When you're a small business owner, you need to pay extra careful attention to both your business and personal finances. Your financial planning strategies should simultaneously encourage the success of your business while also working towards safeguarding your personal finances. To pursue that balance, check out these tips.
Separate Your Business and Personal Goals
As a small business owner, you eat, sleep, and breathe your business, and in most cases, your personal finances are strongly dependent on the success of your business. However, you need to establish separate business and personal financial goals.
Take time to think about what you want your business to achieve and to outline your revenue and profit goals, but also look at your personal goals. Think about how you want to live, investments you want to make, when you want to retire, and other personal financial goals. Then, make sure your small business strategy supports those personal goals.
Be Careful About Financing Your Business Personally
A lot of entrepreneurs finance their own businesses, and of course, using savings or personal loans and credit cards is often essential as you try to get your business off the ground. But ultimately, you want to avoid carrying personal liability for business debts.
Try to explore less risky funding options such as bringing on investors who put money into the business in exchange for a share of the profits. Additionally, consider incorporating or establishing your business as a Limited Liability Company (LLC). Then, you can take out loans in the business's name without incurring personal liability.
Tax Plan Strategically
As a small business owner, you have to think about your personal and business tax liability. Work with an accountant for a financial planner and be proactive about lowering your taxes. Depending on the situation, you may want to elect to have your sole proprietorship taxed as an S-corp. You may want to make purchases strategically so that you can claim Section 179 deductions. Those are just two basic ideas — the right tax strategies vary dramatically depending on your situation.
Don't Forget to Diversify Investments
Small business owners often just want to pour all their extra funds into the business, and ultimately, you should try to reinvest as many of your profits as possible. But at the same time, you cannot forget to diversify your personal investments.
No matter how hard you work, all small businesses come with significant financial risks. To help safeguard your family and personal finances, you should make other investments. A financial professional can help you narrow in on the most appropriate investment strategies for your situation.
Plan for Risks
In both your personal and business life, you need to plan for risks. Personally, that often means investing in life and disability insurance, but with your business, you have to consider other risks.
What if someone brings a lawsuit against your business? What happens if your business property sustains damage? What if a natural disaster forces you to close your door? Think about those types of issues and make sure you have insurance policies and risk plans in place to preserve your business.
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