered (your accounting software may have integrated solutions for this). This minimizes delayed invoicing, and in turn accelerates payments.
  • Follow up on overdue invoices: Establish a simple process for following up on overdue invoices. Consistent follow-ups show customers that you’re serious about payment deadlines.

C. Access to Financing

Sometimes, even with the best cash flow management, businesses experience cash shortages. This could be because of seasonal fluctuations, unexpected expenses, or growth opportunities. Whatever the reason, having access to external financing can help to provide the liquidity you need to keep your operations running smoothly.

If that’s the boat you find yourself in, you might want to consider securing an open-ended line of credit or establishing a relationship with a financial institution that offers short-term loans or working capital solutions.

Alternatively, you might even get a certified financial planner like Iron Point Financial involved, as they could help you find a long-term solution that serves multiple financial planning objectives all at once (e.g. your investing, tax planning and cash flow needs).

That’s exactly what we helped Derek, who runs Clearsound Consulting, a branding and marketing specialist, with not too long ago. This is what he had to say about that service:

“Greg Liszka helped our company set up a joint investment account that allowed cashflow to be readily available without taxation complications, whether for a time of crisis or for any other business ventures on the immediate horizon. When I had to dip into it last year, it was a much needed help.”*

One final thought on this is that it’s important to have your financing options lined up before they’re needed, as waiting for a cash crunch to occur can limit your choices and force you into unfavorable arrangements in the moment. It’s much better to pre-empt that kind of situation with proactive credit options like we have discussed here.

*This testimonial and/or endorsement was given by a client of the financial advisor and no compensation was provided directly or indirectly. This testimonial and/or endorsement is not a guarantee of future performance or investment success, and the testimonial and/or endorsement may not be representative of the experience of other customers. Please visit BrokerCheck (https://brokercheck.finra.org) to see more on the background of this professional. 

Financial Planning for Small Business Owners: (2) Enticing Retirement Packages

Financial Planning for Small Business Owners: Enticing Retirement Packages

It may sound obvious, but attracting and retaining top talent is critical to the success of any business. In today’s competitive job market, offering enticing retirement packages can give you a significant edge when hiring and retaining employees long-term.

For many prospective employees, a strong retirement plan is a key consideration when evaluating job offers, and for current employees, it could be decisive in geting them to stay when other opportunities come their way. More than that, it’s a great way to show your employees that you care about them and their family’s long-term future.

To summarize the main point of this section, providing a robust retirement package can help you:

  • attract high-quality candidates,
  • boost existing employee loyalty, and
  • reduce costly turnover.
 

Bearing these three advantages in mind, here are some actionable ideas you might want to consider when building an attractive retirement package for your employees.

A. Offering a 401(k) or Similar Retirement Plan

The most common retirement plan for small businesses is the 401(k). A 401(k) allows employees to save for retirement by contributing a portion of their pre-tax income to an individual account, which grows tax-deferred until retirement. Many businesses choose to offer matching contributions, which is a highly attractive benefit for employees.

For example, you could offer a 50% match on employee contributions up to a certain percentage of their salary. Matching contributions are a win-win: employees benefit from additional retirement savings, and employers benefit by incentivizing employees to stay with the company long-term.

For businesses with fewer employees, there are other retirement options you might want to consider, like a Simplified Employee Pension (SEP) IRA or a Savings Incentive Match Plan for Employees (SIMPLE) IRA. These plans tend to have lower administrative costs and can be easier to manage than traditional 401(k)s. 

*See Disclosures for more information on SEP IRAs and SIMPLE IRAs.

If any of these sound like attractive options, Iron Point Financial can find a solution that works best for you and your small business, and we can even take the administrative burden away by managing it, hassle-free, on your behalf.

B. Educating Employees on Retirement Planning

Offering a retirement plan is a great start, but it’s equally important to educate your employees on how to make the most of their retirement benefits. Many employees don’t take full advantage of retirement plans simply because they don’t understand how they work or the long-term benefits of early and consistent contributions.

With that in mind, you could consider providing retirement planning workshops, webinars, or one-on-one consultations with a financial advisor to help your employees navigate their options. When employees feel confident about their financial future, they’re more likely to be engaged and satisfied in their work, which ultimately benefits your business.

C. Offering Additional Benefits

To make your retirement package even more appealing, consider offering additional retirement-related benefits. For example, you could provide profit-sharing contributions, where a portion of your company’s profits is distributed into employee retirement accounts — a great way to encourage a strong ownership culture.

Another option is to offer financial wellness programs that go beyond retirement and help employees manage other areas of their personal finances, such as budgeting, debt management, and investment strategies. Programs like these could help them stop living paycheck-to-paycheck, and could have a transformative impact they will be grateful for far beyond their 9-to-5 involvement.

By offering comprehensive retirement packages like the ones we have discussed here, you can stand out as an employer who cares about the long-term financial well-being of your employees. In addition to improving employee retention, this could also be a great way to build genuine care into your culture, and assure employees that your business is a healthy and desirable place to build a career.

And you never know: with programs like this place, your existing employees could even help you recruit other great talent, cutting down on your HR costs. Of course, none of this will come for free, but it could be well worth your while in the long-run.

Financial Planning for Small Business Owners: (3) Investment Strategies

Phone screen with the definition of 'inflation' to represent the importance of tackling inflation when financial planning for small business owners
Financial Planning for Small Business Owners: Tackling Inflation with Investment

Inflation is a silent but steady force that erodes the purchasing power of your business’s reserves over time. To protect your company’s assets and ensure long-term financial growth, it’s essential that you implement investment strategies that can outpace inflation.

By strategically investing your business’s profits (i.e. without compromising cash flow), you can generate returns that offset inflation and preserve the value of your money. The following are a few simple but effective investment strategies to help your business overcome inflation…

A. Diversifying Investments

Diversification is one of the most powerful tools for mitigating risk and combating inflation. By spreading your investments across different asset classes—such as stocks, bonds, real estate, and commodities—you can reduce the impact of a downturn in any one sector.

Stocks, in particular, have historically been a good hedge against inflation because companies are usually able to raise prices in line with inflation, therefore maintaining profitability. Real estate can also be an inflation-resistant asset class, as property values and rental income tend to rise with inflation.

If you’re not comfortable managing your business’s investments on your own, you could also consider working with a financial advisor like Iron Point Financial — professionals who can develop and manage a diversified portfolio that aligns with your risk tolerance and long-term goals.

*See Disclosures for important information on diversification.

B. Investing in Inflation-Protected Securities

Inflation-protected securities, such as Treasury Inflation-Protected Securities (TIPS), are government bonds specifically designed to protect against inflation. The principal value of TIPS increases with inflation (as measured by the Consumer Price Index), which helps preserve the purchasing power of your investment. TIPS are a low-risk option for businesses looking to protect their cash reserves from inflation.

In addition to TIPS, some businesses might also decide to invest in inflation-linked annuities or commodities including gold or oil, as those typically increase in value during inflationary periods.

*See Disclosures for important information on TIPs.

C. Reinvesting in Your Business

In our opinion, one of the best ways to counteract inflation is to constantly reinvest profits back into your business. That might seem counterintuitive at first, but taking the chance to improve efficiency, expand product lines, or upgrade technology whenever possible is a great way to drive growth and increase profitability, both of which can keep you ahead of inflation, whenever it happens to hit the macro-economy.

In other words, the more your small business is growing on the micro-level, the more likely you are to outpace the rate of inflation, which is a macro-level indicator. You might not completely evade its effects, but you could certainly mitigate them. And besides, there are always economic outliers that buck major economic trends; why not put your small business in a good position to be one of them?

Proactive Financial Planning for a Brighter Future

Financial planning is a necessary part of running a successful business, and small business owners who take a proactive approach to managing their finances tend to thrive in the long run.

By implementing strong cash flow strategies, offering enticing retirement packages to attract and retain top talent, and using smart investment strategies to overcome inflation, you can help to create a solid financial foundation for your business and all those who look to it for inspiration and support.

To make the most out of the strategies we’ve shared today, it’s important that you approach each of them with intentionality, and that you regularly revisit your financial plan to ensure it is evolving with your business’ unique needs.

And if you happen to need some help optimizing your small business’s financial plan and its implementation, why not schedule an appointment with Iron Point Financial today? We would love to help get your small business set up with everything it needs to thrive, not just survive.

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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA. 

We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have registered broker licenses for 22 other states across the continental USA.

Financial Planning for Small Business Owners: Related Resources

Disclosures

  • Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty.
  • A diversified portfolio does not assure a profit or protect against loss in a declining market. The return and principal value of stocks fluctuate with changes in market conditions. Shares when sold may be worth more or less than their original cost.
  • All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. 
  • TIPS are backed by the full faith and credit of the US Government as to the timely payment of principal and interest. The principal value will fluctuate with changes in market conditions. If they are not held to maturity, they may be worth more or less than their original value.

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