Whether you are just starting your business or operating a well-established one, you already know it can be both a challenging and rewarding experience. Hopefully, you are fortunate enough to be experiencing steadily increasing revenues and are already being rewarded with a business that is growing in a good economy. Perhaps you are asking yourself some important questions, such as:
- Do I keep the extra money for cash reserves?
- Should I put it back into the business for capital expenditures, such as new equipment and marketing?
- Should I spend the surplus on employee bonuses?
- Is now a good time to invest in another business?
The answers to these questions depend on many factors, so it is probably best to consult a financial advisor to guide you towards an appropriate decision for your circumstances. If your business is local to Northern Virginia, John Clawson is an experienced financial consultant in Winchester. He is available to assist with any questions you may have about financial planning and investments for your business.
Knowing how to spend the revenues is a good problem. However, there are also great risks as a business owner. Proper financial planning can help you determine an approach to not only managing business capital but also helping to make sure you and your family personally benefit.
Oftentimes, business owners will short-change themselves to put money back into the business. The result is a poorly planned future and sometimes a struggle to pay household expenses. Considering investments is important, too, as it affects your future and helps prepare you for selling the company so you can retire one day. You may be such a driven person that you don’t ever expect to retire. That’s great! But realistically, you may have unexpected problems with health, family needs and simply getting tired of doing what you do. It is best to plan for different scenarios.
Some common mistakes business owners make that affect their bottom line and may be a business set back are:
1. Carrying Too Much Debt
Entrepreneurs are by nature visionaries and often see a grand future ahead of them. Enthusiasm about a product or service can blind the business owner to the risks of borrowing. If a product doesn’t take off, carrying that debt can become a millstone around your neck. Avoid borrowing too much, especially early on with a fledgling company.
2. Not Having an Emergency Fund
It is hard to imagine a worst-case scenario when business is going well. During the 2008-09 recession there were many people who weren't prepared for the economy to tank. Without an emergency fund, businesses had to scale back and some had to close their doors altogether. It is imperative to have a contingency plan in place and money set aside to carry you for at least several months when hard times occur. No matter how large or small a business, learn to save and stay lean. When an emergency occurs, you will be better prepared financially.
3. Overlooking Tax Obligations
Depending on the size of your business and where you are located, you will have financial obligations to local, state and federal governments. You are responsible for paying not only your own full tax obligations, such as social security, but also those of your employees (if you have any). Making estimated quarterly payments to the IRS can help you avoid a huge tax bill at end of the year. Working with a qualified CPA and a financial advisor can help you determine your tax obligations.
4. Combining Personal Expenses with Business Expenses
This is a common mistake especially with sole proprietorships. If you don't already have separate personal and business banking accounts be sure to set those up right away. Accidentally using a personal credit card instead of business credit card once in a while requires some minor corrective bookkeeping. But overlapping business/personal expenses in one banking account could become a tax audit nightmare.
5. Not Planning for Retirement
One of the great potential rewards of being a business owner is controlling your own destiny. Planning for retirement is part of that journey whether it is for yourself or for your employees. Without proper financial planning and investment for retirement you may end up short of money when you need it most. John Clawson* can guide you to financial solutions that can give both you and your employees an advantage upon retirement. We also offer employee training for risk management, financial education, and retirement planning.
These are just a few of the pitfalls to watch out for. It takes many years to become financially savvy with owning your own business or finding the right person to manage finances for you. As a financial advisor in Winchester, John Clawson understands the challenges of running a company and of finding the right financial planner, too. Schedule an appointment with John Clawson today for guidance on making sound financial planning and investment business decisions.
Are you thinking of starting or moving a business to Frederick County, Virginia? If so, we recommend you take a look at Winchester government’s website for helpful tips on starting your own business, or moving one to our area: https://www.winchesterva.gov/starting-business
*Shenandoah Valley Financial Services is located in the city of Winchester in Frederick County, VA. We serve as financial advisors to clients in the Mid-Atlantic Region primarily in the states of VA, MD, DC, FL, NC, SC, PA, and WV.
LPL Financial and Shenandoah Financial Services and their representatives do not provide tax services or advice. This is meant for educational purposes only. It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. 09/19