While small business ownership can be rewarding and exhilarating, it can also be exceptionally precarious—after all, legend has it that more than half of all small business fail. To stay out of the small business graveyard, you need to focus on planning every aspect of your business’ finances with solid business advice. As a starting point, check out these six tidbits of financial advice for your small business:
1. Focus on Budget Planning: It’s Business 101, but sometimes it’s important to refocus on the fundamentals. Budgeting will help determine how much income you’ll need to cover your expenses and how much income you’ll need to make a profit. With a thorough budget plan, you’ll know exactly how much money you need to successfully run your business. It will also help you separate your wants from your needs so that you can set realistic priorities for your business.
2. Protect Your Personal Assets: To protect your personal assets from your business’s creditors or lawsuits filed against your business, incorporate your small business as a corporation (S-corp or C-corp) or an LLC. Many small business owners choose to incorporate their business as an LLC since this type of corporate structure operates in a less formal matter than a corporation, but still offers business owners pass-through tax liability and protection from personal liability. Also, when financing your business, look into unsecured options like a non-traditional business loan that doesn’t require collateral or personal guarantees to acquire funding.
3. Focus on Tax Planning: As a small business owner, you should take a year-round approach to tax planning in the context of your greater financial goals. Choose an advantageous tax structure for your business; stay abreast of current tax laws as well as anticipated future changes to tax laws; and take advantage of special tax deductions for small business owners. It may also be well worth your money to use a professional tax preparer to prepare your tax returns.
4. Protect Yourself and Your Business with Insurance: As a small business owner, it’s prudent to protect yourself and your business with property insurance, flood insurance, business interruption insurance and worker’s compensation insurance. The effects of Superstorm Sandy were an unwelcome and unexpected reminder of just how critical it is to have comprehensive insurance protection. Make sure to thoroughly research your options and compare rates among providers before committing to an insurance policy.
5. Plan for Retirement: As a small business owner in the thick of running your business, retirement may be the last thing on your mind. However, if you aren’t putting money into a retirement account, you are short-changing your future and are giving Uncle Sam way too much of your hard-earned money. Look at it this way: for every dollar you put away in your retirement account, you can typically save 30 to 40 cents in taxes. There are several different types of retirement plans available to small business owners: 401(k) plans, profit-sharing plans, Simplified Employee Pension Plans (SEP), Savings Incentive Match Plan for Employees (SIMPLES), and traditional defined benefit pension plans.
6. Consider All Your Financing options: Every small business owner has asked at one time or another, “How can I get a business loan?” Securing financing from a traditional lending institution usually requires a review of your formal business plan, personal credit history, education, experience, and the financial prospects of your business. As a result of the credit crunch, there is now significantly less margin for error in this loan process. If you’re looking for access to business financing, research all of the loan options available to you. A non-traditional business loan from a private company is a viable alternative to working through credit unions, banks and credit card companies for a business loan.