Running a small business takes courage, hard work and sacrifice. The result is the pride of leading your own business and making your vision a reality.
The demands of running a small business, though, oftentimes take priority over personal financial planning for the business owner. Don’t let this happen to you. It is important to focus on your personal finances in conjunction with your business finances to protect the financial interests of you as owner and your business.
Here are five personal financial tips for small business owners:
1. Choose the Right Business Structure
When starting and growing a small business, many people use their personal finances to fund their efforts. You can protect your personal assets, however, by choosing a business structure that adds a layer of security to your finances. Additionally, once you have a proper business structure in place, you can build credit for your business, apply for business loans and set up tax-advantaged retirement accounts.
Common business structures include:
This structure is for a business with a single owner who is personally liable for all debt. It provides limited protection for personal assets.
Limited Liability Company (LLC)
The LLC structure is an option for a business with multiple owners. It reduces the potential liability you might face from your business.
Like an LLC, this structure provides strong protection against liability, while still allowing you to avoid the double taxation required at the business and personal level in a C-Corp. An S-Corp is a structure for a corporation in which the owners are taxed separately from the entity.
Gift CPAs can help you determine the best structure for your small business from both a business and personal financial perspective.
2. Separate Business and Personal Funds
When running a small business, it can be easy to blur lines between personal and business finances. But business and personal funds should always be kept separate. Paying your own salary from your business account, for example, is critical when it comes to completing your personal and business taxes.
3. Track Income and Expenses
All incoming and outgoing funds for your business should be meticulously tracked separately from your personal finances. Supporting documents for income and expenses also should be safely retained including invoices, bills and receipts. This is key to monitoring your business’s financial health and essential to maximize deductions when it’s time to prepare your business and personal taxes.
Software like QuickBooks can help you successfully manage your business finances.
4. Add Layers of Financial Protection
Building a “rainy day” fund for your business can ensure you don’t have to tap into your personal finances when an emergency business expense arises. Obtaining proper insurance for your business is another way to protect both you and your business. The right insurance can provide protection in the event your business experiences property damage, a lawsuit, lost business income and other losses. Product liability, professional liability, property, workers’ compensation and business interruption insurance are a few insurance plans you may want to consider.
5. Save for Retirement
As a business owner, your focus is often on reinvesting profits to grow your business, but don’t lose sight of investing in yourself. Start by setting up a Simplified Employee Pension (SEP) Plan, also known as a SEP-IRA, or another tax-advantaged retirement savings plan for your business, even if you don’t have any employees. In addition to allowing for tax-advantaged savings growth, a retirement plan can help you diversify your savings into a wide array of investment options. Read this retirement plan blog to learn more.
Get Connected Today
Contact Gift CPAs for more information on resources for small business owners and entrepreneurs as well as our full scope of accounting and business services.
We have years of experience working with small businesses to help with bookkeeping, taxes and other business needs. Make an appointment to meet virtually or at one of our five locations in Harrisburg, Mechanicsburg, Myerstown, Ephrata or Lancaster!