Small Business Financial Planning

Business owners, busy with the ins and outs of running their business, often overlook the importance of small business financial planning until they’re dangerously close to retirement or something untoward happens.

I spoke with local financial planner, C.E. Scott Brewster CFP®, of Brewster Financial Planning to get some info on what all small business owners should consider. Here’s what I learned from Scott:

Just like those who work for companies, all small business owners need a solid, safe plan for their financial future. This often begins with making sure you have the right insurances in place to protect you should something happen and work with a great insurance agent who can evaluate your particular situation and make recommendations.

To best protect your assets, please consider obtaining health, disability, business owners policy (property coverage with loss of use coverage, and liability), and errors and omissions insurance if you’re in an advising capacity.

The Freelancers Union has an affordable benefits plan which offers group rates to solo-preneurs and freelancers.

If you have employees (other than yourself and your spouse), consider looking into the government health insurance marketplace: https://www.healthcare.gov/small-businesses/ as well as speaking with your insurance agent about the availability and rates of group plans.

The easiest way to put money away for retirement is to do small amounts over time. However, many small business owners are primarily concerned with growing their business, and they often delay putting away any money until they realize that retirement is around the corner. Saving money for retirement actually costs a lot less than you may think because there are tax savings you can take advantage of. For instance if you make 100k/year and put away 15% for your retirement, it may only cost you about 7.5% if you’re in a higher tax bracket, because you’ll pay less in taxes.

If you’re a solo-preneur or freelancer with no employees, and are in a position to sock away some money, you can setup a simple solo or individual 401k. In this vehicle The limit for solo 401k is 17,500 for under 50 years of age AND up to about 20% of profits. (The correct number is actually 25% of profits but you must subtract the contribution itself and FICA.). Those who are 50+ can do an extra catch-up of 5,500. If you’re not in a position to put a lot away each year, a simple ROTH IRA may be a good choice.

If you have employees it might make sense to work with a 3rd party retirement specialist who can help you figure out what type of retirement plan your small business should have and how much to contribute each year. They can coordinate with your accountant and your financial advisor. Depending upon your goals (sheltering current income or lowering taxes vs. offering employees value for staying with the company) they will help you determine how to maximize the best deductions for the owner at the lowest cost for employees.

Have you done any small business financial planning? Join the conversation below.