Owning a small business comes with a myriad of challenges, especially for inexperienced entrepreneurs. Creating a support system of experienced, knowledgeable professionals can help you navigate uncertain waters, and a financial advisor is a crucial role to fill. It takes a lot to make a business thrive, but a financial advisor can help shoulder some of the burden, freeing up your time so you can help your business grow.
6 ways a financial advisor can help your small business thrive
1.They can help you optimize your cash flow
Cash flow issues are one of the main obstacles for small businesses. A financial advisor can help analyze the flow of cash that comes in and out of your business by creating and helping you review cash flow statements. This can help determine the amount of money your business makes to ensure there is enough to cover bills and any other financial debts.
Once you and your financial advisor go over your cash flow analysis, you’ll have the proper details to help your business grow. From there, you may be able to put some money aside for any upcoming expenses, improve sales so your business generates more income and review your payment schedules for vendors so you aren’t paying everything at once.
2. They can answer your tax questions
When you have a business, you’ll need to pay federal income taxes on any income you generate. However, your tax rate and how you pay your taxes will be based on which type of business entity — such as a limited liability company (LLC) or sole proprietorship — you choose to operate as. That decision can be confusing, especially for new business owners. A financial advisor can help you decide on the best strategy, answer any questions you have about paying your taxes and help set up estimated payments that may be due throughout the year.
3. They can help you decouple personal and business spending
If you’re a new business owner, you may not realize the importance of keeping your personal finances and business finances separate. In fact, according to the U.S. Small Business Administration, 46% of all small businesses rely on the use of personal credit cards for business-related expenses.
While it may seem efficient to reach for a personal card, doing so sets you up for a world of pain when tax season comes around. The IRS requires proper documentation to support any deductions for business expenses, and when you muddy the waters by mixing business and pleasure, you might not have the information you need to claim them. Keeping your accounts separate is crucial, and a financial advisor can help you determine which expenses are personal and which might be business-related.
4. They can advise on your business plan
A business plan is a road map for your business; it outlines your plans for every aspect of your company, from marketing to manufacturing. It can also be used for recruiting business partners and employees, giving them details behind your business idea and any potential investment opportunities. A financial advisor or business mentor can help make sure your plan is airtight.
5. They’ll help you determine when, and how, to pay yourself a salary
According to Payscale, the average small business owner’s salary is roughly $60,000 per year.
Taking a salary is important, but understanding when and how can be confusing, especially for new entrepreneurs. And while not paying yourself can seem like a way to finance business growth, it means putting your own financial health at risk.
Your salary is typically determined by your business structure, and your financial advisor should be able to walk you through the nuances of each entity. They can also help you manage your money efficiently and set yourself up to weather the financial bumps and bruises that often accompany entrepreneurship.
6. They can help you execute saving strategies for retirement
It’s important to have a retirement plan not only for you, as the business owner, but also for those who work for you. A financial advisor can help you manage your own accounts, plus they can oversee the retirement benefits you offer your employees. The right plan will depend on your business entity and the number of employees you have, among other factors, so having someone who understands the ins and outs of all your options can make the decision easier.
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