Business owners often have complex financial situations. They do everything they can to make their business the best it can be, but still so frequently come up short. Acknowledging and being proactive about the top 4 tips business owners can employ will ensure you work in the right direction and make your life easier. And at the end of the day, isn’t that what everyone wants? Implement these 4 tips below and get started.

  1. Duplicate Yourself:
    Business owners work what seems to be endless hours to try and make their businesses thrive. It’s their life’s work and they have given it everything they’ve got – blood, sweat, and tears. The first mistake business owners make is not creating a duplicate of themselves. They create an “I’ll do it myself” mentality that comes back to bite them.

    You must invest the time into the hiring process and your current employees to develop them into like-minded versions of yourself that are able to take away the burden of day-to-day operations of the business. This gives you more time and allows you to focus on the big picture – working ON the business rather than IN the business. This often equates to a business that is poised for faster growth and expansion and ultimately a more successful business.

  2. Plan for Succession:
    This point goes right along with #1 – without investing in your staff to handle day-to-day operations and having systems and processes in place, how will your business ever function without you? Do you have a game plan for the business when you retire? If you were to leave the business today, would it crash and burn, or run like the well-oiled machine that you’ve created it to be?

    It is crucial for business owners to start thinking about succession before it’s too late. The day will come when you are ready to retire and if your business can’t run smoothly without you, it will negatively impact the price a buyer is willing to pay for it. You have worked hard to create this business and you deserve to get maximum value for it – but if the business can’t operate without its most valuable asset (YOU), I can assure that you will be disappointed.

  3. Minimize Taxes:
    Like mentioned before, business owners often have complex financial situations – they make higher than average income and thus also pay higher than average taxes. Even if they are maximizing pre-tax contributions to their 401(k) plans, this does not provide enough relief when it comes time to pay Uncle Sam.

    What many business owners are unfamiliar with are the various tax codes that allow them to take advantage of specialized defined benefit pension plans. These specialized plans can be designed around the business owner’s unique circumstances and their employee census, often times allowing them to put away hundreds of thousands of pre-tax dollars (Yes – you read that right, hundreds of thousands of pre-tax $$$) depending on their situation, thus dramatically reducing their obligation to Uncle Sam.

    This creates massive tax savings and enables the business owner to put more money in their own pocket rather than sending it off to the IRS. Business owners should seek out an advisor that specializes and understands these types of benefit plans who are also positioned to help them invest the surplus dollars created from the tax savings. Just think – what would you do with all this extra money?

  4. Build Your Personal Balance Sheet:
    You are so focused on making your business the best it can be. You should be putting everything you’ve got into the business – except your own money. While it is important to invest some money in the business, you need to avoid dumping every last dime into it. Of course, as a business matures, the business owner must seek out someone else’s capital (borrowing) to invest into business projects to help make it grow. The owner should only undertake projects if they present a high potential for return on investment (ROI). The sad truth is that many business owners can get so caught up in building the business that when it comes time for them to retire, they may not have anything to show for it.

    This works in conjunction with point #3 above – it’s time to start thinking about how to utilize pre-tax dollars to help build your personal balance sheet. Using some of the tax planning strategies from above, you can vastly improve your situation without even changing WHAT you are doing –just changing HOW you do it. Additionally, don’t be reluctant to take a hard-earned distribution from the business from time to time. This will allow you to build up some after-tax savings as well so you can be in a good position when it comes time to retire.

Final Thoughts...

If you are a business owner, we commend you – it is no easy task. Armed with the knowledge above, take your business and personal wealth to the next level. If you would like assistance or more insight about the top 4 challenges business owners face and how to make sure you tackle these challenges, contact McGervey Wealth Management.