For all your online business building info! , 2020-05-26 10:38:00
10 Items Every Business Owner Need for Financial Security
Every freelancer or small business owner knows that the income of their business may vary from month to month. This is why you should plan for your financial security. Here are some necessary components for your business and life financial portfolio:
1. Pay your taxes
You need to pay your taxes! Not paying your taxes can put your own and even more important your families financial future in great risk. Every check or client payment you receive you need to take at least 30% off the top and put it in an interest-bearing savings account. This way you have the funds to pay your taxes on time and in full.
Besides car and home insurance you need at least have several other insurances, such as health, life, disability, liability insurance. These insurances are critical for the continuance of your business (especially for freelancers.) Remember, you are the most important asset of the business!
We know that the payment of all these insurances can be high, but you still need them. Think about what would happen if something happens to you, will your family financially survive? Make a plan!
3. Emergency fund
Beside an emergency fund for your living expenses you also need an emergency fund for your business. So start putting money aside in an emergency fund. You need at least six months worth of living expenses. (Remember that you put the money in an interest-bearing savings account.)
How much you should put in an emergency fund for your business depends on what kind of business you own. You should at least have the money to cover the costs for a couple of months. For instance you need money to pay the rent of your business location or to pay the salary of your staff.
4. Retirement fund
You have to remember that you are the employer, so you need to make sure that you save money for your own future in the form of a retirement fund. Without a good retirement fund and plan your financial future will look very bleak. (Again, always put money in an interest-bearing savings account. Your retirement fund and emergency fund should not be the same account. )
If you are like most people, then doing the books is one of your least favorite tasks. This is one reason why you should hire a CPA. Other more important reasons are that they can help you plan your financial future. For instance they can help to setup a strategy to best protect your income or to minimize your liability. Also they can help with your taxes. Try to find a CPA that will help to setup a business strategy and not one that is only doing the books.
Wouldn’t your life be easier if you don’t have any debt? We think so! So you should try to pay off your debts as soon as possible, especially the high interest rates ones.
7. Budget and cash flow plan
You need to know how much you and your business can spend. Try to setup (with help of your CPA, if you got one) a budget for your business and your personal life. Another plan you should have is a cash flow plan. You need to know where the money comes from and where it is spend! Without such a plan, it is only a matter of time you will have some major cash flow issues.
8. Continuity or Contingency Plan
Every business should have a business continuity plan or contingency plan. For example: what happens if you, God forbid, die? Can someone take over the business? Will your family inherit the business? Who of your family will continue the business? Is your family financially taken care of? If you think about it you can probably think of several other things. Make a plan that addresses all these type of questions. After that you have to make sure that you make it legal by setting up a last will and/or other type of legal contract. (Seek advice from a lawyer!)
9. Multiple stream of income
Try to develop multiple streams of income. This is very important for every business or freelancer. Don’t rely upon that one client! You will see that if the pay-checks come from multiple sources you feel much more secure and you are!
Always make sure that you have some cash on hand. You never know what kind of emergency (major of minor) you need it for. The motto is: always be prepared for the worst!
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