Many Americans struggle to save for retirement. According to a report by CNBC most only have 12% of what they will need saved. For small business owners it can be especially difficult.
We are here to help with the top financial planning tips for small business owners.
Financial Planning Guide for Small Business Owners
[Related: Choosing a Financial Planner]
Many small business owners are behind on retirement savings because of the low cash flow during the early stages of starting the business. This is one major difference in financial planning for a small business owner and everyone else.
For this reason, it is crucial to develop the necessary skills for creating and monitoring cash flow projections and actuals. We recommend using spreadsheet projections to monitor smart cash goals.
Tax decisions are another important part of financial planning for small business owners. When it comes to writing off expenses or deciding how to compensate yourself, it is important to make sure that your business financials are accurate.
It can be tempting to run all your expenses, like travel and cell phones, through the business. However, this can make the financials inaccurate which is harmful if you ever decide to sell your business.
Also, instead of paying yourself directly from the company profits, you should consider paying a salary commensurate with the work provided. This well help insure accurate company financials and will also benefit you in decision making and acquisition/merger opportunities.
We also suggest that small business owners put aside a percentage of the business’s gross revenue to cover the cost of annual taxes. This type of planning can prevent the rise of problems due to low cash flow when taxes are due.
Debt management can be tricky for small business owners, especially because they end up using their own funds to keep the business afloat during difficult times.
This can lead to stress on the home front though. To prevent this, we recommend creating an emergency fund for your household first. This way, when you need to use your personal funds for the business, you don’t have to worry about not being able to pay your mortgage.
It doesn’t matter when you plan to retire, you should start planning for it as early as possible. The owner’s equity in the business is the single most valuable part of a small business owner’s net worth. Your business needs curb appeal, and this includes upward trends in profitability and revenue. These need to be established at least five years before your planned retirement date.
[Related: Retirement Planning]
Owners must also consider periodic, third party valuations of the company. Sadly, tragedies do occur, and it is very important to plan for them so that you can take care of your employees and loved ones.
Finally, we must emphasize the importance of planning for retirement by saving regularly in a retirement account or defined contribution plan. Do not rely on your business as your retirement strategy. Plan for the unexpected.
Don’t wait, contact Blisk Financial Group today and let us help you plan for the success of your business.