Top Tips: Successful Financial Planning for Small Business Owners

Being a franchise owner comes with plenty of responsibility. Between day-to-day operations, marketing, people management, accounting, and more, a lot of it falls on the franchise owner’s shoulders. And with so much on their plate, business owners can sometimes overlook an important piece of the puzzle: financial planning. If this sounds familiar, and you’re a small business owner looking for guidance on financial planning, we’ll walk you through why it’s important, some key considerations to keep in mind, and what areas you should address in your financial planning. 

Why do franchise owners need to focus on financial planning?

For small business owners, doing business involves taking care of yourself, your business and customers, and your staff. On top of that, franchise owners also have to bear the burden of financial planning—a responsibility that would typically fall under the domain of the accounting or finance department for a traditional full-time employer. As part of financial planning, you’ll have to explore the numerous possibilities for things that might occur in the future, planning for things like taxes, saving for retirement, expanding your business, a proverbial rainy day, and your eventual exit from the business. That’s a lot to unpack, and because many franchise owners are new to business ownership, most don’t know where to start.

And for many, financial planning is an area that is left more open-ended and up to the franchisee’s discretion, rather than being closely dictated by the franchisor. While this open-ended nature may feel confusing at first, it actually grants franchisees the freedom to control their business finances the way they prefer—and keep finances from controlling you.

Done successfully, financial planning serves as a roadmap for franchise owners, helping to steer your business toward long-term growth. It helps you to manage your money wisely, make smart decisions about where to invest, and ensure that you have enough cash to cover any expenses—expected or unexpected. By thinking ahead and planning for the future, franchise owners can avoid any financial surprises and set themselves up for success.

Make sure to separate your personal and business financial planning!

One thing to keep in mind as you dive into your financial planning: Remember to keep your personal financial planning and business financial planning separate! The lines can often feel blurry for small business owners, who find that owning a business makes work feel much more personal than it had in the past. However, distinguishing between the two can ensure that you’re focusing your efforts correctly. For instance, you may have personal plans for your own retirement—but you’ll also need to develop retirement plans that you’ll offer to your employees down the road. Making sure to differentiate between the two ensures that you’re spending your time and resources correctly, so you can pursue tactics that align with both your personal and business objectives. 

Now that we’ve covered these key points, let’s move on to the major areas you’ll need to pay attention to as part of your financial strategy for franchise owners. 

Small business tax planning

Franchise tax planning involves finding smart ways to reduce the amount of taxes you owe while still following all the rules. This can include things like figuring out which expenses can be deducted from your taxes, making the most of tax breaks, and organizing your business agreements in a way that's tax-friendly. Ultimately, good franchise tax planning helps you as an owner to keep more of your hard-earned money and keep your business on solid financial footing.

Taxes can be complex for small business owners, so when thinking through your strategy, be sure to:

Keep detailed records: 

For hassle-free tax filing—and for an easier time claiming deductions and credits—you’ll need to maintain detailed and accurate records of income, expenses, and receipts. You don't want to find yourself scrambling to pull everything together once tax time rolls around! 

Understand what’s deductible: 

Make sure you know what expenses can be deducted from your taxes, like rent, utilities, supplies, and marketing costs. In addition, familiarize yourself with depreciation and how it works when it comes to the assets used in your business—which can also be a source of major tax savings. If any of this sounds confusing or you need help getting the basics down, don’t be afraid to reach out to a tax professional or accountant who specializes in small business taxes to help maximize your deductions.

Take advantage of tax credits: 

There are plenty of tax credits available, like those for hiring veterans or investing in renewable energy. But for franchise owners specifically, there are a few unique tax credits that franchisees may not know exist. You can look up more information about what’s available to you on your state’s Department of Taxation website, as it often varies by state. When looking at your state’s credits, keep an eye out for one in particular: the Work Opportunity Tax Credit (WOTC). The WOTC offers tax relief for businesses that hire individuals from specific groups, namely financial aid recipients, qualified veterans, former felons, and people with disabilities. The amount of your credit is generally calculated based on the wages you’ve paid to these eligible employees, and the current iteration of the WOTC is authorized until December 31, 2025.

“Rainy day” planning

It’s all but inevitable: At some point, there will be obstacles, downturns, natural disasters, acts of God, or any number of other common pitfalls that will put your business at risk. For these unexpected occurrences, you’ll need to turn to a rainy day fund to help cover your losses. Putting aside “rainy day” savings means you have cash available to keep your business afloat through any unexpected financial challenges or emergencies. This dedicated fund—resist the urge to take from it for general business expenses—provides a safety net for franchise owners who need to cover expenses during slow periods or things like equipment repairs or legal fees. Setting up a rainy day fund is a smart idea, granting you more financial stability and reducing the likelihood that you’ll ever need to resort to high-interest loans or withdraw from your personal funds in tough times.

Franchise investment planning 

At some point, you’ll likely want to expand your business, move to a new location, or make any number of major changes. To prepare for these exciting times, you need to plan for how you’ll tackle those more significant investments. By relying on a number of investment strategies like the following, you’ll be well-prepared to meet your specific business goals. 

Establish a savings account: 

Much like our rainy day fund, you may want to open a dedicated business savings account to more intentionally set aside a certain amount of your profits for future expansion or upgrades.

Leverage financing options: 

Sometimes, financing options can be a viable choice to support your investments. Some financing options available can include small business loans, lines of credit, or equipment financing if you’re looking to upgrade your equipment, to fund expansion initiatives or capital investments. Be careful here, though: Sometimes these loans or lines of credit can have high interest rates and unfavorable terms, so be sure to carefully read through everything to learn whether the financing option you’ve chosen aligns with your long-term financial goals.

Reinvest your profits: 

Reinvesting profits involves taking a portion of the franchise earnings and putting them back into the company. Instead of you as the owner pocketing your distribution of the profits, you would instead use those funds to fuel further growth, expansion, or improvement initiatives within the business. This can include investing in areas such as purchasing new equipment, expanding operations, launching marketing campaigns, or hiring additional staff.

Stay informed and plan ahead: 

Keep your finger on the pulse of your industry, because trends, market conditions, and upcoming regulatory changes may impact your business. Refer to industry publications for more insights; for instance, for Spherion franchisees working in the staffing industry, you may want to see what the Staffing Industry Analysts predict regarding future employment trends or recruiting demand. Based on these predictions, you can develop a long-term growth strategy and the necessary funds to adapt to evolving circumstances.

Small business retirement planning

As a small business owner, there are no corporate 401Ks or pensions for you to take advantage of, so you need to do more of the legwork involved with retirement planning. For your own retirement planning, look into Simplified Employee Pension (SEP) IRAs and individual 401(k)s, two savings options that help you set money aside for the day that you finally retire.

Some small business owners consider plans like SEP IRAs or individual 401(k)s to be unnecessary because they plan to simply sell their business and live off the sale proceeds once they retire. However, realize that it’s always better to be safe than sorry. After all, you have no idea what the industry, your business, or even inflation will look like years down the road—and many business owners tend to overestimate how much they’ll get from the sale. 

Planning for your business exit or estate planning

It may be tough to think about, but you’ll want to protect the legacy you’re planning to build or are already building when you one day exit the business or pass away. All small business owners should have a will and estate plan in place that—in the event of their death—dictates who the business and its associated assets will go to. This will help clear things up for your employees and loved ones and keep them from spending months or even years determining succession. 

And speaking of succession, you should also plan for who will take over for you when it comes time for your retirement. While this is similar to establishing a will and estate plan, a succession plan will generally cover a longer time frame in which you’ll train your replacement on the operations, management, and ownership of your business. You’ll most likely want to consult with accountants, lawyers, or brokers to help you with the legal, financial, and operational aspects of the process.

Building a solid financial strategy for franchise owners

Running a small business comes with its fair share of challenges and opportunities. But with the right financial planning, you can navigate these ups and downs and set yourself up for long-term success. From managing your budget and cash flow to planning for taxes and retirement, financial planning helps you make the most of your money and steer your business toward growth and prosperity.