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Financial Planning Advice for Business Owners

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The impressive stories of legendary entrepreneurs like Mark Zuckerberg of Facebook or Steve Jobs of Apple, have inspired countless numbers of people worldwide. However, becoming a successful sole trader isn’t common and it isn’t easy. 

Fame and fortune aren’t enough to keep most people motivated during the financial downturns or general setbacks. Doing a job that you love, being your own boss, establishing a legacy for your family are probably much more motivating. 

Once you’re ready to become a business owner, you’ll be working hard and trying to sidestep the high failure rate of small businesses. It’s been widely reported that only 50 percent of all new organisations will survive for five years, normally it’s even less. Often the failure is tied into marketing, sales and budgeting. 

Risk Management

Individuals usually plan for their biggest financial risks, things like disability, illness and death. Once that individual transitions into being a business owner, then it’s time to evaluate and plan for different types of risks. 

Buying business insurance is one of the main ways entrepreneurs go about protecting their business. Public liability insurance is specifically meant to cover costs associated with lawsuits resulting from negligence or defective products. You can work with the experts at BizCover to get free public liability quotes and quick coverage get your online quote today by clicking here. All the details can be sent right to your message inbox today. 

In addition to public liability insurance, you will also want to figure out best way to handle: 

  • Business interruption due to a disaster
  • Death or disability of a key person within your organisation
  • Loss of business property

Some risks can be handled through the company’s legal structure, while others can be handled by a business insurance plan. Again, you can talk with a BizCover agent for customised advice. 

Paying Yourself

Don’t forget to collect a salary from your business. If you don’t then you may find yourself in a financial mess personally. You must pay your own expenses, save for retirement and follow your other personal goals. Entrepreneurs often skip their salary to hire one more team member, lower their tax rates, buy a building, or invest more capital into the business. This approach almost always backfires on the business owner and causes fiscal hardships later. 

Investment Planning 

Will you be personally financing your small business? Often that means the business becomes the owner’s only major investment. Even when he/she has extra money available to put towards other investments, business owners often put the money back into their company. This can be a financial mistake as it’s always best to focus on diversification when it comes to investing. It’s in your best interest to carefully choose personal investments that will offset the already high risk of owning a business.

Also Read: Firestone Credit Card 

Tax Planning

To the extent that individuals and businesses have different marginal rates at different brackets of income, it is possible to coordinate the taxation of business and personal income in a way that provides the greatest benefit to both the business and its owner.

Retirement Planning

If you’re already doing something you love, it can be hard to imagine retiring. Or you may view your small business as your retirement plan. You may be planning to take cash from your business to fund your retirement needs. However, financial planners will tell you that’s a bad idea. In fact, you may need more retirement planning (not less) because you’re a business owner. You must thoughtfully prepare for when you can’t work any longer or the business can’t provide you enough income. You should work on a sound retirement plan that accounts for a few different scenarios. 

Estate Planning

Your business will eventually grow and become an asset. It may grow to such a level that a family trust or regular will won’t be enough to meet the legal requirements for transferring ownership. Sophisticated financial planning will probably be necessary to make sure the business survives your death. You’ll also want to be sure any estate taxes are assessed correctly and there’s liquidity of cash available for heirs to pay the taxes. 

A reorganisation of the business might be advisable to create different types of ownership for family members and to make full use of IRS-sanctioned discounts in valuing the business for purposes of gift and estate taxes. Insurance trusts and charitable trusts can also play an important role in the efficient transfer of a small business.

Bottom Line

Comprehensive financial planning is key to keeping your business going despite the challenges that will come. The way entrepreneurs manage their finances will have a huge influence on both long-term and short-term goals.

Sometimes when you’re just starting a new business, it can be easy to lose sight of what’s most important. Stay on track by following our financial planning advice. 

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