Most people know they should have a financial plan, but small business owners have even more reason to make it a priority. When you own a business, your personal finances and your business finances are often deeply intertwined, which means more moving parts, more risk, and more opportunity if you are thoughtful about it. A good financial plan gives you clarity on where you stand today, a roadmap for where you want to go, and a safety net for the things you cannot always predict. It also has a way of reducing stress, because when you have a plan in place, you spend less time worrying and more time focused on actually running your business.
Pay Yourself First, Even in Retirement
One of the biggest mistakes I see small business owners make is pouring every dollar of profit back into the business while putting nothing away for themselves. The business is not your retirement plan. You need a real one.The good news is there are some excellent options depending on how your business is structured and how many employees you have. A SEP IRA is simple to set up and allows for significant contributions if you are self employed or have a small team. A SIMPLE IRA can work well if you have employees and want to offer them something without the complexity of a full 401(k). And if you have grown to the point where a 401(k) makes sense, that opens the door to even higher contribution limits and potential profit sharing strategies. The right fit depends on your specific situation, but the most important thing is that you are consistently setting money aside for your future.
How You Pay Yourself Matters More Than You Think
A lot of business owners do not spend much time thinking about how they structure their own compensation, but the way you pay yourself has real tax implications and can affect how much you are able to contribute to a retirement plan. S-corp owners, for example, are required to pay themselves a reasonable salary before taking additional distributions, and getting that balance right can make a meaningful difference come tax time. Whether you are taking a straight salary, owner draws, distributions, or some combination, it is worth sitting down with both your accountant and your financial advisor to make sure your compensation structure is working in your favor and not just happening by default.
Insurance Goes Beyond Life and Health
Most business owners I talk to have life insurance and health coverage, and that is a great start. But there are a few other types of coverage that often get overlooked.Liability insurance protects your business if a client or customer has a claim against you. Depending on what industry you are in, going without it can be a real risk. And then there is key man insurance, which is essentially life insurance on a critical person in the business. If something happened to you or a key partner or employee, would the business survive financially? Key man coverage can give the business the resources to keep going or wind things down in an orderly way.Disability insurance is another one that tends to fall through the cracks for business owners. If you were unable to work for six months or even a year due to an illness or injury, what would happen to your income and your business? For most owners, their ability to work is their most valuable asset, and protecting it with a solid disability policy is something that should be part of every financial plan.
Your Business Expenses Can Work Harder for You
One of the genuine advantages of owning a business is that many of the things you spend money on can potentially reduce your taxable income. Vehicle use, home office space, equipment, software, professional development, meals with clients, and more can all be legitimate deductions when documented and used appropriately. Working with a good accountant is essential here, but so is staying organized throughout the year so you are not scrambling at tax time trying to piece things together.
Think About What Happens When You Are Ready to Walk Away
Business succession planning is something most owners know they should do but keep pushing off. Whether you want to sell your business someday, pass it on to a family member, or simply have a plan in place if something unexpected happens, you need to be thinking about this now rather than later. What is the business worth? Who would take it over? How would that transition be structured? These are not easy questions, but they are important ones, and the earlier you start planning, the more options you will have.
Your Business Is Part of Your Estate Too
One area that often gets treated separately but should really be part of the same conversation is estate planning. How does your business fit into your overall estate? Who inherits it if something happens to you, and how would it be valued at that point? For some owners, the business is their largest asset, which means it also carries the most complexity when it comes to passing things on. Making sure you have the right documents in place, whether that is a will, a trust, or a buy-sell agreement with a partner, and that those documents actually reflect your wishes, is something a good financial plan should address directly.If any of these topics are things you have been meaning to get to, let’s have that conversation. Building a plan that takes all of these pieces into account is exactly what we are here to help with.
Important Disclosures
Moneco Advisors is a registered investment adviser. This is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Moneco Advisors and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Moneco Advisors unless a client service agreement is in place.This commentary reflects the personal opinions, viewpoints and analyses of the Moneco Advisors employees providing such comments and should not be regarded as a description of advisory services provided by Moneco Advisors or performance returns of any Moneco Advisors client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Moneco Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in this presentation.