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.
