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Financial Health Check for Small Business Owners

February 27, 2019

If you are a small business owner, you know that the decisions you make daily impact your bottom line. Are you exercising the same care for your finances that you apply to the services you offer your clients? Following is a financial health check you can use to evaluate your financial health as a small business owner.

Are You Focusing on The Big Picture?
There are many pieces to a small business owner’s total financial picture. Your financial plan, budget, and investments are three critical components to keep in mind no matter how busy daily operations become.

1. Financial Planning
Taxes can be one of the most significant expenses for business owners. In order to identify and follow the most appropriate tax planning strategies, small business owners need to be clear about both their business goals and personal financial goals.
  Do you:

  • Maintain a prioritized list of business and personal financial goals and refer to it when you need to make new decisions?
  • Have a small business structure that offers you the most appropriate legal protections and benefits?
  • Reduce or defer taxes and maximize available deductions and credits as advised by an accountant and financial planner? This may include timing income and expenses, using charitable gifting, and saving for retirement?

2. Budget Management
82% of all small businesses that fail cite cash flow problems as the primary reason. One way to identify cash flow challenges before they become lethal is to manage a budget according to your business plan.
  Do you:

  • Know how much revenue you must generate to break even and cover expenses before profits?
  • Monitor your income, expenses, inventory, credit, and cash regularly, adjusting and rebalancing where required so that you cover your fixed expenses and maintain funds in your cash reserve?
  • Use your budget, break-even point, and cash flows over time to evaluate your business financing options and identify the ones that make most sense for you, when financing is required?

3. Investments
Many small business owners invest all of their time and money into their business.
  Do you:

  • Maintain a cash cushion for both your personal finances and business needs, so that if you run into a cash flow crisis you have something to access?
  • Save regularly and invest any cash inflows that exceed your current expenses and immediate lifestyle needs into an account outside of your business?
  • Diversify your non-business investments across companies outside of your industry, in different geographies offering services that vary from yours?

Are You Protecting What You Have?
Many small business owners purchase insurance to protect their assets from risks unique to them.
  Do you:

  • Understand the types of risks that you are facing in your small business?
  • Own insurance and regularly review to minimize the impact of your business risks, if they should happen?
  • Examples of insurance small business owners have include:
    • Liability insurance
    • Property insurance
    • Business interruption insurance – for lost income and overhead expenses during a disaster
    • Life and disability insurance – for employees as a fringe benefit and/or for business purposes like funding a succession plan, in case there is a loss of a key person, or collateral for a loan
    • Worker’s compensation insurance – for businesses with three or more employees
    • Health insurance

Are You Keeping The End In Sight?
Even if you can’t imagine life without running your business, it is essential to think about what would happen if you could not manage it due to disability, retirement, or death.
  Do you:

  • Have a business succession plan that considers both who has the skills, authority, and interest in running the business and how the transfer might take place? If you plan to sell, do you know how your successor will come up with the funds?
  • Maintain a retirement plan? Depending on the plan you own, you may be able to reduce your tax obligations today and benefit from tax-deferred growth on the money you save in your plan.

There are a variety of retirement plans available, from SIMPLE and SEP IRAs to Individual 401ks and Profit Sharing Plans. Your accountant and Certified Financial PlannerTM can help you analyze your retirement plan options to determine which plan is best for your situation.

Caroline Wetzel is a Certified Financial PlannerTM (CFP®) and Vice President, Private Wealth Advisor with Procyon Private Wealth Partners, LLC. Procyon Private Wealth Partners, LLC and Procyon Institutional Partners, LLC (collectively “Procyon Partners”) are registered investment advisors with the U.S. Securities and Exchange Commission (“SEC”). This article is provided for informational purposes only and for the intended recipient[s] only. This article is derived from numerous sources, which are believed to be reliable, but not audited by Procyon for accuracy. This article may also include opinions and forward-looking statements which may not come to pass. Information is at a point in time and subject to change. Procyon Partners does not provide tax or legal advice.

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