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If you are a small business owner, you are likely juggling a lot of responsibilities to keep your business running smoothly. Finding the balance between how much time you dedicate to your business and other commitments such as family, exercise, personal finance, and other life goals can be challenging. Savvy business owners know that delegating certain tasks to the right parties is fiscally rewarding and saves time. A small business financial planner can help you navigate the financial complexities that come with running a business.
When Ronil, came to us, he wanted help with his small business and personal finance planning. Ronil started his business 8 years ago. Since then, it grew into a successful small company with 4 full-time and 3 part-time employees. He is starting to accumulate more cash than he needs in his bank account.
Ronil is ready to invest more of his money wisely. He hates paying taxes and was looking for ways to reduce his tax burden. He also wants to offer his employees benefits, including retirement options, while saving money for his future. Ronil has two old 401(k) plans from his previous jobs. Ronil was unsure of where to start when he came to work with us.
Financial planning for small business owners involves creating a roadmap for the financial future of their business and managing their finances in a way that helps them reach their business and personal financial goals.
As a business owner, you know that your most important financial asset is your business. Financial planning is critical for small business owners to ensure that their businesses remain sustainable and profitable in the long run. It can be hard to set aside time to manage your personal finances, mitigate financial risks to your business, assess your tax situation, and save for retirement. That’s where a financial advisor can help.
A good financial planner will help you clarify your goals and determine where you want your business to be in the short term and in the long term. They will help you determine how much money you need now and in the future, for things such as business expansion and retirement planning.
The result of financial planning is a well-thought-out long-term financial strategy that includes a set of goals with actionable steps to achieve your personal and business financial goals. A small business financial planner can help you put your financial life together, giving you peace of mind knowing that your finances are secure so that you can focus on growing your business.
Personal: What are your immediate personal priorities? Do you want to fully fund your child’s college expenses? Do you want to retire at 55 and enjoy the fruits of your labor? What are your 5 and 10-year financial goals?
Business: Where do I want my business to be in 10 years? Do I have the right people in the right seat? Am I spending enough time on sales and marketing? Do I want to provide a retirement plan or health insurance to my employees?
These are just a few of the questions that you should ask yourself when you are creating your business and personal goals. Once you know what your goals are, then you can map out the steps you need to take in order to achieve these goals.
Cash flow analysis is essential for any business. A healthy cash flow is important to make sure that your business keeps running. You should perform a formal cash flow analysis to know how much money flows in and out of your business. Find ways to generate more cash, like reducing the time it takes for your customers to pay you.
Tax planning can be very complicated for small business owners. You don’t want to get hit with a huge tax bill. It’s best to hire a tax planning professional. It will not only free up your time but it may also reduce your tax liability. A CPA will know the tax laws in your area. Financial planners can also help with big-picture tax planning and crunching the numbers on estimated tax payments.
Many small business owners assume they will never retire but this isn’t the case. Retirement is an inevitable part of the future. Retirement planning is essential for small business owners who want to secure their financial future and ensure that they have enough money saved for retirement.
Establish a tax-advantaged retirement account for yourself: Many experts recommend saving at least 15% of your pre-tax income in a tax-advantaged retirement account. Below are some of the best self-employed retirement plans:
Do you have old 401(k) plans? If you have 401(k) plans from previous employers and want to consolidate them, then you should consult your financial advisor to weigh the pros and cons. You should also evaluate your overall financial portfolio and risk tolerance.
Offer a retirement plan to employees: If you have employees then it’s important to search for the right type of retirement package for your team. This will help you attract the right talent. Your business may also be eligible for an immediate federal income tax deduction if you establish and fund an employer-sponsored retirement plan.
The three most common retirement plans that small businesses with employees can offer include:
With a SEP plan, employers can contribute up to 25% of an employee’s compensation or a maximum of $69,000 (for 2024), whichever is less. This retirement plan can help small business owners provide a secure retirement for their employees, while still keeping costs low.
This plan offers numerous tax advantages, making it a great choice for both employers and employees. For employers, contributions are tax-deductible and can reduce their taxable income. Employees benefit from their contributions being pre-tax, meaning they pay less income tax, and any earnings on the contributions are tax-deferred until it is withdrawn.The SIMPLE IRA contribution limit is $16,000 for 2024, or $19,500 for those aged 50 and older.
Providing employee benefits is essential to hiring and retaining good employees. Some additional benefits that you may want to consider as part of your employee benefits package include:
It’s important to prepare for the unexpected, especially when you are a small business owner. Some insurances that you may want to consider include:
Proper estate planning helps to provide for your loved ones, business partners, and employees who rely on your business. It can also provide clear instructions on how the business should proceed if something happens to you.
As a small business owner, you may qualify for some tax deductions and credits that many large corporations don’t qualify for. To deduct a business expense, it must be ordinary (common and accepted within your business/trade) and necessary (helpful and appropriate for your business/trade). Here are some of the most common small business expenses.
|Legal and professional service fees||The fees that you pay to tax professionals, consultants or lawyers, can generally be deducted as a business expense.|
|Insurance premiums||Most insurance premiums you pay for your business can be deducted as a business expense.|
|Auto||If your business owns its own vehicle, or you use your car for business, you may be able to deduct certain maintenance and fuel costs associated with the business use of the car. If you want to deduct this expense then you need to track it throughout the year. You can either use the standard mileage allowance or your actual business-related vehicle expenses to calculate your deduction.|
|Rent||If you rent a property for your trade or business then you may be able to deduct the rent as an expense. If you work from home, you can also deduct a portion of your rent or mortgage that you use exclusively for your business.|
|Travel/flights||Business travel costs may be deducted as a business expense.|
Financial planning for small businesses is essential to make informed decisions that drive growth and success. A financial advisor can potentially help you navigate your personal and business finances, budget for the long term, help mitigate liabilities and risk, maximize your tax situation, and ensure that you can retire comfortably, among other things.
As a small business owner, the complexity around financial planning for both yourself and your business can be very overwhelming. You need to make a lot of important financial decisions that can have a significant impact on both your personal life and your business. Financial planners are experts in their field and can help you navigate the complex financial world. They have up-to-date knowledge of market trends and tax information that could save you time and money. The more time that a financial planner can help you free up, the more you can focus on other aspects of your business.
Financial planning for small businesses requires an in-depth understanding and knowledge of the unique financial challenges facing small business owners. It’s important to look for a financial planner who specializes in financial planning for small business owners to ensure that they will develop a financial plan for your unique situation.
You might be tempted to choose the first financial advisor that you come across. However, research is key. Financial planning is an ongoing process so it’s important to find someone who genuinely wants to help you succeed. Here are some things to consider when selecting a small business financial planner:
At District Capital, we work with small business owners to help them navigate the financial complexities of running their own business. We are a small business ourselves and we have been providing financial planning to professionals and entrepreneurs in their 30s and 40s since 2013.
We have learned what keeps small business owners up at night and how we can really make a difference. We are passionate about helping small business owners grow their business and achieve their financial goals.
Our comprehensive small business financial planning services take into account both business needs and family priorities. Our services include:
Managing small business owner finances is something that you may want to consider leaving in the hands of an expert. A small business financial advisor can help you make sound financial decisions for your business and your household. If you want help with your finances and are interested in having a comprehensive financial plan, schedule a free discovery call with one of our financial advisors today.
Couple with 1 Child
Disclaimer: Case studies are hypothetical client scenarios. Planning recommendations may differ from your situation. Please consult with your own advisor before making any changes to your Financial Plan, Investments, or Insurance coverage.