In the world of entrepreneurship, there’s one resounding lesson we often hear: “Know thy numbers.” But an intention means little without action, leaving many business owners with limited understanding of their company’s financial status — let alone their personal finances.
Yet, the numbers are why we launched our businesses in the first place! Sure, you may have a passion that drives your success, but the opportunity to profit is typically what turns a hobby into a legitimate business.
So what’s standing between the average business owner and a clear financial plan? Naturally, entrepreneurs want to have their numbers in order — but they usually don’t want (or know-how) to financially plan for the future.
“Financial planning takes into account not only what you need to run your business today but also what you will need to move your business forward in the future,” assures Courtney Hopper, founder of Hustle + Gather. “A good financial plan may allow you the means to jump on a great opportunity or restructure your business in a way that provides a better work/life balance for you and your employees.”
If you’re ready to adjust your money mindset and get your finances in order, here are four tips to reign in the financial clutter and streamline your numbers once and for all:
Set clear, attainable goals
Without goals, earning (and spending) money can feel like a stab in the dark. There is no real purpose guiding your cash flow, so it’s easy for your finances to get messy.
Matt Campbell, founder of My Wedding Songs, explains how goals help him plan for the future: “The most important step for me in planning for the future is having an exact goal to hit. This means knowing exactly how much revenue and target expenses I need to live my desired lifestyle.”
He elaborates, sharing that goals and profit margins should be reviewed regularly: “Having a monthly budget and accounting review helps me to stay on track and know exactly where the business is going. You own your money; it doesn’t own you. Know where every penny is coming in and going out.”
Laura Maddox, owner of Magnolia Celebrates, agrees that goals are fundamental to effective financial planning: “Keep the end in mind. Make sure you’re continuously re-centering back to your end goals. Why are you building your business? What do you love about it? What do you want it to accomplish? When you’re clear on your goals, you are much better at spending your money and your time on the items that will help you accomplish those goals.”
Pro Tip: Goals serve as a guiding light for your financial overview, so consider what you hope to accomplish and assign a dollar amount that will allow you to achieve each one.
Forecast all possibilities
While many elements in business are unpredictable, it’s best to be proactive and start preparing ahead for things you can control and those you can’t.
“First, you must plan for the foreseeable future — the next few months or years,” Maddox says. “You are planning for the upcoming bills, expected and unexpected expenses. For us, this may look like talking through the upcoming bills before deciding on the budget for holiday vendor gifts or thinking through the year’s expenses before committing to any advertising.”
Maddox continues, adding that team members’ plans must also be considered: “Second, there is planning for the personal future. Do we have employees that are trying to conceive? This may affect a season of work for them. This could most definitely affect the year’s financial picture.”
Contingency planning isn’t just for executing projects or delivering products — it’s just as essential for your finances to ensure you stay on the right side of your budget.
Don’t be afraid to outsource
Most creatives would rather spring clean their houses than spend time staring at financial reports and databases. If numbers make your eyes roll into the back of your head, let someone else take over!
Delegation continues to be one of the best tactics for busy entrepreneurs who already have enough on their plate. Hire a bookkeeper or an accountant to keep your business solvent and sustainable without overseeing it yourself.
At the very least, start using a small business management platform like HoneyBook to track your revenue and expenses. It will generate real-time reports for you so you can leave the calculator behind. Plus, when it comes time to outsource, it’ll be much easier to add your new bookkeeper to your existing system!
Don’t skimp on retirement
Leaving behind the 9-5 world is extremely rewarding, but it means taking retirement planning into your own hands, as most entrepreneurs know. Unfortunately, there is no 401(k) accounts for independent business owners, so you must plan accordingly to prepare for and enjoy your golden years.
Rather than an employee-offered 401k or another retirement fund, Independent business owners will need to open their own account, which could be a Solo 401(k) or Roth IRA. The main differences between the two come down to contribution amounts and taxes. Solo 401(k) contributions are tax-deductible savings and will be taxable withdrawals. On the other hand, a Solo Roth IRA’s deposits are already taxed, so you can enjoy tax-free withdrawals. There’s a smaller limit on what you can deposit into Roth IRAs, depending on your income, while you can typically contribute more into a 401(k) account.
Meredith Ryncarz, the owner of The Restart Specialist, speaks about the importance of saving for retirement: “When I first started my business, I didn’t worry about planning for my future with the business in mind. I had a full-time job with benefits. When I quit that job, I started to take a portion of the business income and continue to fully fund my ROTH so that I can retire when I am in my 60s.”
“I started my retirement fund when I was in my 20s and while it feels easy to put off placing money in it when times are lean, I know that I am short-changing my future,” shares Ryncarz. “We look at our yearly and quarterly budget and plan accordingly to put money away.”
Campbell shares that, for him, retirement planning is just as much about time than it is about money: “Maintaining a specific lifestyle and limited work schedule is always on my mind for the future. Decreasing the time working while increasing financial reserves for early retirement is part of an overall strategy.”
Many independent business owners start their businesses to regain their freedom and add flexibility to their schedules. So, naturally, you don’t want to keep up with the hustle well into your later years when you should be sipping cocktails on the beach or chasing grandchildren around!
Pro Tip: If you haven’t already, set up an IRA or 401(k) (individual retirement account) and start funding it immediately. With compounding interest, every year—and every month—counts. You can open either even if you already have accounts open with another employer.
Note: The original version of this article published in our February 2022 Monthly Guide stated “there is no 401(k) account for business owners.” We’ve since updated the post to include information about Solo 401(k)s, which all self-employed individuals with no employees are eligible to use.
Ready to Financially Plan? Get our Financial Planning for Independent Business Owners Ultimate Guide.