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Starting a small business is exciting. The idea of possibility of achieving financial freedom on your own without having to answer to a boss is enthralling for many hopeful entrepreneurs.

While there are many reasons why a small business could falter, a lack of financial planning and financial management is a heavy contributor. While chasing a dream is important, the reality is that pursuing this endeavor takes money, and often a lot of it. Financial planning is critical to small business success.

Opening a small business requires start-up money and if an entrepreneur does not have enough of the capital resources needed readily available, a loan may be considered.

For many this is a good option and opportunity, but also requires serious financial planning, after all those loans will have regular payments due which must be paid on a timely basis. In addition, when personal assets are used, the small business owner must be financially prepared to sustain until profitability begins to take place.

One big mistake many small business owners make is not either thinking about or correctly assessing profitability verses the money that will need to be spent to keep the business afloat and operational. The reality is most businesses do not turn a profit the first year or two and some hopeful business owners end up depleting all their financial resources before the business gets a chance to really get up and running.

If a company doesn't become profitable during this time, and there is a good possibility they won't, the payments and operational expenses must still be paid in the meantime. In order to keep the business running in the red, serious consideration must have first been given to how the business will operate during this time frame.

When proper financial planning is accomplished, not only a financial plan should be in place, but a contingency plan as well. This is a good idea to take into consideration so the small business owner doesn't go bankrupt and the business falters in case of an unforeseen event. Most businesses will experience some sort of unplanned event and having a good backup plan in place will ensure the unforeseen doesn't lead to the demise of the company.

A lack of financial planning is a huge contributor to small business failure. Entrepreneurs must give serious consideration their overall business plan to ensure this important facet of doing business is covered and well planned for. A sound and secure financial plan is essential before attempting to open and operate a small business. Without proper financial planning, the opportunity to grow and prosper may not come.

Learn more about this author, Leigh Goessl.
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