A financial plan is beneficial to a business owner. Here are some reasons why, along with some key considerations.
What is your Financial plan if you want to sell your business?
One of the most challenging aspects of being an entrepreneur is staying on top of some things you may not like to do because you either don’t enjoy them or simply aren’t good at them…or both. Doing math back in school just wasn’t fun for me. I enjoyed almost every other subject, except those related to numbers, as there seemed to be too many rules and exceptions to keep track of.
Most entrepreneurs do not enjoy numbers. They are happy to delegate the task of debits and credits, or journal entries, or double-entry bookkeeping to someone who enjoys it. Define your core competencies, which are the areas where you excel, and then delegate tasks to others who possess the proper skill set and aptitude to perform them effectively. In simple business terms, it is called ‘outsourcing.’
Outsourcing your personal and business finances.
The problem with outsourcing your personal and business finances is that you can lose track of what all entrepreneurs refer to as the bottom line, or their net worth. For various reasons, the bottom line tends to fluctuate somewhat. I’m not talking about the monthly bank statement bottom line; I’m talking about “taking money off the table” of your business and investing it and moving this into your finances, such as your 401K, investing in property, or some other form of long-term investment.
One of the first items to review as part of your financial plan is the legal entity you are using to operate your business. If you operate as a sole proprietor, all your assets are exposed should you do something wrong. Changing your legal entity to a Corporation or LLC may offer legal protection, but it’s essential to get the right advice from an attorney.
In addition to the legal entity, obtaining an annual review of your insurance products is a wise and relatively inexpensive investment. Your insurance agent should be willing to reassess your personal and business needs to make sure you have enough life, death, vehicle, health, business interruption, and other insurance policies.
Benefits of a financial planner.
Another aspect of your Financial Plan is the performance of your business, and whether you are transferring profit from the business to fund and maintain your retirement. To get the best advice for your situation, talk to a Personal Financial Planner, as that is their area of expertise. They track trends and performance, and can advise whether it’s best to invest in the stock market or other asset classes. They also have access to a full range of financial products, which cover not only retirement investing but also insurance products and short- and long-term investment strategies.
How is the financial health of your business?
The above are all personal or external reviews of your finances. An equally important aspect, though, is the business. Many business owners conduct an annual check-up just before handing over all their documents to their accountants to prepare and file their tax returns. What, however, is a good strategy is to do at least a monthly review of the business’s performance, and there are several reasons for this. This is especially true if the business owner has another family member or an employee handling the books. Whether we like it or not, this recession has seen an increase in theft from businesses by those entrusted with handling the books. Money can quickly disappear if frequent reviews are not in place.
A simple strategy of obtaining a copy of the monthly Profit and Loss Statement, check stubs, and bank statements can quickly reveal whether things are in order through a series of questions and answers. This is because you allocated expenses to a category on the Profit and Loss Statement. Conducting a test each month on some of the larger categories helps ensure that there are no unknown issues, revealing if any further checks are needed. These tests must be administered randomly and sometimes with little notice.
Are you looking to buy a business?
Finally, if you are looking to buy your business, it will be essential to have your Financial plan in order. Buying a business involves knowing what cash you have available to use as a down payment. If you plan to borrow money from your inheritance or a family member, obtain a written letter so you can present it to a seller and the bank lending you the money.
You can also borrow money against your 401 (k) plan. This takes time to put together, so please allow approximately 30 days for the lead time to make this happen.
How good is your credit?
Other parts of your financial plan to get in order are your credit score and credit report. Most third-party lenders require a credit score of at least 700. It’s also crucial to review your credit report to ensure there are no errors on it. Do this as soon as possible, as errors can take time to correct. Although not related to your Financial plan, it’s also essential to have an up-to-date resume to show lenders and possibly a business seller if you are asking them to carry a note on the purchase price.
One of the primary reasons for being an entrepreneur is to enjoy the fruits of your labor. Being an entrepreneur allows you to follow your dream instead of working for someone else and building your own dream. Having a quality and credible Financial plan should be part of your success strategy. And remember, just as our fitness changes as we journey through life, so does our financial situation. We recognize that visiting a doctor or dentist is beneficial for our health; equally important is consulting with various financial professionals, including estate attorneys, to ensure our Financial plan is in order.
For more immediate assistance with purchasing a business for sale, you are welcome to contact Andrew Rogerson, a certified business broker based in Sacramento, California, who services the entire state. Call Toll-Free at (844) 414-9700 or email him at support@rogersonbusinessservices.com.
If you click the following link, it will allow you to view a sample Broker’s Opinion of Value.