A Personal Finance Checklist for Entrepreneurs

The Entrepreneur’s Guide to Finance: Navigating Through Foggy Waters

In the game of building wealth, the rules are different for everyone. Think of it like baseball: the pitcher, the catcher, and the outfielder all have different roles, even though they’re playing the same game. Similarly, entrepreneurs have a different set of financial rules compared to your average Joe with a 9-to-5 job.

In Wealth Factory’s perspective, the standard “financial advisor” or retirement planner often lacks insight into the unique needs of entrepreneurs or business owners. Such professionals typically cater to the W-2 employee, guiding them towards passive investments in 401(k)s and IRAs filled with mutual funds.

However, for entrepreneurs, the realm of personal finance extends much further. Here’s a checklist tailored to entrepreneurial strategies that many traditional retirement planners might overlook:

Is your business structure optimized for liability and tax protection?

Most financial planners are employed by corporations and have never embarked on the entrepreneurial journey. Consequently, they might be unfamiliar with the various business structures available to shield entrepreneurs from liability and taxes. For instance, while the sole-proprietorship is a foundational business entity, it doesn’t offer protection from liabilities or taxes.

At Wealth Factory, we’ve guided numerous business owners towards checking out out an S-Corp structure. This choice can often result in significant payroll tax savings and an added layer of protection against personal liabilities. Surprisingly, many financial advisors and even some CPAs overlook these benefits.

Are you leveraging the tax code provisions designed for you?

The IRS tax code, depending on the way one counts, can be thousands of pages long. While the initial sections cater to the standard taxpayer, a substantial portion (over 5,300 pages) is dedicated to strategies that businesses can employ to reduce their tax burdens.

Are you confident that you’re capitalizing on all the legal tax-saving provisions within these pages?

Based on our observations at Wealth Factory, most business owners overpay their taxes. From neglecting to deduct business loan interests to improper record-keeping of self-employed health insurance, missed deductions can accumulate rapidly.

Have you established a financial buffer for seizing opportunities or weathering challenges?

While some financial planners might rush you into diverting funds from your business into financial products, we believe in the importance of creating a “war chest”. This is a readily accessible reserve, ensuring liquidity for your business. Such a reserve can be instrumental during challenging times or when a golden opportunity arises.

Is your business adequately insured?

Entrepreneurs inherently shoulder more risks than the average individual. From potential injuries at your establishment to liabilities stemming from employee actions, the challenges are diverse. Fortunately, several insurance options, tailored for business owners, can mitigate these risks.

Do you understand the 3 C’s for favorable loan terms?

To procure loans under optimal conditions, entrepreneurs should be familiar with the three C’s: credit, cash flow, and collateral. Each of these factors plays a crucial role in determining the interest rate and terms of a loan.

Can you access a business loan or credit line when required?

Unlike the common advice to avoid interest, Wealth Factory emphasizes the significance of having access to business loans or credit lines. This can be a lifeline in times of need or simply offer peace of mind.

Do you monitor your business credit score consistently?

Businesses, much like individuals, have credit scores that influence their borrowing potential. Ensuring that this score is accurate and healthy is vital for procuring loans or credit lines under favorable terms.

Have you assembled a team of financial specialists?

A holistic financial approach often necessitates a team comprising various experts, from tax attorneys to insurance specialists. Such a team can provide comprehensive advice, ensuring all facets of your business’s finances are optimized.

Is your estate and succession planning up-to-date?

Considering the future of your business in your absence is crucial. Having a clear succession plan and understanding the implications of your passing on the business’s operations is essential.

Is your retirement strategy entrepreneur-centric?

For numerous entrepreneurs, the primary wealth-building avenue is their business, not traditional retirement funds. Therefore, strategies should focus on bolstering business equity and considering retirement within the business framework.

In conclusion, entrepreneurial personal finance is distinct and requires a bespoke approach. Traditional retirement planners, often not being business owners themselves, might not be equipped to offer this specialized guidance. The world of entrepreneurial finance might seem daunting, but with the right tools, team, and mindset, you can navigate it successfully.