Tips for Personal financial planning for SMEs: 

Small-business owners and entrepreneurs are highly motivated people. They are driven to make their companies successful. So they are always on the go and try to seize every opportunity.

They have to play numerous roles within the company to keep everything afloat. They often have well-defined goals and big dreams for the business but are inundated with an endless list of tasks and have limited time to accomplish them. Planning for personal finance and ensuring that their personal life and family are financially safe is not his priority. However, it should be the number one priority to make himself successful.

We suggest the following ten suggestions, which will make an entrepreneur’s life happier along with the success of his venture.

1.     Written Plan: Start with a written investment plan that considers your investment into the business and will keep your personal finance steady through rough times(if the company suffers). You should have an investment policy and execute it carefully, then spend most of your time and efforts on your business.

2.     Liquidity: Build a cash cushion for your family and your business. Set aside at least three to six months of cash flow (some planners recommend a year or more) in a liquid account, such as a mutual debt fund. 

3.     Paying yourself: Owners may wish to pay themselves very little in the way of salary – partly for the reasons above and also to minimize personal payroll and income taxes. However, it is a good practice to take a salary and keep away from dipping into business funds to meet personal expenses.

4.     Diversification of assets: As you save and invest some money for your future, ensure that it is adequately diversified and compatible with the amount of risk you are willing to bear. Avoid investing only in real estate. It would help if you diversified some of your investment money into assets that are not correlated to your business.

5.     Risk Management: Protecting one’s family is sometimes overlooked by business owners. Life insurance (with noting of the same under the Married Women’s Act), health insurance and asset insurance, and funding their savings plan may be a great help.

6.     Groom Second line/Co-founder: Every small business owner never thinks about business without him. However, unexpected events and severe illness may derail a business and devastate the family. Therefore, grooming a second line to stand in or choosing a co-founder is better once the business stabilizes. 

7.     De-risking the family from business risks: It is widespread among entrepreneurs that entire or most of their assets are locked in the business, including pledging house property for loans. Some family members may also be employed in the business. It implies that the family’s fortune is entirely tied to the business—this needs to be reviewed and strategically approached with the help of advisors.

8.     Personal goals: As a business owner, you should make an effort to specify your personal goals in the same way you put together multi-year business plans. Starting a conversation with family members or advisors is a great start. Also, determining what is “reasonably possible” given your financial circumstances is a critical step.

9.     Planning for retirement: Spend some time thinking about retirement. Determine how much money it will take to fund your “retirement”. It is unlikely and avoidable to believe that business will remain stable in the long run.

10. Estate planning: A business owner should meet with an estate planning specialist to discuss and ensure that goals and wishes in this area are adequately reflected in the estate planning documents (including plans for the business assets). Younger owners don’t always feel this is necessary – but they and their families may be taking a risk. An owner should, at a minimum, have an updated will that contains instructions on how assets should be distributed, which may or may not include business assets.

With a lot of hard work, you can move on to bigger and better challenges within your business. But don’t forget to get on track – and stay on track – toward achieving your own financial goals.

Today’s Business Owners Need to Consider Their Tomorrow

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