What to Know About Wealth Management as a Small Business Owner

small business owner at desk

As a small business owner, one of the proudest moments in your life is when your dream turns a profit. But without a comprehensive wealth management plan in place, it’s tricky to turn your dream into a reality. This is especially true for small business owners who tie their personal wealth to the profits (and losses) of their business. Fortunately, proper wealth management can help you prepare for success.

Start with a Budget

As in your personal life, your business needs a budget to measure your cash flow and manage your expenses. Not only that, but a budget can help you simplify your wealth management process, set reasonable goals, and forecast future growth. And as you grow, having a budget in place makes it easier to identify waste and make the proper changes to your financial plan.

Monitor Your Spending

Do you know how much money your business spends every day? Week? Month? Year? If you don’t, then you’re not keeping a close enough watch on your cash flow. A lack of diligence can lead to unnecessary bills, overspending, and a gross misuse of funds.

For instance, you’re probably aware of the financial hit when you install a costly but necessary air conditioning system in your building. But in the space of a month, you can just as easily spend as much buying staff lunches or bulk office supplies you don’t need.

If you don’t have one already, adding an accountant to your team of advisors is a wise decision. They will help you track your expenses, examine your cash flow, and slash waste.

 Boost Your Savings

Just like a household budget, your business budget should include a savings plan. Liquid assets come in handy when it comes time to cover emergencies or big purchases. It’s often a good idea to stash these funds in a high-interest account, such as a money market account or CD, to grow your savings until you need the money.

You may find that getting started saving is the most difficult part. Fortunately, there’s an easy solution: build your savings into your monthly budget like a business expense. In time, you won’t notice the money missing – and when you need it, it’ll be waiting.

Know When to Take on Debt

Taking out a loan can be a daunting prospect. But as a growing business, some debt may be necessary if you want to become profitable. After all, pulling yourself up by your bootstraps and funding your business from your personal savings can only get you so far.

The key to taking out a loan as a business is not to wait until you’re struggling. If your would-be lender notices you’re falling behind on payments or on the brink of failure, you’re less likely to get a loan with favorable terms (or at all).

But getting a loan at a reasonable interest rate early on is one of the best wealth management tactics if your small business needs to grow. Just be sure to pay off your debt on time (or sooner!)

Keep Your Business and Personal Finances Separate

Small businesses aren’t necessarily required to separate business and personal funds. And if you’re a freelance or small operation, you may think there’s no point.

But comprehensive wealth management starts with tracking your cash flow – and that principle extends to your business, too. From keeping accurate records, reconciling your books for tax purposes, and calculating your profitability, there are several reasons to separate your business and personal funds.

In the same vein, mixing business and personal funds can lead to disorganization which makes it easy to overspend and also complicates your taxes. Plus, if your funds slosh together, the urge to cover your personal expenses with business funds becomes difficult to resist.

Fortunately, the solution is simple: open separate checking accounts for your personal and business funds. You should also keep separate budgets and records to avoid mixing business with pleasure.

 Mind Retirement Planning

You should also decide how to structure your business’ retirement plan. As a small business owner or freelancer, the money you make funds not just your life, but your future. And though it’s tempting to reinvest the bulk of your profits into your business or splurge on vacation, you should set aside at least 15% of your pretax income for retirement.

Depending on your business structure and the number of employees, you may decide to open an IRA, Roth IRA, or SEP IRA to start. As you grow larger, you can also expand into deferred compensation plans or 401(k)s.

If you’re not sure where to start, connect with one of our expert advisors at SGL Financial. 

Have Insurance in Place

You wouldn’t forgo your health insurance – why would you go without insurance to protect your business? Depending on the nature of your work, the kind of insurance you need can vary drastically. Our fee-based advisors at SGL Financial can walk you through the specifics, but as a general rule, business owners should consider:

  •         Overhead expense insurance to cover core business expenses if you become disabled
  •         Disability insurance to cover your expenses if you become disabled
  •         Key person insurance to protect individuals such as owners, founders, and CEOs if “cornerstone” individuals become unable to work
  •         Property insurance to protect your place of business – be it your home, an office space, or a building you own – in case of disaster
  •         Life insurance to support your beneficiaries if the worst happens

While it may seem obvious, insurance policies are there to protect you and your business if the worst comes to pass. As a comprehensive wealth management solution, they’re a no-brainer.

Prepare for Tax Time

Many small business owners aren’t aware of the sheer number and types of deductions they can take. Every dollar you don’t deduct is a dollar that Uncle Sam demands a cut of – and if you’re not itemizing your expenses, you may not even be aware of the money you’re losing.

To avoid this situation, keep track of every business expense, save your receipts, and log everything in your accounting software. Then, come tax season, your preparer will have everything they need to get back every dollar you’re owed.

Hire Someone to Help Your Small Business with Wealth Management

Not everyone has the time, knowledge, or ability to properly manage their wealth and feel confident in their decisions. But that doesn’t make wealth management any less important! If you’re feeling overwhelmed about managing money in your small business, asking for help is one of the most responsible steps you can take.

Fortunately, SGL Financial employs some of the best fiduciary financial planners in Chicagoland. So, if you’re on the hunt for “comprehensive wealth management near me,” you’re in the right place. Our advisors are standing by to help your small business get to where you want it to be. Learn more about SGL here