Ask virtually anyone who owns a business, and they’ll tell you they have plenty on their mind—and their to-do list. Managing operations, employees, vendors, marketing, and financial tasks and legal matters are just some of the things a business owner has to deal with, and this can leave little time for other tasks.
At EP Wealth Advisors our business planning team can help you understand some common challenges facing today’s entrepreneurs. With our professional perspective and guidance, you can be aware of these pitfalls and possibly add value to your business for a legacy you can be proud of.
Here are 10 mistakes that can sink a small business, along with practical tips to help navigate them.
A lack of tax planning may be one of most common mistakes small business owners make. Strategic tax planning from year to year, and for the long term, impacts every aspect of your operations.
For example, some entrepreneurs fail to maximize their Qualified Business Income (QBI) deduction. This deduction allows qualified taxpayers to deduct up to 20% of their QBI plus some other sources of qualified income. It is available for businesses operating as sole proprietorships, partnerships, and S corporations, and it can make a difference in your tax obligation.
This is just one of many tax relief options available to small business owners. Our tax planning team at EP Wealth can help identify ways to possibly lower your tax liability, identify deductions, and integrate your tax planning with your investments to help you keep more of what you earn.
You have probably heard the expression “cash is king.” In the small business sector, it truly is. As an owner, it is essential to develop the skills to read their basic financials: balance sheets, profit and loss statements, and cash flow statements. You should know where every dollar is going.
When you have a clear understanding of how and where cash is coming in, you can set aside cash for unexpected expenses (also known as liquidity.) Our planning advisors review your financials and take advantage of cash infusions during periods of growth. It’s important to capitalize on your success by establishing a good banking relationship and line of credit to protect you when business is slower.
Budgeting is essential for every small business. If you aren’t staying on top of your balance sheet, you run the risk of overspending without realizing it. That leads to costly shortfalls at the end of the month or the quarter that you may not be able to cover.
The good news is budgeting does not have to be complicated or time-consuming. If you take the time to establish a budgeting system, all you have to do is plug in your income and expenses as you go. Don’t forget to include things like: rent, insurance, office supplies, advertising, and payroll.
Your EP Wealth small business planning team works with you to create a budget that aligns with your needs and goals. Over time reassess your budget to identify areas where you can potentially save money along with opportunities for investing and expanding your business.
Saving money for a “rainy day” should also be a priority for every small business owner. To create an emergency fund, you can open a separate bank account and contribute to it on a regular basis. These savings vehicles can be referred to as capital reserves, business emergency funds, or retained earnings.
These accounts should not be accessed for anything other than specified emergencies that impact your ability to operate as usual. Emergency funds can help float your business after theft, computer hacks, medical emergencies, natural disasters, and legal problems.
Work with your planning advisor to determine how much you need to sustain your business during an emergency and create a feasible schedule to contribute to these funds going forward.
As a small business owner, have you considered ways to diversify your offerings and create multiple revenue streams? If you depend on a single client or product to sustain your business, you open your business up to significant risk if that customer ends the contract, or a competitor gains market share over you.
Before you diversify, decide on your goals for creating additional revenue streams. We like the SMART approach to goal-setting. These goals are Specific, Measurable, Achievable, Relevant, and Time-bound.
SMART goals for your new business can be anything from developing a new product by year's end to acquiring one new client every quarter. You can aim for revenue growth, a higher profit margin, or better return on investment (ROI).
We communicate with your team to plan ways to possibly add income streams to hedge against the downturns that small businesses often encounter.
Knowing how and when to invest in your small business can make the difference between an enterprise that plateaus—and one that just keeps on growing. If you overlook these opportunities, you miss the chance to increase your bottom line and withstand intense competition.
Investing in employee training, technology, advertising and marketing can help your business ascend to the next level. Investing outside the business is equally as important. For example, you can support your staff by contributing to their retirement plans and 529 college savings plans. Investing in your employees improves job satisfaction and team loyalty.
Investing in expertise is important too. Knowing your strengths as a business owner and being realistic about where you can benefit from outside help is essential. Whether that is IT services, an outside marketing agency, or a financial advisor, having the right team around you gives you more freedom to focus on improving and expanding your primary products and services.
When it comes to small business, debt is not necessarily a dirty word. In fact, debt financing with a small-business loan is one of the most common ways to start a business. Yet while debt is often necessary, it is also critical to monitor your liabilities.
Acquiring too many liabilities without a clear and realistic repayment strategy, or using credit lines poorly, will overstretch your resources leaving you drowning in debt that is hard to dig out of. Our advisors can help assess liabilities and assist with creating a debt payment strategy.
It’s common for small business owners to be so consumed with getting their venture off the ground, that they put retirement planning on the back burner. But it’s a mistake to procrastinate with setting up retirement accounts or not contributing to them on a consistent basis.
Financial advisors at EP Wealth explain the benefits, risks, and alternatives of SEP IRAs, SIMPLE IRAs, small business 401 (k)s and other retirement plans available under federal tax code. The right plan for you depends on the size of your business, how many employees you have, and how much you can contribute annually.
Employee-sponsored retirement plans not only protect your own future, but they also attract and retain quality employees who know the importance of retirement planning.
Insurance exists to protect against the unexpected costs of doing business. From accidents and natural disasters to vandalism and lawsuits, unforeseen events can expose your business to massive losses and liabilities if you are not prepared.
Several types of insurance are available to small business owners:
We assess your risks to determine what events and disasters could potentially impact your business and guide you in choosing plans to possibly mitigate these risks. We also reassess your coverage periodically as your goals and needs change over time.
We covered the importance of investing in your business. Investing in professional advice can be another way to protect it!
You know what you do best— whether that is providing a product or service. But there are probably some aspects of your business you don’t have the time or expertise to oversee.
In these cases, you can consider hiring a specialist than do it yourself. A business planning advisor is just one example of how an external consultant can free you up to focus on your primary job functions and provide guidance to assist your operation.
For those whose only experiences with financial advisors have been sales pitches for financial products, the team at EP Wealth offers a refreshing alternative. It’s an opportunity to build a relationship with financial advisors dedicated to providing advice that can help you build and protect your business, while attempting to simplify your life.
To find out more about how EP Wealth can support your small business, contact us to find an advisor near you.
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