As a small business owner, it can be a point of pride to watch your dreams translate into equitable profits. However, the road to success has many potholes to avoid and expressways to take — if you recognize them in time.
With the vast array of personal finance knowledge out there, it can be tricky to figure out which advice is the best fit for small business owners. Ten members of Forbes Finance Council weighed in with their own personal wealth management tips to help you keep your personal and professional finances in good shape.
1. Surround Yourself With Experts
Small business owners often fail because they make decisions without finding out the facts from experts. Build a small network of key contacts to have at your fingertips. For starters, you can look for a lawyer, an accountant and a tax advisor. Furthermore, always keep your business and personal finances separate, and treat them both with the same caution. – Geanette Rodriguez-Ojeda, ARRI Rental
2. Don’t Hold Excess Capital in Your Business
As many great investors have written, I believe diversification in your investment portfolio is critical to success. If you’re holding excess cash in your business, you may not be diversifying that capital effectively. It possesses the same risk profile as your business. You can pull it out and invest in something with a risk profile different from your business. – Chris Schwalbach, AVL Growth Partners
3. Stay Liquid and Plan Accordingly
Being able to weather storms is an integral part of a business’s long-term survival. As you grow your business, make sure to try and keep 6 to 12 months of your expenses in liquid reserves at all times. Also make sure you have the proper protections and plans set up, like disability and health insurance. You can have a whole life insurance policy set up as well to borrow against it in the future if need be. – Jared Weitz, United Capital Source Inc.
4. Take Advantage of All Available Tax Breaks
Recent changes to the tax code have made many small businesses eligible for a 20% “pass-through” deduction. I advise you to consult with your tax professional to make sure you and your business are paying as little tax as you are required to. If you’re not already, make sure to take care of tax-advantaged retirement plans such as IRAs and self-employed 401(k)s. – Ismael Wrixen, FE International
5. Treat Personal Finances the Same as Business Finances
Just as you analyze your business’s income statement, cash flow projections and balance sheets, you can do the same thing for your personal finances. You can manage your expenses to increase your savings and investments in your retirement accounts and other assets to create stability in your personal life. Not properly managing your personal finances can lead to trouble in your business. – Alexander Koury, Values Quest
6. Pay Yourself First
Pay yourself first. Many times, small business owners want to reinvest all their money back into the business. You may be thinking you’ll make more money than in the stock market; however, that is a short-term investment strategy. Do not invest all of your money into your business. I believe you need to be saving 10–20% of your gross income for your long-term goals. – Justin Goodbread, Heritage Investors
7. Prepare for Rough Patches
Prepare for future cash flow disruptions three years before launch. Successful owners prepare for rough patches and take measures to ensure they have enough resources to maintain household living expenses during the early formative years of building a business. Successful owners I know have accumulated three years’ worth of living expenses in cash and started their business part-time before quitting a steady job. – Richard Rosso, Clarity Financial LLC
8. Implement a Succession Plan
For many business owners, the biggest asset on their balance sheet is their business. Often, those same business owners have no formal succession plan. In order for a business owner to effectively manage personal wealth, I believe they should prioritize implementing a succession plan. Too often, people place an emphasis on investments when a bigger impact can be made with proper planning. – Josh Fein, AdvicePeriod
9. Focus On Building Good Habits
Just as you focus on building efficient systems in your business, I believe you should focus on building good habits when you manage your personal wealth. Once you set money aside for retirement or an investment outside your business, don’t put that money back in the business. To build wealth, I believe you have to invest wisely — both in your business and outside of your business. – Vlad Rusz, Vlad Corp. USA
10. Keep Personal and Business Finances Separate
Keep personal and business finances separate. Tales of folks “betting the farm” to keep their business going may cause owners to take an inappropriate risk. Personal savings are for your family, so try to make them a last resort for your business. – Atish Davda, EquityZen
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