6 Financial Planning Tips for Independent Business Owners

Greg Addison | 11-13-2019

Running your own business is hard work, but it’s gratifying to watch your company succeed. As you’ve worked to grow your business, however, you’ve probably realized there are a few areas where you wish you had more subject expertise. There might even be aspects of the business you turn over to other people, simply because they’re not your strong suit.

Financial planning is one of those areas where business owners often look for help. These six tips can help you take charge of your company’s financial success.

1. Create a Succession Plan

What happens to the business when you leave? For some companies, the answer might be that the business closes. For others, however, the business will continue even after the founders leave. Making a succession plan lays out the guidelines for dealing with this eventuality. You may not leave tomorrow, but having a plan in place makes it clear what happens next when you do.

However, there are also many financial implications that come with creating a succession process and leaving plans to the last minute tends to create both risk and increased expense. Planning early can help you increase appraisal value, reduce legal fees and ensure you enjoy the lowest possible tax impact.

2. Deduct Health Insurance Premiums

If you’re self-employed or a partner in a company, you may be able to deduct up to 100 percent of your health insurance premiums for the year, provided you don’t have any employer-sponsored benefits.

If you head up a business that has multiple employees and provides a healthcare benefits package, check to see if the premiums the business pays are deductible for the business. An expert can advise you on this point.

3. Consider Retirement Savings

Some business owners forget about their own retirement, thinking they’ll stay with the business until the day they die or that selling the business when they retire will fund them. While your business can be an asset, it shouldn’t be the only component of your retirement plan. Instead, think about an IRA, 401(k) or other qualified retirement savings plan as part of your financial planning. No matter what structure you choose, qualified retirement plans allow you to create tax-deferred growth.

4. Look at Your Investments

Business owners hold a large share of the company’s stock—sometimes 100 percent of them. If you want to diversify your stock holdings, you consider implementing an employee stock ownership plan (ESOP). The plan will allow you to sell stock in your business with no tax liability.

Many businesses are funded by their owners, who use returns on investments to grow the business. If this describes your situation, you need to pay particular attention to your investment portfolio. Diversifying your investments can offset the concentrated risk created when you invest only in your business.

5. Think About Your Business Entity Structure

Have you set up your business entity to generate the greatest tax advantage? Different structures offer different tax advantages. For example, if you’re a sole proprietor, the business’s income is considered your personal income which simplifies tax. Things become more complicated as more owners or partners are added. You might consider becoming an S-class corporation to take advantage of additional tax breaks, or you could investigate the advantages of setting up as a limited liability corporation. Talk to a financial advisor who has the ability to bring both legal and tax consulting expertise to the table to see what makes the most sense for your business.

6. Manage Risk

Some consider risk management to be an almost entirely separate field from financial planning, however, that’s not the case. In fact, managing your business and personal risk is a vital component of sound, comprehensive financial planning. You manage the risks you take by shifting your risk to other entities, or by investing in different markets, geographies, industries, and companies. All of the decisions you make in your business have an element of risk and financial implications. Investing in well-crafted processes, products and expertise such as succession planning, life insurance, and qualified advisors serves to mitigate your risk.

At Lewer Financial Advisors, we support business owners through the entire business lifecycle – from starting the business to selling or passing on the business many years later.

Greg Addison

Author: Greg Addison

Greg Addison is the Senior Vice President of Lewer Financial Services, LLC. Lewer Financial Advisors is a corporate Registered Investment Advisor, specializing in both personal wealth management and institutional retirement plan consulting for the individual investors, business owners, dealers, retailers, and franchisees who know The Lewer Companies well.