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Top Ten Financial Planning Tips for Business Owners
Managing Cash and Debt Levels
External demands on business owner’s financing situation are endless, so it’s critical to monitor expenses and conserve dollars to finance the operations.
Paying Yourself
Business owners often pay themselves very little in the way of salary. Partially due to the need to minimize personal payroll and income taxes. While these actions can be a big help at tax time, they can be roadblocks to helping business owners accumulate savings for retirement or other goals.
Choosing a Financial Advisor or Financial Planner
Most business owners would benefit from the guidance and assistance of an appropriate advisor. However, it’s important to ask the following questions:
- Is he or she an expert in wealth management, as it relates to business owners?
- Does the advisor have a fiduciary responsibility to put their clients first, with no compensatory conflicts?
Registered Investment Advisors (RIAs) comply with the standards listed above and are regulated by the Securities and Exchange Commission (SEC) or their state.
Personal Goals
As a business owner, you should make an effort to establish your personal goals in the same way you put together multi-year business plans. Starting a conversation with family members or advisors is a great start. A critical step is to determine what is “reasonably possible” for you to achieve, given your financial circumstances.
Planning for Retirement
Take some time to determine how much money it will take to fund your retirement or second-career dreams. Tracking or paying close attention to “personal” expenses, as opposed to business expenses, can be accomplished with online tools or a good old-fashioned spreadsheet.
Saving for Retirement
Similar to a 401(k) plan, set up regular automatic payments to your savings to accumulate enough money to fund your personal hopes and dreams. Of course, many business owners’ hopes and plans include the potential of selling their business to support their relaxation and recreation during retirement. However, this is a massive unknown for most companies, and dreaming of a big payoff from a business’s sale may not be realistic for everyone.
Diversifying Your Assets
As you save and invest money for the future, ensure that it is properly diversified and compatible with the amount of risk you are willing to bear. Don’t fall prey to “market timing.” Determine an investment policy and execute it in a disciplined way; then spend most of your time managing your business.
Managing Risk
Beyond their monetary investments, it’s essential for business owners to establish protection for their families. Life insurance and buy-sell agreements, which deal with the buyout of a deceased partner or the business, can safeguard your survivors in the event of your death.
Planning for Succession
It’s essential to keep the issue of succession planning in mind. Getting the most of your business or real estate investment, later on, can help guide your personal wealth management decisions after you’ve left the helm.
Arranging Your Estate
Regardless of age, business owners should meet with a qualified attorney and estate-planning specialist to ensure that their goals and wishes are properly accounted for, including business assets plans. At a minimum, business owners should have an updated will that contains instructions on how their assets should be distributed, which may or may not include business assets.