Running a small business takes a lot of hard work. As a financial advisor who works with business owners, I’ve seen the balancing act required to manage cash flow, growth, taxes, and long-term goals. Wherever you're at on your journey, applying sound financial principles can make a difference in your success. Here are some guidelines I believe small business owners should consider:
1) Balance sheet:
Cash Management:
- Establish and maintain business accounts separate from personal cash accounts.
- Establish and maintain an adequate current assets to current debts ratio.
- Evaluate accounts receivable discounts to accelerate cash flow.
Debt:
- Establish and maintain an adequate debt ratio.
- Open a business credit card with low interest rate and reward points.
- Establish a commercial line of credit.
Financial management:
- Develop and monitor a cash flow statement.
- Use a bookkeeping system.
- Establish and monitor an adequate gross profit margin.
2) Protection
Group Benefits:
Consider establishing the following group benefit plans:
o Disability insurance.
o Life insurance.
o Medical insurance.
o Long term care insurance.
o Flexible savings account.
Liability/property and casualty:
- Consider establishing an appropriate legal entity to protect personal interest and reduce personal tax liability.
- Verify adequate commercial property and liability coverage.
- If applicable, maintain errors & omissions/malpractice insurance.
Business Succession plan:
- Set up a formal buy-sell agreement with the help of a qualified attorney.
- Identify the appropriate format for the buy-sell agreement.
- Define how the succession plan will be funded.
3) Investments:
Business valuation:
- Work with an accountant to obtain the appropriate value of your business.
Business transition:
Evaluate options for structuring the sale of your business.
4) Taxes:
Current:
- Work with a tax professional to select and establish the optimal retirement plan for you and employees.
- Select format: defined benefit or defined contribution. Select type: SEP, SIMPLE, 401(k), etc.
Future:
- Monitor tax legislation to take advantage of new provisions such as accelerated depreciation and energy credits.
Together, we can work to keep you on-track toward your financial goals.
Request a consultation to learn more.
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