Running a small business can be stressful and time consuming, so it’s understandable when the financial health of your business gets neglected. Getting into the habit of reviewing your company’s overall financial health is a smart move to position your business for success now—and for years to come. Read on for an effective health checklist for your small business by focusing on three critical components: financial planning, budgeting, and investing.
Financial Planning
As a business owner you know that taxes are potentially one of the most substantial expenses affecting your bottom line. Therefore, you need to have defined business goals and personal financial goals in order to adhere to the most appropriate tax-planning strategies.
To do this you should:
- Keep an ongoing list of business and personal financial goals in order of priority, and consult this list when making any new financial decisions.
- Be sure you have a small-business structure that provides the most pertinent legal protections and benefits.
- Reduce taxes, or file an extension, and maximize applicable deductions and credits. Strategize by timing income and expenses to your advantage, utilizing charitable gifting, and saving for retirement with a Simple IRA, solo 401(k), or SEP IRA.
Budgeting
Issues with cash flow can derail a business to the point of no return. Get ahead of any challenges by managing your budget in accordance with your business plan.
- Know how much revenue it will take to cover any expenses before you can break even and generate a profit.
- Consistently keep an eye on your income, inventory, credit, and cash. Modify as needed in order to cover fixed expenses and hold onto a healthy cash reserve.
- When you do need financing, analyze your budget and cash flow trends to help determine the best financing options for your business.
Investing
As a small-business owner, don’t make the mistake of investing all of your money into your business. Make saving a habit so that you have enough cash reserves accessible in a pinch for both personal and business needs, but invest any extra cash inflow, and diversify non-business investments.
Additional Factor of Financial Health
In addition to financial planning, budgeting, and investing, you should be protecting your business with insurance. This could include liability insurance, property insurance, workers’ compensation insurance, health insurance, life and disability insurance, and business interruption insurance.
A financial health checklist is an important tool for aiding small-business owners in overseeing the financial condition of their company. Routinely taking stock of your business allows you to make smarter decisions for growth and success.
