Owning your own business provides you with many great opportunities, but it also comes with its own unique set of circumstances. Growing up with a father and grandparents who owned businesses, I saw firsthand the demands and rewards of being a business owner. It requires wearing many hats, working long hours, and carrying stress beyond business hours. However, it also offers the freedom to set your schedule, build a culture you’re proud of, and care for others. Often, business owners have limited time to plan their personal finances. While their business may thrive, it can come at a cost to their personal life. Here are five essential areas of financial planning for business owners.
Cash Flow Management
As a business owner, deciding how much to pay yourself involves considering company profitability, minimizing taxes, and setting personal goals. It’s crucial to carefully consider your pay structure and understand the taxation of your pay. Not only should a business owner take careful consideration into their pay structure, but they should also consider the cash reserves to keep for their own personal finances and business needs if a cash flow crunch were to arise.
Risk Management
Owning a business comes with significant liability. It’s important to employ strategies to help mitigate the risks of owning a business. A few common risks to consider are death and disability. You can help hedge these risks by having a catastrophic succession plan, before you’re ready to transition the business, and utilizing various types of insurance such as life and disability. Additionally, seek guidance from an attorney to see how you might be able to shield liability and build a relationship for future legal representation.
Retirement Planning
The day-to-day busyness can hinder long-term retirement planning. Whether you plan to always have a role in the business or eventually exit, thinking about retirement is crucial. One of the biggest mistakes I’ve seen from business owners when it comes to retirement planning is not thinking about a succession or exit plan years before they want it to take place. By planning for a succession or exit years in advance, a business owner can work intentionally on increasing the value of their business, find the right fit person to continue the culture of the business, and increase their confidence when stepping away from the business. Business owners also have a unique opportunity to offer a retirement plan through the business that they as well as their employees can participate in.
Tax Planning
Tax planning is crucial and requires the right professional to navigate the ever-changing tax landscape. Taxes can be one of the largest expenses for a business owner. Working with someone who understands your specific business can save you money over your lifetime. Similar to risk management, when it comes to tax planning it’s important to have the right professional to help you through the everchanging tax landscape of owning a business.
Investment Strategies
Most business owners have the majority of their net worth tied up in their business. While reinvesting profits back into the business is important, it’s also important to diversify investments outside the business. This balance provides flexibility and reduces the need for a liquidity event to fund your future. There’s a variety of investments to consider like tax-efficient investments, fixed-income investments, or investments in different industries to determine the best fit for your circumstances. Finding this balance between reinvesting in the business and diversifying outside the business can add more flexibility in your overall plan.
Financial planning for business owners can be complex, but with the right professionals, you can develop a plan for both personal and professional life. My upbringing drove me to work with business owners, and now, the business owners I serve ignite my passion to empower them with professional guidance, enabling them to thrive professionally while living a balanced and fulfilling life.
-by Jacob Young, AAMS®
Financial Advisor, RJFS
313 East 10th Ave.
Bowling Green, KY 42101
Phone: 270-846-2656
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Ben Smith Life Compass Financial is not a registered broker/dealer and is independent of Raymond James Financial Services.
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This content was created with the assistance of artificial intelligence (AI). While efforts have been made to ensure the quality and reliability of the content, it is important to note that AI-generated content may not always reflect the most current developments or nuanced human perspectives.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jacob Young and not necessarily those of Raymond James.
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