By Scott Melbrod
Do you own a small- to mid-sized business? Welcome to the club! Often your personal finances and “Household Balance Sheet” get pushed to the back burner because running your business is your daily priority. As a small business owner myself, I know this firsthand.
In our opinion, it’s important for business owners to work with a financial planner because there are so many small maneuvers, strategies or deductions that are available to you under the tax code that often go missed. But I will be the first to say you probably don’t have time to dig through the details and fine print of the tax code, so it makes sense to delegate it to a professional who specializes in working with business owners and can help you with the many facets of your financial life (taxes, investments, insurance, estate planning). Most financial planning is geared toward people in corporate jobs receiving a W-2 paycheck with a 401(k) with a company match. Those kinds of financial planning solutions just won’t cut it for most business owners, frankly speaking. There is so much more we can do for typical business owners than most corporate employees.
Most business owners have unique financial planning needs, including:
Entity Selection & Structuring
Should your business be a sole proprietorship, limited liability company, or S-Corp or C-Corp? Is it best to be taxed as a pass-through entity or as its own entity? How you answer these questions can have a huge impact on your financial and tax planning.
Recapitalization is a process that you can use to help improve your financial stability by restructuring your debt and equity mixture. When is the last time you assessed your debt to equity ratio? Are you working with a financial advisor that has the requisite knowledge to help you do so?
Cost Segregation Review
Do you have business property? If so, we believe you need to do a cost segregation review. Doing so can help you increase cash flow by accelerating depreciation deductions and deferring federal and state income taxes.
Corporate Financing And Business Lines Of Credit
Business financing is different than taking out a mortgage for your primary residence at the local credit union. It is more complex but you also have more options. Optimizing your corporate financing can directly affect your bottom line.
Real Estate Solutions
Real estate ownership is often a major part of business ownership. As we mentioned when discussing cost segregation, there are a lot of strategic planning opportunities for those who own real estate. One strategy we believe you should definitely look into is self-rental.
What employee benefits do you offer or want to offer? What goals are you trying to achieve by offering benefits? Which benefits provide tax advantages and what is generally the most fiscally responsible way of providing those benefits? In our view, you shouldn’t limit yourself to the traditional benefits of vacation time and a 401(k). Thinking outside the box can give your company a competitive advantage in this tight labor market.
Retirement Plan Consulting And Design
Unlike traditional employees, business owners will typically have a say in how they are going to save for retirement. There are a lot of options available depending on the amount you want to save and how and when you want to contribute to accounts for your employees as well. Some options to consider are:
- 401(k) profit-sharing plans
- Safe harbor 401(k) profit-sharing plans
- Non-qualified deferred compensation plans
- SIMPLE IRA
- Solo 401(k) or SEP for owner-only firms
- Personal defined benefit plans
Succession And Exit Planning
What will happen to your business when you want to retire or can’t run it anymore? Are you hoping to sell it? Pass it on to family members? Just close up shop? It is important to start putting together a succession plan long before you expect to need it. Smooth transitions take time and strategic planning, and you should always be prepared for the unexpected.
Depending on your exit plan, you may need to set up a buy/sell agreement. In doing so, you need to consider the timing of the transition, the valuation of the company, and financing. Should it be a gradual purchase or a one-time transaction? Is it best to purchase a life insurance policy to provide financing? How these questions are answered may not only impact your business and your buyer but your family’s financial situation as well.
Other Planning Considerations
This is a good start to the areas of financial planning that you need to consider as a business owner, but it is not an exhaustive list. You may also need to look into general tax planning, insurance planning, corporate cash management solutions, shareholder benefit optimization strategies, cash flow analysis and planning, asset management, and so on. And that’s just on the business side. On the personal side, it’s important to address estate planning, insurance planning, educational planning for your children, personal real estate, investments, etc.
How We Can Help
That’s a lot to think about and it takes specialized training and skill to do it all well. That’s where we step in. Not only can we act as your family’s “personal CFO”, but we can help you with the business as well. We have built out a specific service offered to our business owner clients that integrates tax-efficient and relatively low-cost solutions inside your business with a holistic financial plan for your family’s personal finances.
By having a partner like Taxable Wealth constantly looking for opportunities and synergies between your business and personal balance sheets and using our experience in working with other business owners like yourself, we are able to help you potentially build more personal wealth with a goal of becoming financially free earlier in life. To learn more about how we can serve you, call our office at (858) 221-7521 or email me at firstname.lastname@example.org.
Scott Melbrod is the founder and CEO of Taxable Wealth, an independent wealth management firm in San Diego, CA. Working with a wide array of clients and focusing on real estate professionals, investors, and business owners, his mission is to provide impactful and targeted financial advice at a transparent cost to people who want to reduce their tax burden and minimize investment and insurance-related fees that eat away at their savings. With more than 15 years of industry experience, Scott uses his knowledge to develop solutions and structured, tailored financial plans designed to guide his clients toward financial freedom.
The information provided in this article is for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Taxable Wealth’s views as of the date of this presentation. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. Taxable Wealth does not provide legal advice. To the extent that any material herein concerns legal matters, such information is not intended to be solely relied upon nor used for the purpose of making legal decisions without first seeking independent advice from a legal professional. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. Taxable Wealth is not responsible for the consequences of any decisions or actions taken as a result of information provided in this article and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of Taxable Wealth.