From figuring out who will take over the business to navigating complicated tax situations, business owners have a unique set of needs when it comes to financial planning. Given the complexities of running a business, these financial can require a substantial amount of time, money, and expertise to address. Fortunately, by focusing your attention on the most important factors that impact your businesses – retirement planning, succession plans, tax liabilities, and insurance – you can secure a successful financial future for you and your business.

Retirement

Business owners often don’t receive many of the benefits salaried employees take for granted, however entrepreneurs do have a distinct advantage when it comes to retirement planning. The government has created numerous tax vehicles that are available exclusively for business owners who wish to save money for retirement.

For instance, business owners can create two specialized IRA accounts: SEP-IRAs and SIMPLE IRAs. Both accounts allow for tax-deductible contributions to help fund your retirement. In addition, if you don’t have any employees, you can create a solo 401(k) plan, which can be even more advantageous than traditional employer-sponsored 401(k) plans. These plans offer higher contribution limits, and you can choose your own administrator.

Succession Planning

Most business owners spend so much time thinking about their current operations they never really give much consideration to their long-term succession plans. However, if you wish to avoid unexpected tax bills and other associated hassles, you need to spend some time thinking about the future of your business after you have moved on or retired.

Typically, the most efficient way to transfer ownership of a business – especially if you plan on selling the business to an outside investor – is to incorporate it. When you incorporate, you will issue shares of stock that can bought and sold with ease. Shares can also be transferred through an inheritance if you are interested in leaving your business to your spouse or kids.

Tax Liabilities

The decision to incorporate will also greatly affect your tax liability. Although sole proprietorships are easy to create, they can expose you to significantly higher taxes. If you are already in a high tax bracket, your company profits are taxed at your personal income tax rate. In addition, sole proprietors must pay self-employment taxes, which can be a huge hit to your after-tax profit.

Alternatively, a corporation typically receives more favorable tax treatment, and it will protect your personal assets from potential legal liabilities. However, incorporations are far more complicated and expensive to establish. Depending on your circumstances, it may be worth it to consider instead a limited liability company – better known as a LLC – which provides many of the benefits of a full-fledged corporation, without all of the associated difficulties.

Insurance

Given the inherent risk of running your own business, it’s extremely important for business owners to have adequate life insurance to protect their families financially in the event of their death. Money from a life insurance policy will provide a financial cushion as they decide what to with your business. Without that money, they may be forced to quickly sell your company's assets, which could eliminate their bargaining power and reduce the ultimate proceeds from any sale.

In addition to general life insurance, you may want to consider a buy-sell agreement if you are involved in a partnership. A buy-sell agreement specifies the terms of a buyout – and provides the cash necessary to complete the transaction – in case one of the business partners dies.

Financial planning can be complicated and overwhelming for business owners who must dedicate themselves to the day-to-day affairs of their company. Other responsibilities, such as payroll, getting paid, and finding new clients, can push long-term financial planning to the backburner, however, ignoring these needs could have serious repercussions. Make sure to safeguard you, your company, family, and business partners from financial hardship and ensure your company’s long-term success by putting a solid financial plan in place today.

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