Angela was recently interviewed by Caroline Banton from LendingTree on Personal Finance Tips For Small Business Owners. In this interview, Angela offers some personal finance tips for small business owners.
Many business owners find it challenging to build their businesses and successfully build their personal wealth. Given the daily demands, it is easy to lose sight of one of the biggest benefits of being a business owner - growing the owner's personal wealth.
One of the biggest financial challenges small business owners face is building personal wealth. So much time and energy is spent managing the day-to-day business activities that taking time to manage their personal finances often takes a back seat. So for many business owners most of their wealth is tied up in their business. Their plan is that their business IS their retirement plan. This is fine, but the owner must have a more diversified plan to eventually convert their business wealth into personal wealth so they can eventually retire.
Managing cash flow is really the lifeblood of a business. Managing cash flow is a continual struggle for most business owners. Without cash flow, it is hard to run a business for the long term. After you pay your major costs such as payroll and rent, supplies and equipment you may struggle to pay anything else!
One way to improve your cash flow is to look at your payment processes. Can you stretch out when you pay for purchases without being late? Can you put processes or incentives in place to shorten the time you get paid? Is there technology you can put in place like automatic reminders to make billing and receiving payment easier for your clients?
Another part of managing cash flow is establishing a budget so you can keep an eye on expenses. Having a budget helps you to plan so you make smarter financial decisions on what to buy and when. I think everyone needs a budget, but when a business owner finds that their debt level is increasing and they are not able to actively invest money back into their business, they really need to look at their numbers and establish a budget ASAP.
Business owners have a tremendous opportunity to save for retirement. Many people are just not aware of all of the possibilities. There are more opportunities to save for retirement as a business owner than as an employee! I find that many business owners do not take full advantage of qualified retirement plans which allow them to prepare for retirement and lower their taxable income. Many business owners feel that their business is their retirement plan, which may or may not work out that way. Again, most business owners are so busy that this type of planning often takes a back seat.
Protecting business and personal assets against a liability claim is critical to financial success. A starting point lies in the limited liability protection found in the appropriate business entity. Whether you are an LLC, S corp, or C corp, making the decision on how you should structure your company is the first decision. While this may not protect the business itself, it may protect the owner's personal assets. Beyond that, it is important to consider general and professional liability insurance that could protect against allegations of negligent activities or failure to use reasonable care.