If you’re a small-business owner, you know that the daily decisions you make impact your bottom line. Are you exercising the same care for your finances that you apply to the services you offer your clients?
The following is a checklist you can use to evaluate your financial health as a small-business owner.
Are You Focusing on the Big Picture?
There are many pieces to a small-business owner’s total financial picture. Your financial plan, budget and investments are three critical components to keep in mind no matter how busy daily operations become.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Financial Planning
Taxes can be one of the most significant expenses for business owners. In order to identify and follow the most appropriate tax-planning strategies, small-business owners need to be clear about both their business goals and personal financial goals.
Do you:
- Maintain a prioritized list of business and personal financial goals and refer to it when you need to make new decisions?
- Have a small-business structure that offers you the most appropriate legal protections and benefits?
- Reduce or defer taxes and maximize available deductions and credits? This may include timing income and expenses, using charitable gifting and saving for retirement using accounts such as an individual or solo 401(k), SEP IRA or defined benefit plan.
2. Budget Management
Eighty-two percent of all small businesses that fail cite cash flow problems as the primary reason. One way to identify such challenges before they become lethal is to manage your budget according to your business plan.
Do you:
- Know how much revenue you must generate to break even and cover expenses before profits?
- Monitor your income, expenses, inventory, credit and cash regularly, adjusting and rebalancing where required so you cover your fixed expenses and maintain funds in your cash reserve?
- Use your budget, break-even point and cash flows over time to evaluate your business financing options and identify the ones that make most sense for you, when financing is required?
3. Investments
Many small-business owners mistakenly invest all of their time and money into their business.
Do you:
- Maintain a cash cushion for both your personal finances and business needs, so that if you run into a cash flow crisis you have something to access?
- Save regularly and invest any cash inflows that exceed your current expenses and immediate lifestyle needs into an account outside of your business?
- Diversify your non-business investments across companies outside of your industry, in different geographies offering services that vary from yours?
Beyond those three critical components of financial health, here are a couple of other factors that small-business owners need to have a firm grasp on.
First, Are You Protecting What You Have?
Many small-business owners wisely purchase insurance to protect their assets from risks unique to them.
Do you:
- Understand the types of risks that you face in your small business?
- Own insurance and regularly review it to minimize the impact of your business risks, if they should happen? Examples of insurance that is helpful to small-business owners include:
- Liability insurance
- Property insurance
- Business interruption insurance – for lost income and overhead expenses during a disaster
- Life and disability insurance – for employees as a fringe benefit and/or for business purposes like funding a succession plan, in case there is a loss of a key person, or collateral for a loan
- Workers’ compensation insurance – for businesses with three or more employees
- Health insurance
And Finally, Are You Keeping the End in Sight?
Even if you can’t imagine life without running your business, it is essential to think about what would happen if you could not manage it due to disability, retirement or death.
Do you:
- Have a business succession plan that considers: (1) an individual who has the skills, authority and interest in running the business and (2) how the transfer might take place? If you plan to sell, do you know how your successor will obtain the funds to assume ownership?
- Maintain a retirement plan? Depending on the plan you own, you may be able to reduce your tax obligations today and benefit from tax-deferred growth on the money you save in your plan. A variety of retirement plans are available, from SIMPLE and SEP IRAs to individual 401(k)s and profit sharing plans.
-
It Could Soon Be Harder to Get a Refund on a Flight Gone WrongThe Department of Transportation's deregulation efforts are taking aim at your rights to compensation for delays, canceled flights, lost baggage and more.
-
The Final Countdown for Retirees with Investment IncomeRetirement Tax Don’t assume Social Security withholding is enough. Some retirement income may require a quarterly estimated tax payment by the September 15 deadline.
-
Four Clever and Tax-Efficient Ways to Ditch Concentrated Stock Holdings, From a Financial PlannerHolding too much of one company's stock can put your financial future at risk. Here are four ways you can strategically unwind such positions without triggering a massive tax bill.
-
Beyond Banking: How Credit Unions Serve Their CommunitiesCredit unions differentiate themselves from traditional banks by operating as member-owned financial cooperatives focused on community support and service rather than shareholder profit.
-
Answers to Every Early Retiree's Questions This Year, From a Wealth AdviserFrom how to retire in a crazy market to how much to withdraw and how to spend without feeling guilty, a financial pro shares the advice he's given this year.
-
The Risks of Forced DST-to-UPREIT Conversions, From a Real Estate ExpertSome new Delaware statutory trust offerings are forcing investors into 721 UPREIT conversions at the end of the hold period, raising concerns about loss of control, limited liquidity, opaque valuations and unexpected tax liabilities.
-
I'm a Financial Adviser: You've Built Your Wealth, Now Make Sure Your Family Keeps ItThe Great Wealth Transfer is well underway, yet too many families aren't ready. Here's how to bridge the generation gap that could threaten your legacy.
-
Want to Advance on the Job? Showing Some Courtesy and Appreciation Could HelpTwo business professors share their insights about the impact of digital communication on the social skills of some in Gen Z and the importance of good manners on the job.
-
From Job Loss to Free Agent: A Financial Professional's Transition Playbook (and Pep Talk)The American workforce is in transition, and if you're among those affected, take heart. You have the skills, experience and smarts that companies need.
-
A Financial Planner's Top Five Items to Prioritize When Your Spouse Is IllDuring tough times, it's easy to overlook important financial details, but you'll be so much better off if you take care of these things right now.
