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.
Sign up for Kiplinger’s Free E-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.
-
A Guide to Music Streaming ServicesDeals Our guide to music streaming services from Spotify to Amazon Music, Tidal to Apple Music and how to find music streaming deals.
-
Stock Market Today: Markets Reflect Global UncertaintyExuberance fades as investors confront micro challenges and a murkier macro environment.
-
What's Better Than Investing in Crypto? These 'Boring' PicksCryptocurrency may be good for a thrill, but older investors are better off with assets like bonds, guaranteed annuities, CDs and maybe dividend-paying stocks.
-
Four Actions to Lessen Retirement Stress for Women (and Men)Saving for retirement is anxiety-inducing for everyone, especially women. Following this four-part action plan can help improve your financial security.
-
Year-End Retirement Tax Planning Actions if You Have $1 Million or MoreConsider implementing these four strategies before December 31 to potentially improve your tax situation for this year and the future.
-
Five Simple Strategies to Ensure a Happy RetirementEmployer retirement plans are great, but individual responsibility plays a huge role in retirement success. Here's how to empower yourself.
-
25 Financial Moves to Consider Before December 31Tidying up your financial house before the New Year kicks off will put you in a great position to have a financially satisfying and successful 2025.
-
Five Side Hustles You Could Turn Into a Full-Time BusinessYou might be able to capitalize on your expertise in ways you haven't thought of, possibly even leading to quitting your 9-to-5 job to do what you love.
-
Which of These Three Types of Soon-to-Be Retirees Are You?Some folks are concerned. Others are lacking clarity. But what you really want to be is confident. So, how do you stack up?
-
Will You Have a Retirement Income Gap? How to Fill ItTo ensure your expenses in retirement are covered, you need to know what sources of income you'll have and where to turn to make up for any shortfall.
