Owning and running a business can be a very time consuming activity. Staying on top of sales, marketing, administration, human resources and compliance are critical for any business owner, which can often result in important personal finance basics being pushed down the priority list. We believe it’s imperative for business owners to prioritise their personal finance basics to ensure a strong foundation for their own wealth needs. Here are the top five ‘must-dos’ for business owners.
Clients often expect their business to be of greater value then they should, and rarely do they account for the inputs of time and money that have been invested. Pay yourself first because you value your own contributions to your business. Extracting money and value along the way will give an owner choice, certainty and the ability to pursue other options which may arise. This leads to point two.
Cash flow is King
Having strong management practices in your business, will often enable positive cashflow. In turn, this allows the business to strengthen its position by not being reliant on expensive external facilities (i.e. overdrafts) to stay afloat and thrive. Furthermore, it allows business owners to diversify their wealth away from ‘just’ their business.
Contribute to and take ownership of your super
While staff super payments are compulsory, business owner contributions are often not factored into business cash flow. You should be maximising the allowed deductible contributions each and every year. If you haven’t taken advantage of this in the past there are some options to maximise your contribution strategy in a year where your business performs well and cashflow allows.
If I had a dollar for every time a client admitted they didn’t know how their super was invested I’d need not take my own advice, and contribute up to the contribution cap each year! Regardless of when you can access your superannuation, it is most likely to be one of your biggest assets, which is why you need to know where your super is invested, its likely return in comparison to other options, and associated costs; which will amount to you being better off by tens of thousands of dollars over the years.
Often opportunities are missed to achieve better tax outcomes. Having an understanding of our clients complete circumstances allows us to often make recommendations to convert non-deductible debt into deductible debt. If nothing else, if you have not reviewed your interest rates on all your facilities in the last six months you may well be needlessly donating money to the CEO and shareholders of your bank.
Often business owners believe their greatest asset is their home or car collection, however this isn’t the case. Their greatest asset is their ability to earn income and lead a profitable business. Too often our clients are underinsured in the hope that ‘this won’t happen to me’. We too see insurance as a necessary evil, and our goal with our clients is to build a strong personal balance sheet producing a passive income stream external to the business, to allow the ability to self-insure, reduce or cancel all personal insurances.
If any of these areas have not been getting the attention they deserve I would encourage you to take action today. Many of the greatest successes we have here at q4financial are those where we work with clients to develop strategies around their entire financial situation.
With the right strategy, clear goal posts and ongoing support we have seen clients’ personal financial situations change rapidly, bringing security to their future.