Self-Employment Planning and Responsibilities
Article by: Nipapun Poonsateansup CFP® Independent Finance Planner
Become a successful business owner is a dream for many people. But the way to success in the business is not easy and depend on many factors and of them is a financial plan.
When talk about financial plan for business owner, most business owners normally only think about tax planning and forget about other parts. Moreover, many business owners always worry about financial plan for business because they think that business money is their own money. That cause them to forget about personal financial planning.
So here are several practical steps that business owners can follow to establish a successful financial plan.
1. Cleary separate personal finance from business finance
To start with this step, the owners must pay themselves properly. Business owners often pay themselves very little in the way of salary. And often include personal expenses like food and transportation costs with the business expenses because they thought that capital of the companies is their money as well. This understanding is totally wrong because by mixing up business money and personal money will make it difficult to see the actual company’s profit. Also, will make it harder for an accountant and confusing for tax calculating between personal income tax and company income tax.
Set up personal payroll properly is important. When the owner has a salary then he can use this money for personal expenses and do personal financial plan.
2. Plan cash flow
These tasks are of the utmost importance for businesses. External demands on a business owner’s financing situation are endless, so it is critical to monitor expenses and conserve money to finance the operation. Many times, income may not always in cash form. Although, the turnover is high, incomes are still in the credit form that owner must wait for client payments and when these are a big portion it can cause cash flow problem. Therefore, the owner must monitor and evaluate the cash flow regularly. Moreover, owner should do the worst-case scenario analysis. For example, in case business cannot collection money from client as expected, how long the business can operate. The owner should prepare for sources of funds and check the interest rates if borrowing is needed.
3. Ensuring timely and accurate business financial budget
Many owners are facing trouble with accounting and lack of knowledge on how to do business financial budget. For small or medium size business, owner can hire accounting firm to handle this once a year. The accounting firm can help with tracking business incomes and expenses and taxes. Then we can correctly pay taxes to the Revenue Department. This also help increase business operation effectiveness.
4. Pay attention to financial plan
Some business owners don’t pay enough attention to personal finance, especially retirement plan. They think business is everything in their life, so all the money will put in the business and this thinking is wrong.
The personal finance and business finance are different. They must be separated. To allocate business finance to personal finance must be done through the right financial management. For example, allocate in forms of salary, bonus, fringe benefits etc. After company has paid all those, the owner must do the personal financial plan, for example, taxes, retirement plan and investment plan.
5. Prepare for exit strategy plan
Most business owners have never thought about this because most of them think that their children or family will continue the business later. If the business has never planned for this, thing that may happen is no one want to be a successor and then cannot exit the business. Or sometimes, owner wants to sell the business but cannot get the reasonable price, for example because of business already passed the peak cycle. Therefore, preparing for exit strategy is very important.
In summary, all these steps are essential for business financial management that all owners should concern. Having good financial plan will lead business for sustainability growth in the future.