Don’t forget to keep an eye on your needs, not just the business
By Bronwyn L. Martin, Columnist, The Times
If you’re a small business owner, you probably devote most of your time to making your business successful and functioning well each day. You focus on the obligations you have to customers and employees, and you surely put considerable energy into maintaining a healthy bottom line.
All of these things are important, but with so much going on, it can be too easy to neglect your own finances. It’s important to think long-term about your business, your personal financial future and how the two impact one another. As a business owner, you are in a unique position to address both business and personal needs together. Here are some important areas to consider as you work to keep your personal financial goals on track:
Retirement planning
Business owners typically have much of their money (and therefore their future financial security) tied up in their businesses. For that reason, it’s important to supplement that equity with a separate workplace retirement plan that is invested outside of the business. Setting up an employer-sponsored savings plan at your business helps your employees build a secure retirement while giving you the opportunity to save in a tax-advantaged way.
Protecting yourself and your business
You take significant risks as a business owner. One is that the business relies on your continued presence. It is crucial to determine how your business would keep functioning (and generating income for your family) if something prevented you from overseeing it, such as an untimely accident, illness or premature death. Also consider the impact it would have on your business if something happened to your business partner or any of your most critical employees.
Providing protection for your family by having adequate life and disability insurance in place is the first step in helping secure the financial stability of your business and your family should something happen to you. A good policy can provide income for you and your family, and as a business owner, replace lost revenue and provide funds to help keep your business operating in your absence.
Life and disability insurance may also be purchased by your business to protect against an untimely incident affecting a key employee. So-called “key person insurance” is often considered an important part of a business operation.
Managing cash flow
As a business owner, you should consider maintaining a larger emergency cash fund than what might be required for people who work for a large employer. This is especially true if your business activity tends to be unpredictable and you are forced to reduce your own income from time-to-time to meet business expenses. Having a cash cushion in your personal account will help you manage through difficult times.
Moving on from your business
Assuming you ultimately plan to sell or turn over your business to a successor, your goal should be to have a succession strategy in place well in advance. If you own a family business, there are special considerations and unique ways you can structure a transition plan to your family members. If you have partners in your business, think about establishing a buy-sell agreement that is funded by insurance. This allows one or more partners to be in a position to purchase your share of the company at its true value if something should happen to you.
Building personal financial security was probably one of the reasons you started or acquired your business in the first place. Careful follow-through with a well planned, reasonable transition strategy is a logical step to achieve the ultimate reward from the years you dedicated to your business. Consider working with a financial professional who can help you develop and evaluate a personal financial plan that keeps your goals and dreams for your small business in mind.
BRONWYN MARTIN, ChFC®, MBA, CFS®, CRPC®, CMFC® is a Financial Advisor Chartered Financial Consultant® with Ameriprise Financial Services, Inc. in Kennett Square, PA). She specializes in fee-based financial planning and asset management strategies and has been in practice for 14 years. To contact her, www.ameripriseadvisors.com/bronwyn.x.martin.
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