One of the hardest 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 anything to do with numbers as there seemed too many rules and exceptions to remember.
Most entrepreneurs do not enjoy numbers. They are happy to relegate the task of debits and credits or journal entries or double entry book-keeping to someone who enjoys it. Define your core competencies and what you do well and then delegate to other people who have the right skill set and aptitude to do the things they do well. In simple business terms it’s called outsourcing.
The problem with outsourcing your personal and business finances is that you can lose track of what all entrepreneurs call the bottom line or their net worth. For different reasons the bottom line tends to move around a bit. 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 personal 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 personal assets are exposed should you do something wrong. Changing your legal entity to a Corporation or LLC may offer legal protection but get the right advice from an attorney.
In addition to the legal entity, getting an annual review of your insurance products is a wise and fairly cheap 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.
Another aspect of your Financial Plan is the performance of your business and if you are transferring profit from the business to fund and maintain your retirement. This advice is best sourced from your personal financial planner as they track trends and performance and can advise whether it’s best to put money into the stock market or other classes of asset allocation. They too have access to a full range of financial products that not only cover investing for your retirement but insurance products, short and long term investment strategies.
The above are all personal or external reviews of your finance. An equally important aspect though is the business. A lot of business owners do an annual check-up just prior to handing over all their documents to their accountant to prepare and report their tax returns. What, however, is a good strategy is doing at least a monthly review of the performance of the business and there are a number of reasons for this. This especially applies if the owner of the business has another member of the family or an employee look after the books. Whether we like it or not, this recession has seen an up-tick in theft from businesses from those entrusted with handling the books. If frequent and relatively detailed reviews are not put in place, money can disappear from the business. A simple strategy of getting a copy of the monthly Profit and Loss Statement, check stubs and bank statements can allow a series of questions and answers to quickly reveal whether or not things are in order. Expenses are always allocated to a category on the Profit and Loss Statement. Doing a test each month on some of the larger categories to make sure there is nothing unknown or unexpected can reveal if any further more detailed checking is required. These tests need to be random and sometimes with little notice.
Finally, if you are looking to buy your business, it will be important to have your financial plan in order. For buying a business this includes knowing what cash you have available to use as a down payment to buy a business. If you plan to borrow money from your inheritance, a parent, grandparent, aunt or uncle get a letter in writing so you can show it to a seller and the bank lending you money. You can also borrow money against your 401k plan. This takes time to put together, so make sure you allow the lead time of about 30 days to make this happen. Other parts of your financial plan to get in order are your credit score and credit report. Most third party lenders are looking for a credit score of at least 700 at the moment. It’s also critical to check your credit report to make sure there are no errors on it. Do this as soon as you can as errors take time to correct. Although not related to your financial plan, it’s also important to have an up to date resume as this will be looked at by lenders and possibly the seller if the seller is being asked to carry a note on the selling price.
One of the main reasons for being an entrepreneur is so you can enjoy the fruits of your labor. Being an entrepreneur allows you to follow your own dream instead of working for someone else and building their dream. Having a quality and creditable financial plan should be part of your success strategy. And remember, just as our personal fitness changes as we journey through life, so will our financial situation. We recognize that going to a doctor or dentist is good for our personal health, equally good is talking with different financial professionals including estate attorneys to make sure our financial plan is well rounded is just as important.
A solid and well researched Business Plan is one of the three key tools of an entrepreneur’s success. Part 4 of this article series covers why a Business Plan is so important and offers a link to download a business plan template for free.