Part of the Life Stages Series
As a woman, you will evolve through many life stages. Some of the stages will require you to completely change the financial plan you have while others will require just small adjustments to the strategy. If you are a woman just starting your family, here are some helpful tips to consider as you navigate through this new life stage.
Create a Business Plan
Before you leave your current job and embark on becoming your own boss, make sure you have a business plan. There are two basic types of business plans- “Money-raising” and “Operating” plans. A money-raising business plan is designed to assist in obtaining funding for your business, while an operating business plan has little to do with raising money and is more like a roadmap for owners clearly stating business objectives. When creating your business plan, be clear about the purpose of the business and how it fits into your overall life vision. This will help you create a business in alignment with your personal financial goals and life aspirations.
Get your Own Financial House in Order
Have enough cash in the bank to cover six months of your OWN personal expenses. This is critical since most businesses aren’t profitable right away. You will also want to pay off any high interest rates debts and make sure you are clear on how much income you need to support your current lifestyle and future goals.
Seek out Professional Help
Since most business owners have their personal and business finances intertwined, it is important your personal financial plan take into account all the unique concerns and opportunities of owning and operating a business. Work with a CERTIFIED FINANCIAL PLANNER Professional, CPA, attorneys and other professionals to ensure you are maximizing your personal and business finances for your goals.
Calculate Business Capital Needs
Be clear on how much capital you need to start your business. Calculate the cost of overhead, marketing, supplies, equipment, etc and then add 10-20% to your estimate to cover any unexpected needs. Once you know how much you will need to start your business, consider your financing options; personal savings, loans from friends or family, credit cards, business loans, and/or private investors. Each option has its pros and cons, so think them through carefully.
Calculate Business Revenue Needs
This is extremely important and a detail most start-ups fail to calculate. Start by calculating the cost of your basic living expenses, add in savings for your financial goals, and add in taxes to equate your gross annual income needed. Then take this amount and add in business expenses to equate the gross revenue needed from your business. For example, assume you need $50,000 to cover your basic living expenses, $25,000 to save for your personal financial goals, and $25,000 for taxes (25% tax bracket) then you will need an annual gross income of $100,000 from your business. Then take $100,000 and add in business expenses of $25,000 to equate $125,000 in annual gross revenue needed from your business. Whatever the revenue figure is, make sure you know it by heart. This is your goal. Plug the figure into your marketing plan to ensure you are reaching this revenue goal.2.
Choose a Business Structure
Choose the appropriate structure for your business. Sole proprietor, S Corporations, C Corporations, LLC or LLPs all have different tax treatments and requirements. Also consider how each of these structures affect other areas, such as the ability to protect your personal assets, set-up retirement plans, take deductions for employee benefits and eventually sell or pass on your business to heirs. Work with an attorney who can help you analyze and choose the best structure for your business.
Get Business Insurance
Now that you are a business owner, you must review all your insurance needs for your personal and business situation. Make sure you have the right kind and amount of insurance to protect you and your business. Some insurance coverages to review are liability insurance, property insurance, disability and life insurance, worker’s compensation insurance, and health insurance.
Remember your Retirement
Most business owners allocate of all their investment money, including retirement money, into their business. After all, most business owners see their business as an investment they hope to one day sell for a profit or pay them a salary from when in retirement. However, this strategy is too risky. You need to diversify your investments and remember to still invest into a separate retirement account. As a business owner, there are lots of retirement plans available to you. SIMPLE IRAs, SEP IRAs, Individual 401ks, Defined benefits plans, to name a few, all have different contribution levels, tax ramifications, rules and restrictions. Work with a financial planner to help you choose the best retirement plan for your business.
Build a Business Succession Plan
Business succession planning and estate planning is important as typically your business will be the largest asset you hold. Make sure you define your long term goals for your business. For example, will you pass it on to your children or sell it to support your retirement income needs? There are many options to pass your business at retirement or death, so make sure you define what you want now and start setting up your business accordingly. Get the proper business succession plan in place, chose the right business structure, legal documents, estate documents and anything else you may need in order to carry out your wishes. Business succession planning is often complicated so make sure you have a team of experts to help you execute the proper strategy.