Anyone who begins a new business must have at least a basic concept of financial planning and ask, “Why is financial planning important in business?” Many people have the idea that financial planning is a complex process that only the rich need to concern themselves with. The simple fact is that everyone needs to construct a sound financial plan and for business owners this is even more important.
Financial planning isn’t just for the rich, it the best way to become rich, says Jonathan D. Pond, financial analyst for PBS´s Nightly Business Report. “People who say they cannot or will not do it are really saying they don’t mind spending their golden years under the golden arches, because that’s what will happen to them.” Pond says that virtually everyone is capable and has the means to become successful. The good news is that financial planning is really easy to do, but the bad news is there is no magic bullet. First you have to save money (and be out of debt), to invest, and the second thing is that you have to know how to invest it.
Sound financial planning is even more important for business owners for some of the following reasons:
• Most business owners are responsible for setting up and tending their own retirement plans. There will come a time when you will want to enjoy a good retirement and, as a business owner, you have no company pension plan, 401(k), or any other of the traditional fail-safe’s to fall back on. Dealing with this is as simple as looking into IRAs or SEP, or setting up a complex Keough 401(k) or investing in a retirement business like network marketing.
• You cannot decide how to invest money unless you have planned to deal with debt, cut expenditures, and save. This means setting goals and sticking to them as well as keeping good records.
• The financial aspect of any business is vital to that businesses survival. Trying to succeed without proper organization and management of your finances can and will cause your business to fail.
• Having a sound financial plan for your business will allow you to estimate profits, project sales and the amount it will cost to run the business. Without this information it will be impossible to keep you business on the correct path to success.
The foundation of any sound business plan is having a mix of different kinds of investments including stocks, bonds and fixed-income vehicles, thereby increasing your invested savings by managing the risk.
Financial planning may seem to be just another “job” on your already overlooked schedule, especially if you are a new business owner. Failing to have a solid financial plan in place, however, will certainly take you from business owner to employee very rapidly.
By: Troy Pryczek
Posts Tagged ‘Business Owners’
Why is Financial Planning Important in Business?
December 13th, 2009Financial Planning For Your Internet Business
December 13th, 2009
One of the biggest differences between online and offline business owners that I have noticed is financial planning, or lack of it in the case of an online marketer.
Whenever anyone starts a business offline, there is always a significant amount of financial planning. How much capital are you investing? What are your monthly running costs? What are your initial outgoings? What will your monthly income be? How much money do you need to borrow?
All of this is vital information because it is more than likely you will either be investing a significant amount of your own capital in your business or borrowing money to get your business started.
Online though, financial planning seems to go out of the window with starry eyed dreams of instant riches and mountains of wealth available to anyone who can upload a website.
Sadly, most of these dreams are quickly dashed on the rocks of reality when they realize that they have spent tens of thousands of dollars and had no return. Debt has a habit of making you see reality very quickly.
Whenever I coach anyone in their Internet businesses, I always stress the need for financial planning. I want you to imagine it now in bright red 72 point bold letters flashing in front of you with dancing elephants pointing at it, “Make A Financial Plan”.
Unless you are extremely fortunate, you are not a bottomless pit of money. Even if you were, there would come a time when you would stop pouring money into a project and cut your losses. You, like the rest of us, have a life in the real world and need to pay for food, a roof over your head etc.
In order to continue to do this, it is vital that you create a financial plan for your Internet business. You must ask yourself questions like:
“How much start-up capital do I have?”
“How much do I need to spend to start-up?”
“What is my monthly budget for my Internet business?”
“What are my monthly running costs?”
And so on. When you understand these, so you can begin to budget your expenditure and make purchases. If you can only afford to spend $50 a month on your business without struggling financially, then there is no point signing up for every flash service in town and having to find $357 a month to pay for them.
If you only have $500 to start up your business, it’s pointless spending $5000 getting a product and website designed.
If you do not understand how much capital you have to invest and how much you can afford each month, then your business is sadly doomed to failure and to burn cash endlessly. Budget and plan and you have a much greater chance of success.
By: Lama Kalla
Financial Planning For Business Owners
November 24th, 2009
Business owners are not looking for financial advisors to give them the life they want by making a killing in the stock market; these people have been able to create the life they want by themselves. In the early 1990s, at the beginning of my financial planning career, I was very fortunate to meet one of Canada’s most successful businessmen. He was in his late 50s and had much more life experience than me. He shared that 99.9 per cent of the investment advisors he had met over the course of his career did not have the foggiest idea of how to make money nor did they understand what successful business people were looking for when they sought out professional advice.
He told me that when he took a risk he got paid for it. He could buy a piece of property for a marginal amount, get it rezoned for a shopping mall and then get franchises to sign letters of intent to lease for five years or more when the property was developed. Once this was done he would go off to the bank and borrow on the future revenue that would be generated from these highly profitable leases to develop his properties and create a residual income. He knew he could take his own money and make 100 times the amount with 1/10th the risk that any stock broker could offer him and he was right. Business owners are not looking for financial advisors to give them the life they want by making a killing in the stock market; these people have been able to create the life they want by themselves.
Successful business people want their financial advisors to show them ways to keep their wealth. In essence, successful people want their financial advisors to provide them with financial, tax, succession and estate planning holistic solutions. They don’t need their advisors to sell them products such as stocks, mutual funds and life insurance to achieve their financial success. The point is they are already successful. Business people are looking for financial professionals who are positioned in the role of wealth manager. Someone who can see and understand the affluent business owner’s big-picture needs by constructing customized strategies to achieve their specific goals of wealth preservation, avoidance of unnecessary tax burdens, creditor protection, wealth accumulation and wealth distribution to themselves, their family, estate and charities.
Successful business owners have an understanding that a financial asset is something that puts money in their pocket, with minimum labor. They understand that a business can buy a car, but a car cannot buy a business! Liabilities are things that take money “out of one’s pocket.” For example a home is a liability even though you own the property with no mortgage, you still have to pay property taxes, utilities, and maintenance.
There are numerous advantages available to those who own their own business, who take the risk and have the creativity and fortitude to do something on their own. These people are compensated for it. As an employee in Canada, one’s equation of earning an income goes like this:
you earn; you’re taxed; then you get to spend what is left over.
When one is a business owner and self-employed in Canada, our government allows you to adopt a much more favorable equation of earning an income:
you earn; you spend, you income split, and you defer bonuses; then you are taxed on what is left over!
Business owners are different from the rest of Canadians, if for no other reason the Income Tax Act favors people who work for themselves. The biggest expense we pay in a year is taxes. Reducing taxes is not only morally and ethically right, it is also smart. There are three easy rules that keep your money in your pocket in this country and not in the government’s:
1. Find the right business structure for your business to pay less tax and protect what you have.
2. Learn to make more money by using the tax strategies of the rich such implementing health & welfare trusts, individual pension plans, retirement compensation arrangements, holding companies, charitable donations and estate freezes.
3. Pay less tax legally and still sleep at night.
The basis of success with working with a Certified Financial Planner is to have a financial plan. A true financial plan is more than simply buying and selling investments, or collecting “assets” that bring in no cash and are thus more akin to liabilities. The way most people invest, they might as well be driving in a circle. A true financial plan is mechanical, automatic, and boring. It applies “The Total Financial Planning Process.”
Assess
Clarify your present situation by collecting and assess all relevant financial data, such as lists of assets and liabilities, tax returns, records of security transactions, insurance policies, will(s) and pension plan(s).
Prioritize
Decide what you want to achieve by identifying financial and personal goals and objectives. Work with your financial professional to help clarify your financial and personal values and attitudes. These may include selling your business, providing for children’s education, supporting elderly parents or relieving immediate financial pressures to help maintain a current lifestyle and provide for retirement. These considerations are important in determining your best financial planning strategy.
Recognize
Identify and recognize financial problems that can create barriers to reaching your financial goals.
Understand
Understand your choices, your financial professional should provide you with written recommendations and alternative solutions. The length of these recommendations will vary with the complexity of individual situations.
Action
Implement the right strategy to ensure that your goals and objectives are met. A financial plan is only helpful if the recommendations are put into action.
Review
To ensure that your goals are achieved it is very important to have periodic reviews with your Certified Financial Planner and other financial advisors to see if there should be revisions to your plan. Successful business people in this world look for and build networks of experts to help them achieve their life and financial dreams. The key to managing your financial future is to plan for it.
All highly successful people I have every work with had a very clearly defined, written life, career and financial plan. They believed implicitly and unshakably in their plan and were impervious to external circumstances. So they didn’t alter their plan every time the wind changed direction, and continued to work their plan steadfastly, no matter how long it took, until their plan inevitably succeeded.
By: Peter Merrick