Most entrepreneurs would agree that making plans is an integral part of running a business. You and I would agree you must have a personal financial plan. However, small business owners should have two separate financial plans: one for their business and one for their family or personal life. There will be some overlap, but the two financial plans should work together to ensure both parts of the entrepreneur’s life are covered.

Why personal and business financial plans are both needed

Financial plans are designed to organize the way their creators handle money. The point is to ensure that money is used for the best possible outcomes, both in the business owner’s personal and professional lives. A financial plan will not only make sure their family is taken care of if something happens to them, but it will also ensure that the business is taken care of too.

After all, many business owners make lots of plans when it comes to operating their business and strategically planning for the future, but they don’t think about what will happen to their business if something unexpected happens to them. In such a scenario, their family could be left to figure out what to do with the business if they haven’t already planned for the possibility of something unexpected happening. This makes an already tough situation even harder because family members might not know how to make intelligent choices about what’s next with the business. Customers will be left hanging, and family members will be thrust into an awkward situation.

A smart place for any business owner to start when thinking about their future is with their personal financial plan. After all, the business is part of their long-term goals. It’s the mechanism by which they will achieve their personal financial goals. Thus, it helps to start by thinking about those personal goals first before moving on to the business goals.

Start planning

The first step when creating a personal financial plan is to set financial goals. Since these goals are for the business owner’s personal life, they should include things like retirement or buying a home, car or other major item. They should think about what they want their life to look like in five or 10 years. They should also consider what they want their life to look like when they enter retirement. All of these goals will require a certain amount of money, but it’s easier to determine how much money is needed with specifics in mind.


After setting goals, the next thing to do is to see where the money they have is going. It’s important to keep the money that’s brought home from the business separate from the money the business brings in. Business owners should look at this problem as if they are an employee of someone else receiving a regular paycheck rather than the owner of a small business. They should write themselves a regular paycheck every week or twice a month to keep their personal finances separate from the business finances.

An important part of any financial plan is also creating a rainy-day fund if one doesn’t already exist. Preparing for the unexpected will ensure that there is enough cash to cover emergencies, no matter what they are, whenever they come up.

Financial planning also includes paying off debt and investing for the future so those goals that were set become a reality. Those who own a small business might have racked up some high-interest debt along the way. These are the debts that should be paid off first, followed by other debts with lower interest rates. Once again, it’s important to separate business debt from personal debt. The line can seem blurred here, especially if a loan was taken out to get startup capital. However, with a little planning and strategy, it should become clear which category each debt belongs in.

Investing for the future should involve saving in various ways. Small business owners generally do not have traditional 401(k) or similar retirement savings plans usually offered by employers. This is one area in which the business and personal financial plans will overlap a bit because one feeds into the other.

Retirement savings options for small business owners include traditional and Roth IRAs, solo 401(k) plans, SIMPLE IRAs or SEP IRAs. SIMPLE IRAs are better for those with up to 100 employees, while the other options are better for those who have few or no employees. A fiduciary financial advisor will work with small business owners to explain the differences between each of these plans and assist in setting up the right one on a case-by-case basis.

How a personal financial plan differs from a plan for a business

A personal financial plan should look different than a financial plan made for the business side of an entrepreneur’s life. However, the differences don’t mean that small business owners shouldn’t look at their personal plan when they’re creating a plan for their business. In fact, it’s important to keep the personal plan in mind when creating a financial plan for the business as well because both are important for the entrepreneur’s life.

Like a personal plan, the business financial plan should also track income and expenses. However, the section about investing for the future will look quite a bit different. Retirement savings paid out of the business’ income will be part of the expenses section. When planning for the future of the business though, owners should think about where they want their business to be in five or 10 years. Do they want to expand and take on more employees? How many regular customers do they want to have by then? Having a picture of what the business should look like in the future will enable the business owner to plan investments to make that image become a reality.

While personal financial plans focus more on freedom, business financial plans are focused more on growth. A financial plan for a business also considers other funding options to support those plans for growth and expansion. This may include low-interest business loans obtained via a written business plan sent to the Small Business Administration or a traditional lender. Other funding options include offering equity in the business to fund startup or expansion.

A financial plan for a business also contains some sections personal plans don’t require, like a succession plan. Small business owners should choose someone to take over the business if or when they leave the company. If the business is extremely small, like a freelance business, then having a successor doesn’t make any sense. However, it’s still a good move to make plans for what will happen to the business in the likelihood of the owner’s disability or passing. These plans should include steps to wind down operations and settle with any suppliers, clients and other involved parties. Making these plans will save the business owner’s family from having to make difficult decisions about a business they know little or nothing about.

How to make a financial plan for a business

One of the most significant things to do when creating a financial plan for a business is to separate business goals from personal goals. Business owners who didn’t do this when creating their personal financial plan now have a chance to go back and separate the two. This could require tweaking some parts of the personal financial plan.
Once owners have established separate business and personal goals, the next step is to start making concrete projections about the future based on those goals. Setting goals enables business owners to see where they want to go. Financial projections make it clear whether or not those goals are realistic in the timeframe that has been set. They force the business owner to be realistic about what achievements are possible and in what timeframe.

Financial projections also reveal the need for additional capital in order to expand or grow within the timeline that has been set. The business owner can then start making plans for financing if they will need additional capital to hit their targets.

The financial plan should also include a contingency plan in case things don’t go as well as the business owner hopes and projects they will. This contingency plan should include sources of capital that can be tapped in case of an emergency. Such emergency sources may include something as simple as savings or more complex options like a line of credit once can access in case of emergency. It is far better to plan ahead of time for emergencies rather than scramble around at the last minute, attempting to find a source of capital during crunch time.

The benefit of having a specialized financial advisor

As business owners go about creating their personal and business financial plans, it may become clear that more assistance is needed. Consult a fiduciary financial advisor who works only in the business owner’s best interests. And yet, the American Express Open Forum found that just 40% of small business owners have retained a financial advisor. In fact, less than 25% of small business owners even have a written plan that dictates what will happen to their company when they retire or if the unexpected happens.
Small business owners should look for an advisor who specializes in entrepreneurs. Such advisors understand the importance of having two separate financial plans for personal and business. They should also be able to help the small business owner distinguish between personal and business financial goals. Having a financial advisor also ensures there is someone to watch over the business owner’s personal finances while they focus on the business and meeting their business’ financial goals.

What to ask a financial advisor

When choosing a financial advisor, most of the things clients report as being of particular importance are relational in nature. Securian Financial Group found that 27% of respondents wanted an advisor who knows their needs, while 26% wanted one who know their brand and company. Another 26% wanted someone who is easy to talk to. But relational issues aren’t the only things business owners should consider when selecting a financial advisor to help them with their business and personal finances.

The first thing to consider when choosing a financial advisor is making sure they are fee-based or fee-only rather than commission-based. This ensures that they will be working only in the business owner’s best interests and not in the interest of their own commission. Financial advisors should also agree to be held accountable to the fiduciary standard, which means they will indeed work in the business owner’s best interests.

The next consideration is whether or not the advisor has any experience working with small business owners. Business owners have complex needs, especially when it comes to compartmentalizing their personal and business financial goals. Thus, a financial advisor who specializes in such cases is the best option. It’s also a good idea to find an advisor who works with business owners of similar net worth and with similar goals.

Some financial advisors are also certified financial planners. It would be a good idea to select one who is because they will be able to provide a complete view of the business owner’s personal and business financial pictures. Certified financial planners have taken tests to demonstrate that not only can they advise clients on their finances, but they can help with the planning process as well.

Finally, just as business owners would double-check the credentials of any of their employees, they should also verify the financial advisor’s credentials. The Financial Industry Regulatory Authority operates a website called Broker Check which enables anyone to verify the credentials of a registered financial advisor. Advisors who are registered should be willing to provide the information that’s needed to check their credentials through the Broker Check site. Business owners can search by name or Certified Registration Depository (CRD) number and city and state or zip code.

The Securities and Exchange Commission also operates an SEC Action Lookup website. The site enables business owners to verify whether regulators have taken any actions against the financial advisor they are considering.

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