Small business owners invest countless hours and capital to build and grow their business. For many business owners, their individual wealth is tied back to their business and their sole source of income. 

For this reason and others, it can be easy for entrepreneurs to get wrapped up in the daily operations of their business that oftentimes, they neglect financial planning. But in order to be and stay successful, a financial plan is essential.

Why? Over 50% of small businesses fail before 5 years. One of the major reasons they fail is because of the lack of a financial plan.

Proper financial planning is the key to success, both on the personal and business side.

Personal vs. Business Goals

The first step in financial planning is distinguishing between your personal and business objectives. Make two separate lists of your personal and business goals. Both lists should encompass short and long-term goals.

Analyze your personal and business goals to uncover any conflicts. For example, deciding to pay off your personal debt may hinder your business goals of investing more capital for growth.

Once all conflicts have been addressed, you should prioritize your goals. We all have a limited number of resources and time so by prioritizing those items that are most important to you, you can focus your efforts on accomplishing those first. This will hopefully instill motivation in you to achieve your other goals.

Create a Budget

At every stage of your personal and business financial plan, budgeting remains a vital aspect of financial management. A budget is the allocation of income and expenses for a set period of time.

Budgeting plays a decisive role in cash flow management, determining the resources available to spend or save.

Budgeting starts with an examination of your current resources and expenses. Once you have a clear understanding of your present position, you can focus on tailoring your budget to be aligned with your goals.

You might find that you unnecessarily overspend in one area and those funds are better suited elsewhere. Rebalance your expenses where you can because unfortunately, you don’t have this flexibility with every expense. For example, an expense such as rent is fixed. There is little to nothing you can do to adjust what you pay in rent every month. Therefore, rent is an unadjustable expense within your budget.

Your budget should be flexible. An emergency might arise, or new findings could emerge which might require you to channel funds urgently into a course not included in the original budget.

You should also adhere to your budget consistently. As your available resources increase, you should curb the temptation to increase expenses, especially those that do not result in the betterment of your business or household.

It is advisable that a budget be employed in your personal and business financial plan.

Tax Plan

Tax planning and financial planning go hand in hand. Taxes are such a large expense; it's only right that you plan for them and incorporate them into your financial plan. Tax planning is an ongoing process for small businesses and its owners. It requires an analysis of a financial position or plan from a tax perspective.

Tax planning helps achieve tax efficiency by reducing or deferring the amount of tax owed today and maximizing the deductions and credits that are applicable to you.

There are a number of considerations with tax planning, including entity type of your business, income, investment/retirement considerations and timing of income and expenses. All of these factors should complement each other in creating the best possible tax planning strategy.

Retirement Planning and Exit Strategy

Contributing to a retirement account offers a two-fold benefit. One, it reduces your taxable income by contributing to a qualified retirement account. Second, you save towards retirement. When you put funds from your paycheck into a retirement account, you reduce your taxable income and therefore your tax liability. Those funds are typically taxed at a later date. If your business contributes to your retirement account, that’s a tax-deductible expense for your company.

Consider the many different types of retirement accounts, from Simple IRAs to SEP IRAs to Solo 401k plans. They each have their own unique qualifications and benefits.

Retirement planning and developing an exit strategy should be done concurrently and not independently of each other. Chances are, your business is your largest source of income and should fund a substantial part of your retirement.


As a business owner, you are solely responsible for your retirement. Not only that, but you have to consider what will happen to your business once you actually retire, also known as your exit strategy.

You need to decide on your exit strategy. Would you sell your shares to an investor? Would someone replace you? In either case, you will probably liquidate some portion of your shares in exchange for a lump sum of money.

The key here is building some flexibility into your retirement plan. Depending on the timing of the sale, the market conditions will greatly impact your proceeds. If, at the time you want to retire, the market is down, it would be beneficial for you to postpone selling your business. This could mean you working longer or being more financially reliant on your retirement accounts until the market goes back up.

Bottom Line

Once you develop your financial plan, stay consistent. Whether you decide to budget $20,000 annually for rent, decide to change your company's legal entity for tax purposes or establish a Simple IRA account, stay committed to your financial plan. Occasionally, you will have to revisit specific elements, like your budget, and adjust it accordingly as your business evolves, which is okay.

Don’t skip on developing a financial plan. If you find yourself getting bogged down with the details of creating one, consider hiring a Certified Public Accountant or related professional. Your personal and business finances are far too important to ignore. 

About the Author(s)

Krystal Russell

Krystal Russell runs a full service accounting and finance company, LYFE Accounting. LYFE Accounting is a one-stop shop accounting company that services individual and business clients in all areas of their financial function including, but not limited to, bookkeeping, tax planning/tax preparation, CFO services, and personal financial planning.

Certified Public Accountant and Co-Founder, LYFE Accounting
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