Small business owners are in rare company when it comes to the demands upon their time.  The owner often plays numerous roles and becomes swamped with an endless list of tasks, with limited time to accomplish them all.  What small business owners sometimes forget is that they need to adapt their own personal financial strategies for the realities and risks of being a business owner.

As a business owner, it’s important to establish your personal goals in the same way you developed your business plan. 

Tax Planning

Recent tax legislation has significantly changed the tax treatment of various legal structures businesses use.  It is important that business owners work with their tax advisor to coordinate the taxation of business and personal income in a way that helps provide efficiency to the business and the owner.

Stifel does not provide tax advice, you should consult with your tax advisor regarding your particular situation.

Investment Planning

For most business owners, their business is their largest asset.  And, if they have extra capital, they may still prefer to invest it back in the business.  Nevertheless, prudent planning should be focused on diversification.  Asset classes and investments must be carefully selected for your personal portfolio to offset the concentrated risk of the business.  Determine an investment strategy and execute it with discipline.

Retirement Planning

How much money will it take to fund my retirement?  What expenses can’t be reinvested in my business at retirement?  What is a reasonable outcome for me to pursue?  All of these are good questions to ask yourself when it comes to your retirement.

Many business owners consider selling their business to fund their own retirement.  This can be risky, however, as the business might not clear enough money in a sale or even attract a buyer at all.  Business ownership affords multiple tax-advantaged strategies to save for retirement and the ability to set aside larger amounts than what is permissible for non-business owners.  Additionally, providing a customized retirement plan for your employees will help attract and retain talent.

Risk Management

Your risk management program should consider the following areas:  life insurance, disability insurance, personal property and casualty insurance, personal liability insurance, and health insurance.

Life insurance can play an integral role in business planning.  One of the most important and sometimes overlooked issues for a business is planning for its continuation after the owner’s death, disability, or retirement.  A buy-sell agreement can provide for an orderly transition of the business and avoid the need for a “fire sale” or prevent a transfer of the business to family members who may not be capable of or interested in running the company.  Key person life insurance can also protect the business against financial losses resulting from the death of a key employee or owner.

Cash Flow Management

Make sure you keep enough cash on hand to grow the business and to help weather a downturn. It is also important to separate your personal assets and expenses from business assets and expenses.  Setting aside three to six months of expenses in a liquid, low-risk account is recommended.  If your business is cyclical and cash flow is uncertain, it may be prudent to plan for a year or more.

Gift and Estate Planning

Regardless of age, business owners should ensure that their goals and wishes are addressed in life and at death, including plans for business assets.  As your business grows, basic wills or family trusts may no longer suffice for the transfer of the business.  More sophisticated techniques may be necessary to ensure business continuity after death, to mitigate estate taxes, and to potentially provide liquidity for heirs to pay those taxes.

The do-it-yourself drive that helped you start your business may not be enough when it comes to business planning.  Consulting with a tax and financial advisor can help.  When selecting a tax and financial advisor, it’s important to seek out a qualified and experienced professional who places your needs first and who shares your values when it comes pursuing your personal, family, and business goals.