Even talented and successful entrepreneurs may concentrate so intensely on their business that they neglect their personal financial planning. They save little money outside their business, have only a modest retirement benefits package plan and carry insufficient insurance to cover any hiatus in the businesses’ income generation activity. Sooner or later, these people find themselves regretting their lack of foresight. Good financial planning means never having to say “Sorry”.
Never have to say sorry: to your spouse
Your spouse has probably provided a considerable input to the success of your business, either as business partner or as family mainstay and emotional supporter. What plans do you have in mind to reward them, and yourself, come retirement time? Will you be able to fund your dreams?
As a business owner, the first act of your retirement planning should be to open an individual retirement account. A good scheme will offer safety, a good rate of interest, compounding (interest reinvestment to generate further earnings) and tax concessions. In the right circumstances a spousal retirement savings plan, one owned by your partner but to which you make the contributions, allows you to split your income after retirement and reduce taxes by paying on two relatively low rates instead of one high one. To reap the optimum benefit from a retirement saving plan start contributing early and make regular payments. It’s fine to lead an affluent lifestyle while you are working but it’s also necessary to consider the retirement years. Build the contributions into your regular expenses by arranging an automatic withdrawal each month so you don’t find yourself short of income in retirement, or having to work on and on into your later years.
Never have to say sorry: to your heirs
OK, you won’t be around to actually apologise when the will is read, but probably one of the things you are working for is to achieve some financial security for your heirs. You don’t want to disappoint them even if you aren’t there to say “Sorry, I didn’t plan that too well”. Proper estate planning is the key to controlling your assets and not leaving your heirs in a financial quandary, but to be effective it requires your lifetime participation. The money saving and tax minimisation opportunities that can be utilised for your heirs' benefit will be limited unless you have laid the groundwork planning from earlier on in your lifetime so as to achieve the outcome you want.
A carefully thought-out estate plan will ensure you pass on your wealth to whomever you want to receive it in a way that avoids delay and minimises asset shrinkage due to probate costs and estate tax.
Never have to say sorry: to your business
Another critical aspect of financial planning and your small business is using various types of insurance to protect it. The variety is exhaustive, and funding insurance for every contingency is probably prohibitive, but some may be more relevant to a particular business than others. Among the more common types are: liability insurance; property insurance; business interruption insurance (to cover lost income and overhead expenses when a business must temporarily close its doors due to a covered disaster); life and disability insurance; and key person insurance (to minimise the financial disruptions in the event of the death or incapacitation of someone who is critical to your business).
Boiled down to the essentials, financial planning is about two things - accumulating wealth and protecting it. Doing it properly may mean seeking advice from specialists in a variety of different fields, but a good starting point is someone with an overall understanding of the big picture, such as your accountant. As a small business owner it’s important for your long term personal financial success to take advantage of the variety of financial planning instruments that apply in the small to medium business context.