Unlike large companies, small business owners don’t have the luxury to hire experts in every field, and so they are forced to do most of the heavy lifting in the business. You have to know everything from marketing, to operations, and obviously, finance. Presumably, you are probably in this business for the money, so it only makes sense to understand how money works. To help you make better money choices, these literacy tips are exactly what you need.
1. Set up a retirement fund
This tip is an absolute basic, but business owners often ignore it, probably with the hopes that their businesses will be worth millions of dollars so they can retire financially free. There is nothing wrong with working towards this, but setting up a 401 (k) has another advantage, often not known to many business owners. It will help you curb tax bill and grow tax-deferred until you decide to use the fund, whether your business is a partnership, LLC, corporation, or sole proprietorship.
2. Diversify your investments
Business owners tend to reinvest all their personal capital into the company, but Money Monarch advises that it’s important to diversify your investment. Owning a business is risky, with statistics showing only 50% of small businesses surviving five years. Read tips on other forms of investments you can include in your portfolio and choose one that’s best suited for your financial goals. You can start with side businesses but also remember to channel some of your money to bonds, stocks, real estate, and other investment options.
3. Plan for off-season
Businesses hardly boom month after month, and to survive the ‘dry’ months, you need to have an emergency fund. Budget for down months, especially if you have a seasonal business to ensure you will still run smoothly even when the company is not bringing in enough to cover your bills. You can also hire freelancers instead of having in house employees for the task you don’t need help with as often. For instance, hire a freelance developer to create and maintain your website or content writer for your writing needs. During the off-season, you can reduce the amount of work you send their way and thus reduce your expenses.
4. Have a financial advisory team
Every business owner needs a CPA, attorney, life insurance advisor, investment advisor, and P&C advisor on their team. This team will help you stay focused on your master plan and give you valuable insight into money management you could have missed. Meet with your team at least once a year to discuss your progress and plan for the next year. Your team should, however, be available for a quick chat when you are feeling uncertain about a financial decision.
According to a recent financial literacy infographic, only a third of Americans are considered financially literate despite the availability of books, courses, and seminars on the subject. As a small business owner, you need to get the literacy required to effectively run your business without making money mistakes that will cost you your business and livelihood.
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