The whole reason you went into business for yourself was to earn more money than you could as an employee. After all, your income when working for someone else is limited to want they want to pay you. Owning a business of your own opens the door to much greater earnings, but you must avoid several pitfalls along the way. If you don’t, you could end up losing money and closing your business for good. Below are several financial tips specifically for the small business owner.
Don’t Keep Too Much Capital Invested in Your Business
Keeping excess cash invested in your business might be tempting, but it won’t do anything to help diversify your financial portfolio. It also faces the same risk profile that your business does. One benefit of pulling out excess cash and spreading it around among various investments is that each one offers you a different risk profile from your business. A diversified portfolio should always be a top investment goal.
Don’t Pay Any More Taxes Than Necessary
It’s important to stay abreast of tax changes to ensure that your business receives the breaks that it has earned. For example, recent tax code changes make many small businesses eligible for a pass-through deduction of 20 percent. If you’re uncertain if your business qualifies for this or other breaks, schedule an appointment with your accountant or with us at Aura Wealth Advisors as soon as possible.
Separate Your Business and Personal Finances
If you do it now, you will appreciate the fact that you took the time to establish separate bank and credit accounts for your business when tax time comes. Filing the required tax returns for each when the money is co-mingled is complicated and time-consuming. It could also result in paying more taxes than necessary on both returns. Separating the finances also protects you from losing your home or your family’s savings if your business hits a rough patch or doesn’t ultimately survive.
Prepare for the Inevitable Difficult Financial Times
Starting a new business can take nearly all of your time and finances. That’s why setting aside money up to three years before you launch your new company is a good idea. This ensures that you continue to have enough money available to meet typical personal expenses such as rent or mortgage, car payments, utilities, and buying groceries. Another way to start off on good financial footing is to start your business part-time while remaining employed full-time through your employer.
Keep Some of Your Cash Liquid
Your company can look financially solid on paper and have little to draw on during slow periods or an emergency. After officially launching your business, make sure that you have funds you can easily access to pay for ordinary and unplanned business expenses. Financial advisors often suggest that business owners have up to one year’s worth of expenses set aside for easy access when needed.