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3 financial planning tips to grow your small business

A small business owner can never stop looking ahead, particularly when it comes to financial planning.

Entrepreneurs invest a significant amount of capital into their businesses, whether it is borrowed or self-financed. Many of them have their entire life savings, available credit, and family fortune locked into their businesses. They must stay on top of their expenses and finances.

If you want to position your company for long-term profitability, you need to constantly strategize how to sustain existing revenues and take advantage of growth opportunities.

Many small business owners feel that their strengths lie in day-to-day management, sales, and customer service — not financial planning. The challenge is figuring out how to manage business finances effectively to position them for success.


The challenges and imperatives of financial planning

Even when small business owners know they should invest in financial planning, they’re often unsure of where to begin. New entrepreneurs who recently launched their businesses might feel they lack the resources to hire someone who can manage their books and forecasts.

But financial planning should be central to your business from the start because it affects every aspect of the company, from your recruitment and hiring strategies to your level of customer service to your investment opportunities. Not only that, but for most small business owners, their personal life and business life are practically inseparable. Aspirations of expanding can negatively interfere with their personal goals, such as retirement. There needs to be a balance. Financial health determines all of that.

As a business owner, you must be able to understand the macro economy, as well as the micro landscape within your industry and your business. Part of financial planning is knowing exactly how you will compete in your niche and what you can do to nurture long-term growth. This matters not only for your strategic operations, but also for seeking out lenders and investors. In today’s digital environment, they will want to know how you expect to compete locally, nationally, and globally.

Financial planning also provides a way to insulate your small business from economic downturns. For example, a survey of small business owners found that 49% are worried about a possible recession in 2019 and are being more conservative with their inventory. Another 36% said that they anticipate a sales decrease. Looking ahead in this direction will enable them to prepare for difficult economic periods.


Financial tips for small business owners

Although financial planning can seem daunting, you need not go it alone — nor should you. Banks can offer financial planning tips for business owners that can transform a company's trajectory. The following tips will help you develop a sound financial planning structure:

1. Organize your financial planning documents

Before you apply for financing or investments, document your business projections for the next three to five years. A certified public accountant can help you with this. Alternatively, you can reach out to the U.S. Small Business Administration or a local small business development center for assistance. They can help you understand your local market and the factors that might affect your success.

2. Consider your credit needs

In recent years, some business owners have found it more difficult to raise funding, due in part to regulatory changes. You can increase your chances of securing financing and investments by working with experts to create a strong case for your company. A banker can help you assess your creditworthiness by taking into account low scores or bankruptcies that might make it difficult to gain approval. They’ll also help you refine your business plan to address lenders' key areas of concern.

3. Protect your company against interest rate fluctuations

Understanding interest rates can help you gauge the macroeconomic environment and how it will impact your business. For instance, the Federal Reserve reversed its position on rate hikes for 2019. As you approach lenders, you will need to consider how potential rate increases will affect your cash flow and liquidity. A banker can advise you on how to mitigate the effects of increased rates on your business.

Learning how to run a small business financially is a challenge, but it is one worth pursuing. Your company cannot succeed in the long term without a strong financial plan. At Cathay Bank, we are committed to your financial well-being. We're not just in the business of lending businesses money; we develop relationships with business owners and help them succeed. Contact us today to find out how we can help your company.

This article does not constitute legal, accounting or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.


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