Financial Planning for Starting a Business

Article overview

• Establish solid financial foundations by separating business and personal finances, setting up dedicated business accounts, paying yourself regularly and building business credit to create organization and clarity from day one.
• Master cash flow management and tax preparation by monitoring money flow closely, maintaining three to six months of operating expenses in reserves, choosing the right business structure and making quarterly estimated tax payments to avoid financial surprises.
• Protect your business and future by securing appropriate insurance coverage, setting up retirement accounts like Solo 401(k) or SEP IRA, and seeking help from professionals or free resources like SCORE when needed to ensure long-term stability and growth.

This article is part of the Financial Planning for Every Stage of Life series.

Starting a small business or side hustle often changes the way you think about money. It’s exciting but also adds complexity to your finances. Instead of relying on a steady paycheck, you’re responsible for your income and managing benefits, withholding taxes and setting up retirement plans.

That’s why business financial planning is so important early on. Setting up separate accounts, establishing good cash flow habits and planning ahead for taxes, insurance and retirement can help you stay organized and focused.

A clear plan can make those challenges and potential opportunities easier to handle.

You’re setting your financial foundation

Financial planning for business owners starts with separating your business and personal finances. A dedicated business bank account and credit card can make tracking easier and reduce confusion at tax time. A simple bookkeeping tool and monthly reconciliations also help keep records accurate.

Consider paying yourself on a set schedule, just as you would if you worked for an employer. Also, try including your pay in the budget, which helps show whether revenue covers expenses and your income.

As your company grows, building credit in the business’s name can also be important. Forming a legal entity, applying for an Employer Identification Number (EIN) and paying bills on time help establish a solid credit history. Strong business credit can make it easier to negotiate with suppliers or qualify for more financing.

You’re learning to manage cash flow

Cash flow is one of the biggest reasons small businesses succeed or fail. Even with strong sales, a gap between the money coming in and what’s going out can create problems. Close monitoring lets you spot issues early and adjust before they become major red flags.

Strong cash flow habits are a core part of financial planning for small businesses, helping you manage today’s needs while keeping an eye on long-term growth. They also support more accurate business plan financial projections, giving you a clearer view of how money moves through your company.

Simple steps can help:

• Send invoices the day work is complete.
• Follow up quickly on late payments.
• Look for ways to align bills with when revenue comes in.
• Consider negotiating extended payment terms with suppliers to create more breathing room.

It may also be worth setting aside cash reserves. Aim for three to six months of operating expenses in a separate account. This emergency fund may help cover payroll, rent or other fixed costs if cash slows, and it gives you flexibility to handle new opportunities if they come up.

You’re deciding on business structure and taxes

The way you set up your business can impact your liabilities and taxes. Many owners start with a limited liability company (LLC), while others may want to form a corporation if they’re planning to raise outside capital. Each option has trade-offs, and it’s worth speaking with a tax professional about what fits your situation.

A clear system of tracking revenue and expenses makes it easier to create a business plan financial forecast. Seeing how taxes, payroll and other expenses fit together gives a more realistic view of potential cash flow, profitability and growth.

A key part of setting up a financial plan for a new business is preparing for taxes. Unlike traditional employees, who have taxes deducted from their paychecks, business owners often make quarterly estimated payments to cover income and self-employment taxes.

If you need funding to cover bills or grow, potential lenders and investors will look for a financial plan in your business plan materials, since it shows how you expect to manage both revenue and expenses. Even a simple spreadsheet can serve as a financial plan sample for new business, outlining startup costs, expected income and key expenses.

You’re protecting what you’re building

Insurance may not feel urgent when you’re starting out, but it can be an important part of long-term small business financial planning. The right coverage helps protect your work from risks that could otherwise disrupt operations or drain savings.

Common policies for new owners may include:

• General liability insurance for accidents or property damage
• Professional liability insurance if you provide services or advice
• Commercial property insurance for equipment or office space
• Commercial auto insurance if you use vehicles for business purposes
• Cyber liability insurance if you handle customer data
• Workers’ compensation if you have employees

Some owners also consider business interruption insurance, which can cover lost income if operations are temporarily shut down.

Insurance plus cash reserves adds another layer of protection and more stability when the unexpected happens.

You’re thinking about your own future

When you work for yourself, there’s no employer setting up retirement plans or health benefits for you. That means it’s up to you to build them into your overall plan. As part of financial planning for business owners, considering your personal future is just as important as managing the business.

Retirement accounts designed for the self-employed, such as a Solo 401(k), SEP IRA or SIMPLE IRA, allow higher contribution limits than a traditional IRA. Even a basic business financial plan example can include retirement contributions, giving you a clearer view of how regular expenses tie into long-term goals.

Health and life insurance are also worth factoring in. Buying health insurance on your own may feel like a big expense, but it can help protect you from high medical bills if you get sick or injured. Life insurance helps provide for your family if something happens to you. Both are important pieces to think about when you don’t have an employer providing benefits.

You’re considering when to ask for help

Running a business can mean wearing many hats, but there are times when bringing in outside expertise can make sense. Accountants, bookkeepers and mentors can help with day-to-day questions, while financial professionals may offer guidance on bigger decisions related to long-term plans, funding or expansion.

Some owners search for a financial advisor business plan to see how an advisor may support them. An advisor can provide more than just investment advice; they can help coordinate taxes, retirement savings and insurance as part of your overall plan.

Free or low-cost resources are also available. Organizations like SCORE and Small Business Development Centers (SBDCs) have workshops and one-on-one mentoring to help with planning and projections.

Reaching out early can give you more confidence as your business grows.

You’re preparing for surprises

Even with the best planning, things don’t always go as expected. Customers may pay late, costs can suddenly rise or sales dip without warning. Surprises can also be good for business, such as a large new order or an opportunity to expand faster than expected.

Building flexibility into your numbers is part of small business financial planning. Some business owners create “what if” scenarios in their budgets to see how the business might handle slower revenue or higher expenses. Others keep a separate reserve fund or consider loan options to cover shortfalls or capitalize on new opportunities.

Thinking ahead about surprises doesn’t eliminate risks, but it can help you react more quickly when they come up.

Staying grounded while you grow

Running your own business brings both freedom and uncertainty. Taking small, consistent steps, like separating finances, managing cash flow and planning for the future, can help you stay steady as your business grows.