Are You Making These Six Common Business Owner Mistakes?
Successful business planning doesn't happen overnight. For many business owners, it's easy to get caught up in day-to-day operations without giving due focus to long-term goals. Secure a more successful future for your company (and yourself) by carving out some time in your busy schedule to address these six common business owner mistakes.
Mistake #1: Not Having a Succession Plan
When was the last time you revisited your succession plan? Business owners who put a succession plan in place early can maximize the monetary value of their business upon their own retirement or departure. As you develop a succession plan, also consider the impact a key staff member's departure could have on your company.
Finding one key advisor who can seamlessly coordinate your team of experts (e.g., tax, estate, investment or retirement) can help with succession planning.
Having a succession plan can help maximize the monetary value of a business upon retirement. [Tweet This]
Mistake #2: Not Having Enough Insurance Coverage
Business owners often underestimate the amount of insurance they should carry. You may need to review your coverage in the following areas:
- Life insurance—Are you paying for an inadequate or ill-fitting life insurance plan? Most business owners don't carry the right amount of coverage. They often don't know exactly how much they need or the best and most cost-effective way to get coverage.
- Disability insurance—You need a policy that will provide adequate income if you were to become disabled and could no longer work.
- Long-term-care insurance—Many business owners also have little or no coverage in place for a nursing home or long-term care. Review coverage for both yourself and your spouse.
Mistake #3: Not Having an Income Plan
You can't monitor what you don't track, and poor bookkeeping can create financial challenges. Our firm helps clients track and monitor their spending as well as integrate that information into their overall financial plan. By creating a financial plan and working within a budget, business owners can both measure their progress toward their goals and improve their decision-making.
Also, don't overlook the importance of working with an experienced tax professional. He or she can take review your situation to identify legal strategies to minimize taxes and maximize profit along the way.
Mistake #4: Not Having an Investment or Retirement Plan
Business owners may leave personal investment considerations by the wayside as they focus on achieving overarching company goals. For example, they may fail to set aside enough or effectively invest for retirement. (Business owners often fund the business, but not their own retirement fund or, if they do, not at the level they should.)
Having a clear investment plan is important if you hope to achieve other goals, like retiring. A plan can help you avoid mistakes like investing in expensive annuities and products due to a lack of information about associated costs. Likewise, with a well-crafted investment plan you can avoid taking on too much risk by appropriately allocating and diversifying your investments. Finally, a good investment plan will help you make sure that you're investing in a tax-efficient way.
Mistake #5: Taking on Too Much Debt
As a business owner, you may sometimes need to obtain a loan. But you must take care not to overleverage yourself. When it comes to business lending, be sure to evaluate the repayment plan. Consider both best- and worst-case scenarios when deciding how much debt to take on.
Mistake #6: Failing to Appropriately Manage Employee Retirement Plans
Establishing a 401(k) plan can help both you and your employees plan for retirement. Yet many business owners are unaware of the excess fees that can eat away at your retirement income. In addition, business owners who retain fiduciary liability for their 401(k) plan put their company at risk. Your employees can take you to court if your company retirement plan has poor oversight or management. Business owners can save on their expenses—and reduce risk—by hiring an outside fiduciary to help manage their plan.
Avoid Mistakes with Professional Guidance
The six business owner mistakes I've outlined above are all too common. Fortunately, it's easy to take steps to avoid these mistakes. Whether you're just starting out or running a well-established business, seeking guidance from a financial professional can help you plan for every scenario and position you to achieve your business and personal goals.