How We Help Small Business Owners: It’s More Than Business. It’s Personal.

Maura Schauss |

Todd Youngdahl, CFP® at Washington Wealth Advisors

Starting a small business is no easy feat. Considering 45% of small businesses fail within the first five years,[1] starting on the right foot is crucial. An ideal way to set yourself up for success is to work with a financial professional who specializes in the needs of small business owners. At Washington Wealth Advisors, we do just that.

Here are 3 ways we help small business owners plan for the future and make the most of their hard work.  

1. Retirement Planning for Small Business Owners

One of the main ways we assist small business owners is by helping them determine which self-employed retirement plan makes the most sense for their needs and how much they can contribute. As a small business owner, you’re used to giving your all to the business, but it’s important to plan ahead for your own future.

You have to pay yourself first, and preferably in a tax-efficient way. That’s where our comprehensive retirement planning comes in. We will walk you through various retirement planning options, including:

Solo 401(k)

A solo 401(k) is designed for businesses with only one employee, the business owner. The IRS calls it a one-participant 401(k) and only businesses without employees are eligible.

There are many benefits to a solo 401(k), including employee deferrals, Roth accounts, loan provisions, and higher contribution limits. However, these accounts do have strict reporting requirements and are only available for businesses with no employees except the owner’s spouse. If you have plans to expand your business and hire additional employees, a solo 401(k) may not be the right choice for you.

SEP IRA

A Simplified Employee Pension (SEP) IRA functions similarly to a traditional IRA, except as the owner, you set up and contribute to accounts for both yourself and your employees. These plans offer tax-deductible contributions, high contribution limits when compared to traditional IRAs, easy setup and maintenance, and discretionary contributions. This means you can adjust your contributions to match your cash flow so you’re never contributing more than you bring in.

Some drawbacks include strict eligibility requirements (everyone 21 and older who earns at least $650 per year must be allowed to participate), no loan provisions, Roth accounts or employee deferrals, and when you do contribute, you are required to contribute to every participating employee.

SIMPLE IRA

A SIMPLE IRA plan is similar to a SEP IRA in that it allows employers to make contributions to employees’ retirement plans at lower start-up and operating costs than other retirement plans. But with a SIMPLE IRA, employees can also make their own contributions to retirement, which can be less expensive for employers. You must have less than 100 employees to be eligible for a SIMPLE IRA.

Benefits of a SIMPLE IRA include easy setup and maintenance, low administrative costs, tax-deductible contributions, and no filing or nondiscrimination requirements.

If you have a SIMPLE IRA plan, you are ineligible to hold any other retirement plan. You are also required to make minimum contributions to employees’ plans each year, and the contribution limits are lower than those for SEPs and solo 401(k)s. There is also a 25% penalty tax if you withdraw money from the plan within the first 2 years.

No matter which retirement plan you’re considering, we can help you understand how the pros and cons apply to your particular situation, ultimately allowing you to make the best decision for you and your business.

2. Cash Flow Planning for Small Business Owners

In addition to retirement planning, we also assist with the cash-flow side of things. We will help small business owners set up separate accounts for business expenses versus personal expenses in order to ensure all payments are properly allocated. This will streamline the administrative side of the business and allow you to be organized and prepared for tax season.

We will assist with setting up the following accounts:

  • Estimated taxes
  • Cash reserves for business use
  • Cash reserves for personal use

Having separate accounts helps keep track of expenses, making it easy to identify potential tax deductions.  There are dozens of expenses you can deduct as a small business owner.[2]

Here are a few of the most common deductions:

  • Startup costs
  • Advertising
  • Online services and subscriptions
  • Travel expenses
  • Continuing education
  • Software, hardware, and other equipment
  • Health insurance premiums and medical care expenses
  • Home office and supplies
  • Retirement contributions

3. Insurance Protection Review for Small Business Owners

The third pillar of our comprehensive planning for small business owners is an in-depth insurance review. We will make sure you’re properly covered on both the business side and the personal side of things with conversations around the following types of coverage:

Key-Person Life Insurance

As any business owner knows, when it comes to running a company, everyone counts. This is especially true for small businesses where one person may be instrumental in several different roles in the daily operation of the business. Key-person life insurance is a way to protect your business from the loss of a person who is an integral part of your company.

Essentially, you would take out a life insurance policy on the life of your key personnel and the death benefit would go toward making ends meet while you recruit the right replacement. It would give you the cash flow needed to ensure daily operations continue and bills get paid while you replace the key person who was lost.

Long-Term Disability

Did you know that at age 42 you are four times more likely to become disabled than to die during your working years?[3] As a small business owner, a disabling event can be disastrous for both your business and your personal finances. That’s why private long-term disability coverage is essential.

Personal Life Insurance

Life insurance will cover your final expenses, costs of funeral services, and it will provide financial protection for your dependents and loved ones when you pass. This makes it especially important that you carry a comprehensive life insurance plan if you have children or others who depend on you financially. Not only that, but as a small business owner, you may want to consider other types of life insurance if you have business partners who may want to take over your portion of the company in the event you become incapacitated or pass away.

Umbrella Liability Insurance

Have you ever stopped to consider what would happen if you got into a major car accident and you were at fault? Or what would happen if you experienced a disaster in your home? Many times your homeowner and auto policies have limits, and significant catastrophic events can easily exceed these limits. Additionally, many of these auto and homeowner insurance policies have exclusions that list a number of circumstances that are not protected.

Umbrella insurance is extra liability insurance designed to help protect you from major claims and lawsuits. As a result, it helps protect your assets and your future. It kicks in when your other policies have been exhausted, and provides coverage for claims that may be excluded by your other policies.[4] Umbrella insurance can provide coverage for things such as injuries, false arrests, lawsuits, property damage, and more. Umbrella insurance fills in the gaps and completes your protection, allowing you to have total confidence in your coverage.

Taking the Next Step as a Small Business Owner

As a small business owner, you are used to doing everything yourself. But it doesn’t have to be that way. At Washington Wealth Advisors, we can be the financial partner you need to ensure your hard work doesn’t go to waste.

Video Message for Small Business Owners

If you’re ready to take the next step to establish your financial planning strategy, we would love to hear from you! Call our office at 703.584.2700 or email clientservices@washingtonwealthadv.com or schedule a meeting with US to get started today.

 

IMPORTANT WASHINGTON WEALTH ADVISORS DISCLOSURE INFORMATION

 

ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our fiduciary approach, independent advice, and proactive investment management help to support our clients’ overall financial peace of mind.

 

 

[1] https://www.investopedia.com/financial-edge/1010/top-6-reasons-new-businesses-fail.aspx

[2] https://money.usnews.com/money/personal-finance/taxes/articles/self-employment-tax-deductions

[3] https://www.lifeinsure.com/disability-facts-and-statistics/

[4] https://www.geico.com/information/aboutinsurance/umbrella/