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Small Business Financial Health Checklist

small business financial health checklist
How to ensure your business remains strong now and into the future

As a small business owner, you understand all the complexities that come with being responsible for not only yourself, your company, and your family – but for your employees, as well. While it’s easy to get bogged down in the day-to-day details of running your business, periodically taking stock of your company’s overall financial health is a great way to ensure that your business is in a position to thrive now – and for years to come.

Each day, you make decisions that affect your business. How can you be sure that you’re keeping the big picture in mind and that each decision you make is a sound choice for your bottom line and long-term business goals? Below we’ll share a simple but effective financial health checklist for your small business.

Develop a Comprehensive View of Your Business

Juggling all the parts of your small business can be overwhelming, but when you’re evaluating your company’s financial health, try taking a step away from the minutiae of daily operations and focus on three key areas: financial planning, budgeting, and investing.

Review Your Financial Plan

It’s imperative that you establish financial goals for both yourself and your business, and it’s important that you clearly delineate between them. Once you have those goals identified, you can begin to tackle other challenges small business owners face, including the best tax planning strategies to support your goals.

Your To-Do List:

  • Write down your goals – personal and professional – and prioritize them. Evaluate your list regularly, as often as quarterly but at least annually. Refer back to your list whenever you make decisions that could impact your financial health. That way, every choice is made with your goals in mind.
  • Assess the legal protections and benefits offered by your business structure, then explore other options to see if there’s a better potential fit out there.
  • Develop a tax plan for your business that focuses not only on deferring or reducing your taxes but also on maximizing your available credits and deductions. Your plan can incorporate any of the following: charitable giving, timing income, and expenses to your advantage, and alternative retirement savings accounts.



Budget by Business Plan

When you began your business, you needed a plan, and while the specifics may have changed over the years, that plan exists in some form. Revisit it and make sure it still reflects your company’s vision and goals. A U.S. Bank study by Jessie Hagen found that 82 percent of small businesses fail due to poor management of cash flow. A lack of vision and a poor business plan was also leading causes for businesses to go under. Ensuring that you have a well-developed and updated business plan will help you avoid these three common pitfalls for small businesses.

Your To-Do List:

  • Figure out the minimum revenue your business needs to break even. This figure should cover all your expenses – rent, utilities, wages and benefits, to name a few – before considering any potential profits.
  • Approach your budget with great focus, being sure to consider all the components, including income, expenses, inventory, credit and cash. Like your goals list and business plan, revisit your budget as your business evolves to ensure your expenses are covered and you have money saved for the unexpected.
  • Inform your business financing options by reviewing your budget, cash flow, and break-even figures. If you need financing, which options will be the best fit for your particular needs?

Invest Beyond Your Own Business 

When you are first starting out, it may seem like a great idea to throw all of your resources behind your company. Launching a business requires a lot on the part of the owner in terms of financial resources, time, and energy, but it doesn’t have to be an all-consuming endeavor. Maintaining a diverse and healthy approach to your savings and investments may provide you with more security than investing everything into your business.

Your To-Do List:

  • Keep an emergency fund for your business and for your personal finances. Having an account for both will keep you from dipping into funds set aside for other purposes, such as your retirement savings if you encounter cash flow issues with your business.
  • Continue to save as much as you can whenever possible. If your business is doing well and you’re covering your expenses with money to spare, take those extra dollars and invest them into an external account.
  • When looking at your portfolio, be sure you are also investing in companies that are separate from your industry. Should your industry suffer a serious hit, having your money in other companies and locations will provide some financial stability?

These three factors are essential to your financial health. Once those are solidly in order, start considering the other areas of your checklist below.



Insure Wisely

You put a lot of work into your business. Make sure you’re protecting what you’ve built by properly insuring it. Depending on your business, you may have specific and unique risks associated with your work, and choosing the right insurance can offer peace of mind and security.

Your To-Do List:

  • Assess your business objectively. What kind of risks do you face that are unique? How can insurance help you protect your business?
  • Review your insurance on a regular basis. Does it still fit your business needs? By keeping a close eye on it, you can mitigate business risks.
  • Consider the following types of insurance, which can be particularly beneficial to small business owners.
    • Workers’ compensation insurance
    • Health insurance
    • Property insurance
    • Liability insurance
    • Life and disability insurance, which can be used to fund succession plans, collateral for loans, or as fringe benefits for employees
    • Business interruption insurance, which can cover lost income and expenses in case of disaster

Stay Focused on Your Ultimate Goal

What is your ultimate goal for your business? How can you ensure it continues to run as you planned even if you aren’t able to run it anymore? How can you be certain that you’re set up for success in the next chapter of your life?

Your To-Do List:

  • Develop your succession plan by selecting someone who is capable of running the business and has the interest to do it. Decide how you will transfer the business or if you would prefer to sell it.
  • Be smart about your retirement plan. Explore all the options available to you, including individual 401(k)s, profit-sharing plans, and SIMPLE and SEP IRAs, then work to reduce your current taxes and focus on ways to grow your money through options that defer taxes.

Final Thoughts on Your Small Business Financial Health Checklist

A financial health checklist is a great tool for small business owners who want to monitor the state of their company. Regularly taking a comprehensive view of your business enables you to make smarter decisions to keep it thriving.

At Paces Ferry, we understand first-hand the intricacies involved in running a small business. Speaking with one of our financial advisors about your personal and professional financial planning can help you position your business for growth. Please contact us today to begin the conservation.

Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”).  This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.

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