Small business owners should conduct an annual assessment of their finances. Owners of small businesses have much the same concerns as everyone else, except they are personally responsible for the fortunes of their enterprise. A small business is like a family. And these are essential families in American economic life. After all, small business is vital to the U.S. economy, employing half of private-sector workers and creating two-thirds of net new jobs, according to federal data.
Here are ten tips for weighing a small business owner’s financial plan:
Budget/Saving
The general financial planning rule is to save at least 10% of your income annually. You should also review short-term and long-term goals to ensure you are saving enough to meet your objectives.
Maximize Contributions to Retirement Plans
Depending on the company’s size and number of employees, there are many different methods to save for retirement. Business owners should work with their accountants/advisors annually to determine the most appropriate savings vehicle. Retirement plans include 401(k)s, IRAs, SEP IRAs, SIMPLE IRAs, and Cash Balance plans. This will not only help achieve the goal of saving 10% of your income, but it also can help minimize taxes.
Create/Review Estate Planning Documents
Creating wills, living wills, medical and financial power of attorney documents is essential. These documents should be reviewed annually as your personal goals and estate laws change.
Life Insurance
Various types of life insurance are available, including whole life, variable life, universal life, universal variable life, and term policies. They provide a death benefit when the owner of the policy passes away. It is key to review your policies yearly to ensure the coverage is adequate to protect your loved ones. Also, financial situations may change, and you may no longer need the total amount or type of coverage you own.
Disability Insurance
Statistically, you have a greater chance of premature disability than premature death. Therefore, it is critical to hold adequate coverage to provide for you and your dependents if you cannot work. Annually, you should review your policy for the type and amount of coverage.
Business Insurance
As a business owner, it is vital to own insurance that will allow your company to run if you cannot actively participate in its daily operations. This insurance may be used to hire someone to substitute for you or replace the income from your business if the company no longer exists.
Long-Term Care Insurance
Due to the increasing health care costs, long-term care insurance policies are evolving to deal with them. Many older policies have become more expensive to maintain or no longer provide enough coverage to meet long-term care expenses. Each year, review the costs and necessity of these policies.
Education Planning
Like health care costs, college education expenses have increased well beyond average inflation throughout the past decade. Several college savings vehicles are available to provide tax advantages and an array of investment options for college savings. These savings plans require a thorough annual review of performance and expense levels.
Tax Planning
Annually, you should meet with your accountant to discuss tax-planning strategies. Tax laws frequently change. In addition, changes to your business could affect your taxes at the business and individual levels.
Investment Allocation
Review your entire investment portfolio to ensure it is allocated to meet your current and future goals. Your portfolio allocation should be readjusted accordingly as your goals and needs change.