Financial planning for a small business means establishing long and short-term goals and developing a strategy to bring them to fruition. Your goals will adjust over time. Therefore, reevaluating your plans consistently is a necessary practice. Start by asking yourself the below questions.
What Is Your Ultimate Goal?
Ideally, how much growth would you like to see for your business? Would you be happy running a small retail shop until retirement, or would you like to expand into multiple locations with a large staff?
Once you understand your ultimate goal, consider which business structure best suits your strategy. The most common legal structures used by small business owners are:
- Sole proprietorship. You are completely in charge of the business. It is a simple option for people running a small at-home company.
- Limited partnership. One partner has unlimited liability while the other partners have limited control and liability.
- Limited liability partnership. All partners have limited liability, protecting each partner from another partner’s actions.
- Limited liability company. An LLC protects your personal assets from a liability claim.
- Corporation. C corporations have liability protection but sometimes pay double the taxes. S corporations bypass corporate taxes.
When choosing your entity, start with the number of owners and discuss the pros and cons of each.
How Your Legal Structure Affects Finances
The type of structure you choose affects:
- Funding. Each type of legal entity has funding allowances. For example, corporations can offer stocks to collect capital, but sole proprietors cannot.
- Taxes. Personal and business income tax rates differ. For example, S corporations, sole proprietorships, and partnerships pay rates for personal income. C corporations keep business and personal income separate.
- Liability. Entities offering liability protection are not equal. For example, C corporations receive federal protection, whereas, LLCs only receive state liability protection.
- Company hierarchy. The primary difference in hierarchies is the board of directors required for a corporation.
You can choose to change your business structure at any point, but you may face significant consequences, including tax issues.
What Is Your Company Reputation?
What type of company culture do you plan to create? For example, will you offer insurance benefits and retirement plans? Do the benefits correlate with the size of your company?
Your company should reflect a culture of trustworthy members and stakeholders who create a positive reputation. Your job is to make them feel appreciated and free to grow professionally.
Who Will Eventually Take Over?
Small business owners often dream of turning over the company to a family member after retirement. However, it does not always work out that way. If you want the company to continue without you, ask yourself who will take the reins and whether they are capable.
Effective financial planning for a small business requires a thorough understanding of structural and operational strategies designed to meet long-term goals. For more information on financial planning for a small business, contact KDK Accountancy Corporation online, or call us at (407) 759-5363 for a free consultation.