When you own your own business, you are often so preoccupied with the day to day operations that you rarely have time to manage your own money. Small business leaders do a great job wearing multiple hats at work, but it is very common for them to drop the ball when it comes to managing their affairs.
Small business owners are also drivers of immense economic value in the United States. The Bureau of Labor Statistics found that small firms and startups were responsible for the creation of three million jobs in a single year. Despite that impressive jobs statistic, according to the National Federation of Independent Business (NFIB), only 39 percent of small businesses make a profit in their lifetime. That means it is vital for the owners of those businesses to plan for the future and manage their finances to prepare for any interruptions in profit.
This is just as true for the American population as a whole. Studies show that 50 percent of Americans have less than a month’s salary saved for a rainy day. If you own a business that number might sound all too familiar. Personal savings often get funneled into the company to support new initiatives or cover costs.
Many business owners tend to engage with accountants and financial advisors for asset planning, while partnering with lawyers on legal matters, though in today’s increasingly complex business climate a combination of these partners may be ideal. Jeffrey David Katz, of law firm JDKatz, advises, “Clients should be vigilant in reviewing their current and future plans with their counsel and financial advisor. Current and former planning techniques may already be out of date, and plans should be amended as appropriate.”
Tips for Managing Small Business Finances
Below are some insights from industry professionals to help you get started on a more sound long-term financial strategy, and to help you understand what partners you can take.
Find the Experts
Unless you are an accounting whiz, you probably pay someone else to do all of the books for your business. This kind of division of labor is necessary for efficiency and quality, yet people rarely take the same approach for their own money. Having a team of experts on your side is the best way to secure sound financial advice.
Since wealth management is a complex field, your dream team of partners should include financial advisors, lawyers, real estate experts, and as many other verticals as needed to advise on the many aspects of your portfolio. Whatever you decide works best for your needs, be sure to research the companies you plan to partner with to ensure they are credible experts.
Have a Strong Tax Strategy
It may seem like a no-brainer, but for many newer business owners, the tax code is a daunting set of rules that leads to nothing but audits and financial woe. It does not have to be that way, however. Financial writer Darla Mercado details the reality of personal tax planning, “In a perfect world, entrepreneurs would pay their estimated state and federal taxes, including Social Security and Medicare levies, on a quarterly basis. In reality, it’s easy to overlook these payments, especially if your cash flow is hard to predict.”
Again you will want to find experts, specifically in tax law, to help you navigate the complexities of owning your own business. Recent political discourse has opened up a lot of conversations about tax policy, but at this point, it is still unclear as to how tax law will change in the coming year. Stay close to qualified experts in tax policy so you can plan your contributions throughout the year.
Plan Your Legacy
Katz explains how the regulatory climate is increasing the importance of effective estate planning. “Various proposals are currently working their way around Capitol Hill, and this is an evolving area of estate planning, which individuals should be aware. In short, these proposals could increase the taxes paid by many Americans, transforming the estate tax into an income tax.”
Additionally, Katz shares how “recent changes in tax law allow trusts to hold IRAs, and defer distributions to the beneficiaries over their life expectancies instead of over the compressed five-year period.” While you may not benefit directly from planning out your estate, you can have peace of mind knowing that you have left accounts in good order and in such a way that they will continue to be useful and provide for surviving family.
For business leaders, financial management is often just another responsibility to add to a growing list. In order to stay on top of it and plan better for the future, it helps to rely on the expertise of informed and credible parties that can help you find the strategy that would best for you.