Photo of Eric R. Ebbert, CFP®, MBA, CEO Eric R. Ebbert, CFP®, MBA, CEO Jul 18, 2020

Many Americans have dreams of using their creativity and passion to start a small business. However, starting a small business takes a lot of hard work and personal capital that can be risky for your personal finances.

Having a financial plan can help you avoid costly mistakes and achieve the long-term success that you desire. At ProVise Management Group, we want to see you succeed, so take a look below at four financial planning tips for business owners that you can start following today.

1. Make sure you have good insurance coverage

Natural disasters, health issues, damaged property, theft, cyber-security issues and other problems can place a significant financial strain on your business, potentially forcing you to close the business. However, if you are covered with the right insurance, you may be able to protect your business assets from catastrophes.

Take a moment to consider every aspect of your business that is at risk for damage or loss. Of everything that is at some level of risk, determine which ones would have the most impact on your business if a catastrophe struck. Find an insurance plan that covers these areas, and remember to review your plan at least once every six months, updating as needed.

2. Take advantage of tax saving opportunities

The 2017 Tax Cuts and Jobs Act has been in the process of implementation for several years now. It provides significant benefits for small business owners that could allow you to exclude up to 20% of your business income. Unlike most personal tax provisions that expire after some time, the tax provisions granted by the Tax Cuts and Jobs Act are permanent. That is, of course, until Congress changes it again.

Make sure your business is properly registered a Limited Liability Corporation (LLC) or a S-Corp, both of which provide some asset protection, and so you can qualify for the reduced tax rates and eligibility for deductions for qualified pass-through businesses.

You can potentially further leverage tax advantages by implementing employer-sponsored 401(k) plans and profit-sharing plans. Think about which options best suit your business. Talk to your financial planner and/or CPAif you need any help figuring out how to best reduce your tax liability.

3. Plan for your retirement

You may have visions of long-term success for your business and have hopes to live off of your profits for the rest of your life, but you should be thinking beyond this if you want to have a more comfortable retirement. Leaving your future income all up to the success of your business is risky and uncertain. You never know what might happen to your business or if it will still be in demand in the future. Look at all the bankruptcies from long standing companies as a result of the coronavirus. 

We hope you find the long-term success you want, but it is best to be prepared for retirement by investing in a retirement plan as well as growing your business profits. There are many options available for small business owners, including the solo 401(k) or an SEP (simplified employee pension) IRA.

Many small business owners who are self-employed or have a small number of employees prefer the SEP IRA because of its high contribution limits. As of 2020, business owners can contribute up to 25% or $57,000 (whichever is less) into a SEP IRA. The reason this is best for self-employed business owners or businesses with a small number of employees is that you have to put equal contributions into each employee’s account, so if you had a lot of employees, this could get very expensive for you, leaving other options as better alternatives.

4. Work with a financial professional

Large businesses usually have the benefit of being able to keep a chief financial officer (CFO) on their payrolls. A CFO helps a business make financial decisions that aim to maximize profits, reduce overhead and lower tax liability. However, small businesses usually cannot keep a CFO on payroll, which can lead to making oversights in your financial decisions.

At ProVise Management Group, we help small businesses find more time to dedicate toward the success of your business with our ProVise Personal Financial Officer™ (PFO) program.

Business owners usually do not have the time, inclination or knowledge to deal with managing their personal finances on top of managing their business. Often we are like the cobbler’s children with no shoes…we are just too busy taking care of our business to take care of ourselves. The PFO™ program is designed for the business owner and other key employees. Our team can concentrate on your personal finances so that you can concentrate on your business’s success. 

Talk to a ProVise CFP® professional about financial planning for your small business

Operating a business without a financial plan is like trying to drive a vehicle without a steering wheel. Every other part of the vehicle might be working fine, but without a steering wheel for guidance, you cannot control where the vehicle will go. Our CFP® professionals can act as the steering wheel for your business’s financial decisions. We have your best interest in mind and will work closely with you to steer you in the right direction to help you achieve long-term success.

We can get to know your business’s goals, the beliefs that drive you and your current financial circumstances to help you get started. We also create a written plan for you at a fiduciary standard of care. All of our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about partnering with a CFP® professional for your small business? Contact ProVise today to schedule a complimentary consultation.