By Val Kumagai, BES, CFP®, Money Coach and Financial Planner
Most people who start a business don’t do it for the sole purpose of making money. There are usually much easier ways to earn a living than to build a business.
At the risk of sounding mystical, it’s more often a “soul purpose” that creates the energy behind entrepreneurial success. People who start businesses are passionate about what they do. But here’s the thing: the people who stay in business, the people who thrive and grow, are also practical about what they can and can’t do.
They know that even if they don’t feel comfortable in the world of profits and losses, debts, taxes, budgets and succession planning, learning how to take control of their money and having a financial plan in place will make them more successful – and allow them to continue doing what they love.
Here are the top five money challenges you’ll face as a small business owner:
1. No financial goals or clarity
How much money did you actually make last year? Do you really know? The scary truth is many business owners don’t. How much money do you need to earn to stay in business? How much do you need for advertising? Staffing? Rent? If you don’t know how much money you need to keep the doors open, or how much money you need to pay yourself and to plan for your future, then you’re building your business on shifting sand instead of a solid foundation.
Action steps: Get really clear about what you want to achieve in your business. This is a chance to get excited about possibilities. Write down your goals and then honestly assess how much money you’ll need to earn to achieve them.
2. Goals without a plan
Studies have shown that written goals have a better chance of success than unwritten goals, but that’s only half the equation. We have a better chance of remembering to buy coffee, eggs and cereal if we put them on our grocery list, but we still need to go to the store, do the shopping, pay for the items and bring them home. In other words, a grocery list is not the same as grocery shopping and financial goals are not the same as a financial plan. If you have no idea how to turn your goals into actions, then all you have is a list of hopes.
Action steps: Create a financial plan by identifying your goals, developing the action steps needed to achieve them, and determining appropriate milestones to track your progress. What follows from there is a systematic, step-by-step process for fulfilling your goals. You will know exactly where you’re going and how you’re going to get there, and you’ll also know when adjustments are required along the way.
3. A plan without engagement
Sadly, it’s not uncommon to set goals, make a plan, and then stick that plan in a drawer. This happens for many reasons. It could be that you are too busy with the passion part of your business to check in with your financial progress. Or perhaps you fear that the financial side isn’t doing as well as you’d hoped, and you are avoiding that reality. But not working with your plan is no better than not having one, and avoiding a foreseeable problem may just compound it. Engaging with your plan helps you feel calm and in control. When your passion for your business is working in harmony with the financial side, you are ready to seize opportunities or weather a storm.
Action steps: Have regularly scheduled check-ins with your financial plan. Make sure to focus on your challenges, but also your achievements. You don’t want to turn these check-ins into something you dread. Update your non-financial and financial goals at the same time. Thinking of your business as a whole and not in separate compartments will keep you engaged at all levels. Keep up-to-date on new rules and regulations that will affect your business, like the change to the capital gains inclusion rate, which came into effect on June 25, 2024. Remember that your plan is not written in stone. If it no longer fits your goals or excites you, figure out why and make changes accordingly.
4. Fluctuating income
A big challenge for small business owners is fluctuating income. Sometimes it fluctuates for predictable reasons (you offer a seasonal service) or because of market changes (as with real estate) or for dozens of other reasons big and small. If you aren’t prepared, these fluctuations can impact your ability to meet payroll or save for future expenses.
Action steps: A little strategic planning will allow you to prepare for income dips. Your financial plan gives you the practical information you need to be able to pay yourself a regular, sustainable salary and leave surplus in the company for a rainy day.
5. Lack of organization and systems
Being in business demands a lot of juggling, and the ball that seems to drop most often is the financial one. Without systems in place to track things like invoices, upcoming expenses, contracts, taxes, and bank statements, even a well-conceived plan can fall apart. This kind of bookkeeping mess is stressful and can take a lot of joy and satisfaction away from running your business.
Action steps: Schedule time each month to make sure all your paperwork is in order. Have a system to keep track of receipts. Have separate personal and business bank accounts. Set up a tax account and set aside money for taxes regularly (usually 20-30% of taxable revenue plus any sales taxes collected). Buy and use accounting software with which you are comfortable. If managing this side of the business becomes too overwhelming, consider hiring a bookkeeper.
If you would like help building a financial plan that will support your business and your future, contact us for a free consultation.
This post first appeared in 2018. It has been updated with current data and/or information and republished.
