Friday, August 12, 2022

Five Progressive Tips to Ease Financial Stress for Business Owners

Must read

Shreya Christina
Shreya has been with for 3 years, writing copy for client websites, blog posts, EDMs and other mediums to engage readers and encourage action. By collaborating with clients, our SEO manager and the wider team, Shreya seeks to understand an audience before creating memorable, persuasive copy.

Director Prosperwell FinancialAsset advisor RJFS.

As an entrepreneur, it can often be overwhelming. The best thing about being a business owner is that you own your own business; the worst thing about being an entrepreneur is having your own business. The financial burden often associated with owning a business can be one of the most overwhelming aspects.

Here are five tips you can use to relieve the stress of your financial reality so you can do what you do best: run your business.

1. Have a retirement plan. You can set up a SEP IRA, SIMPLE IRA, 401(k) plan, profit-sharing plan, defined benefit plan, or a single 401(k) for your business to help you and your employees. In my experience, most entrepreneurs start with the SEP IRA. Here you can lose up to 25% of your net income and that amount is fully deductible. Once you have employees who have been with you for two or more years, most business owners switch to a SIMPLE IRA. This is a pension plan if you have 100 employees or fewer. The maximum you can contribute to this plan annually as an employee is $14,000.

Most employees are familiar with and want a 401(k) plan. A 401(k) plan is a retirement plan that allows you and your employees to stash any paycheck. As an employer, the cost of the 401(k) operating expense and tax-deductible. Creating a retirement plan can help ease your anxiety and help you focus on the job ahead.

2. If your kids work in your business, give them a Roth IRA. For entrepreneurs with a family, financial concerns that involve them can put undue pressure on an already stressful business.

If you own your own business and have kids, you have a lot of opportunities to teach your kids about money. One of my favorite tools is the Roth IRA. You can let your kids work in the business (if it makes sense and follows all child labor laws) and then you can help your child set up a Roth IRA.

A Roth IRA is a retirement account, but the dollars can be used for college or first home purchases up to $10,000 without penalty. However, other restrictions, penalties and taxes may apply. This type of retirement account also has income limits and contribution limits. Just like setting up a retirement plan for yourself, knowing your kids are ready for their future can relieve some of your stress.

3. Have a team. Finances are often too much to handle alone. Your team could include a great corporate attorney, CPA, bookkeeper, and wealth advisor. In my opinion, the leader of your team is your wealth advisor. They are there to make sure your estate plan is in order and your assets are in your trust. They also help you coordinate IRA contributions and any tax gains or losses in stocks and investments in your taxable account.

4. Have a plan. Create a business succession and personal finance plan to get you where you want to go. An effective financial plan is very personal. There is no single number that can hold what you need and where you are; those amounts vary from person to person. You want to have a plan specific to your goals and outline steps in that plan to help you get there.

5. Provide a pillow. Provide adequate cash for emergencies. You can also set up a line of credit. This is your pillow to ensure you are able to cover expenses such as payroll, supplier payments, rent, etc. The optimal time to apply for a line of credit is when you have built your business to where you have positive cash flow. Ideally, you want to ask for the money when you don’t need it. For most accounts, having a line of credit won’t cost you any money unless you use it. Again, don’t forget to plan before you actually need the money.

Owning a business can be overwhelming. Using these tips, you can make decisions about your company’s finances to put you, your employees, and your family in the best position for a great financial future.

This information is for informational purposes only and is not intended as a recommendation of any kind. Consult a financial professional about your personal situation. Investing involves risks, including the risk of losing principal. Raymond James does not provide tax or legal advice. 401(k) plans are vehicles for long-term retirement savings. Withdrawal of pre-tax and/or income contributions is subject to ordinary income tax and, if made before age 59 1/2, may be subject to a 10% federal tax penalty. Business Council is the leading growth and networking organization for entrepreneurs and leaders. Am I eligible?

More articles


Please enter your comment!
Please enter your name here

Latest article