Broker Check

Small Business Owner Financial Check Up

| May 09, 2024

May is National Small Business Month. If you are a small business owner, you know how much hard work it takes to simply run the business and keep the lights on. It’s easy to get so caught up in the day to day that you lose sight of the big picture and some longer term goals to keep your business growing sustainably. That’s why it’s a good idea to periodically assess where you are today and where you want to be in both the short, medium, and long term. Let’s look a few common pitfalls or financial mistakes small business owners make and how to avoid them to keep growth on-track.

Mixing Personal and Business Expenses

Mixing business and personal expenses not only can make you appear unprofessional and unorganized to clients, lenders, and investors, it can also lead to potential accounting and legal ramifications as well. It’s not worth the risk or confusion. Take the time to keep your business expenses separate from your personal expenses. Have separate bank accounts and credit cards for your business and consider bookkeeping software or hiring a bookkeeper to help you keep your business books organized and up to date.

Reassessing Your Business Structure

Maybe you started out as a sole proprietor but now your business has grown and you’re considering expanding, adding employees, or looking for outside financing. It may be the right time to reassess your business structure. You should consult with a professional who understands both the tax and legal ramifications of various business structures. They can review your growing business and recommend an option that may be the right fit.

No Retirement Plan

It can be overwhelming when your business is just starting out to even think about retirement planning, but you should. A common objection we hear is that the business isn’t generating enough profits to justify an owner establishing a retirement plan. This may or may not be the case. There are many types of retirement plans available to small businesses. Some plans are more rigid with their requirements, while others allow for quite a bit of flexibility. Each have their pros and cons, which is why a financial professional can help guide you through available plans and help you decide which one might be best for your business. In the short term, a retirement plan may potentially lower your tax bill and help you attract and keep employees who are also looking for retirement savings as a workplace benefit.

Not Diversifying Your Investments

For a lot of business owners, their business ends up being a large portion of their overall net worth and they often have a hard time considering investing in something other than their business. However, it’s important to find the right balance between reinvesting in your business while also maintaining enough liquidity and diversification outside of your business. Contributing not only to a retirement account, but also to a general investment account are ways for you to diversify your investments. Consider working with a financial professional who can help you put together an investment portfolio that complements your business asset vs. increasing your concentration risk by helping you invest in companies outside of the industry that your business is in.

Not Thinking About Your Succession Plan

It’s never too early to start thinking about your exit. Emotions can run high when you consider how much time and energy you’ve invested in your business which is why starting to think early on about your future succession can help ease the process. Is it a family business? Will one of your children be an active participant while other children might not be involved in the business? Will you sell your business to an employee or an outsider? These are questions to begin thinking about. 

You’ve worked hard to grow your business. Taking a few minutes to review some “bigger picture” items will help your business maintain long term success.  

Securities and Advisory Services offered through LPL Financial, member FINRA/SIPC, a Registered Investment Advisor. LPL Financial and Croxall Capital Planning do not provide tax or legal advice.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.