5 Reasons Why A New Small Business Owner Should Consult A Financial Planner
1. Tax Planning
The way in which a business is structured has serious tax implications for both the business and the entrepreneur. Sole proprietorships are taxed differently from partnerships, which are taxed differently from limited liability companies (LLC) and corporations. For example, the business income of a sole proprietorship is taxed as personal income, but in other business structures, income flows through the company itself which can significantly complicate the reporting of gains and losses. It is important to work with a financial planner early on to determine the best way to set up a company’s structure.
2. Risk Management
Most heads of households know the importance of individual life insurance and disability income insurance to mitigate against risk. However, business owners must also consider risks such as death of a business partner, natural disaster, and other interruptions in business, loss of property, and litigation. Specialized insurance policies must be put in place to protect both the business and its principals in the face of unforeseen circumstances.
3. Retirement Planning
Many entrepreneurs believe they will work until their dying day, but retirement planning is still a necessity. Proper retirement planning not only ensures that the entrepreneur will be taken care of in their golden years, but that their spouse and dependents will, as well. Additionally, business owners must decide if they will offer a company-sponsored retirement plan to employees. Working with a financial planner can ensure that everyone involved in the business has the ability to save for retirement, and realize the tax benefits of retirement planning.
4. Investment Planning
Once a business becomes profitable, entrepreneurs will have to decide when and how they will invest their money. Will it go back into the business itself? Will the company invest in other avenues? How will the business owner control those returns? These are all essential questions that can impact the long-term profitability and sustainability of a business.
5. Estate Planning
A profitable business is an extremely valuable asset, and business owners must decide how they will use that asset to benefit heirs. Family trusts and wills are not enough to transfer a business to other family members. Estate planning is complicated, and estate taxes can be a veritable minefield for those left behind. Early estate planning is critical to protect not only family members, but the ability of the business to carry on once the business owner has passed.
Start the Financial Planning Process Sooner, Rather than Later
It is never too early for an entrepreneur to work with a financial planner. Attempting to manage finances and planning alone can be a recipe for disaster. Professional expertise is critical in order to maintain profitability and protect assets over the long term. A good financial planner could mean the difference between a success story and a failure.