Small business owners face a unique set of challenges due in part to the interconnected nature of their personal and professional finances. Here are five common financial management concerns that small business owners face:
1. Raising Capital
Small businesses are often capital intensive, especially in the early years of ownership. This can be a daunting time in the life of a business, and owners are often more concerned with securing any capital available than strategizing how to obtain the right capital. While we’ve all heard underdog stories of entrepreneurs taking on credit card debt to successfully launch their business, determining the optimal solution involves an analysis of the owner’s current assets, liabilities, and potential sources of financing.
2. Business Lifecycle Planning
New business owners are faced with many decisions surrounding the business.
Which legal entity do we choose to organize as?
Is our capital structure the correct mix of debt, the owner’s equity, and any outside equity?
How should I structure retirement plans and compensation for me and my employees?
Further along in the corporate life cycle, new questions emerge as owners begin thinking about succession planning and potential exits.
In many cases, it can be helpful to have a team of advisors grow with you throughout the life of your business, assisting with the pressing issues of the day while also anticipating and preparing for the next phase – be it further growth, an exit to retirement, or your next venture. We routinely partner with tax professionals and attorneys to develop solutions and plans for your company’s future.
3. Cash Flow Management
Once a business is up and running, owners have plenty of flexibility in terms of drawing cash flow from their business. However, with flexibility comes optionality, and it can be difficult to determine what is best for both you and your business. Depending on the legal structure of the entity, different combinations of salary, ownership distributions, and reinvestment may be ideal to optimize for business growth, personal income, and tax efficiency.
4. Asset Allocation
If you are like many small business owners, your business is the largest investment you own. While this can be a positive, in the context of your portfolio, additional challenges arise when your largest asset is concentrated, illiquid, and un-diversified. A wealth advisor will consider the risks and exposures of your business when selecting the remainder of your investments in order to create a complementary, not competing, portfolio.
5. Balancing Business and Personal Financial Planning
It’s natural to treat your small business with the same love, care, and attention you would give to a child. After all, your business requires hours upon hours of hard work, nurturing, and planning. While it’s easy for other items to fall by the wayside as you grow your business, it’s important that your personal financial plan remains the driver of all decisions in your financial life, especially when it comes to your firm. Whether your goal is to retire early, work only three days a week, or grow your business to the next milestone, remember that your business is your business – you’re in the driver seat to structure your work towards the life you want to lead.
Running a business is challenging. You don’t have to do it alone - we are your co-pilot. At Regent Peak, we use our financial expertise – and personal experience as small business owners ourselves – to help clients navigate the decisions and complexities of entrepreneurship. Let’s start a conversation today.
Disclaimers: Regent Peak does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.