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Six Misconceptions That Could Hurt Your Financial Future

financial planning_bodyThere are six common misconceptions that business owners make that can compromise their company and personal finances. Each of these highlight common missteps in running the financial side of your business, which in turn can affect your company and your future.

There are several indicators that can be used as a good barometer for where you are today. By considering potential errors in your current conception of business finance, you can work toward implementing solutions that will ensure your assets and financial future are secure.

1. “I Know the Value of My Company”

Most business owners could tell you what their company is worth, but the amount can often be misleading, even to the business owners themselves. The valuation of a company is a multi-faceted figure, and calculating it correctly is a complex task.

To know whether or not you can be confident in knowing the current value of your business, ask yourself the following:

  • In the past 12 months, have my reimbursements increased?

  • Do I have control over my career and future earning potential?

  • If I have capital investments, am I satisfied with the return am I getting from those investments?

  • Can I predict the stability of my current position or industry?

  • Do I preform a yearly review of my estate and my company’s finances?

2. “I’m Too Busy Running My Business to Worry about Financial Planning”

Finding the time to coordinate personal and business financial plans can often get put on the back burner again and again. Ask yourself these questions to get an idea of how up to date you are with your finances:

  • Do I have a will that is up to date?

  • Do I have a plan to retain key employees if something happens to me?

  • Have I had my trust and estate plan reviewed in the past three years?

  • Are my assets protected from potential litigation?

3. “I Have Plenty of Time to Plan My Financial Future”

Running a company is hard work, and time consuming. We all inevitably end up putting off planning for our financial futures until the future, but this isn’t always the best strategy. Ask yourself:

  • Do I know when I want to retire?

  • Do I know how much income I will need in retirement?

  • Do I know how much control in the company I must maintain to secure my retirement income?

  • Have I started creating replacement income from other sources?

4. “You Can’t Beat Uncle Sam”

It’s probably not your job to know the in’s and out’s of tax codes, but having the right tax strategy is a crucial step in knowing, understanding, and maximizing the value of your company. If you’re unsure about whether you are fully taking advantage of the best tax strategies for your company, consider the following:

  • Have I determined my financial goals?

  • Am I proactively planning to deal with the changes in tax laws?

  • Will any sources of my retirement income be tax free?

  • Am I working with financial experts?

5. “My Business is Invincible”

We can’t always predict the turning of the world, and sometimes even the soundest foundations can collapse without much warning. Don’t get caught in the trap of thinking that your company or industry is untouchable, or “that will never happen to me.” To make sure that you’re being realistic about vulnerabilities, ask yourself:

  • Do I have a formal succession plan prepared and on file?

  • Does my succession plan have a provision for disability?

  • Do I have personal disability income insurance coverage?

  • Do I have contribution protection for my retirement account if I become disabled?

6. “I’ll Be Able to Retire on the Sale of My Company”

Your company is very likely a good nest egg for your financial future, but that doesn’t mean that it’s a good idea to not diversify your retirement plans. If you want to make sure you’re covered from all angles when you decide to stop working, consider the following:

  • Do I have investments other than my company?

  • Will my retirement funding come from more than four sources?

  • Do any of my retirement assets have guaranteed returns?

  • Have I had my retirement income projected and analyzed to identify shortfalls?

There are a lot of misconceptions out there amongst business owners that could be getting in the way of a successful financial future. Seeking expert advice can provide the insight and guidance necessary to identify, anticipate, and avoid these financial pitfalls. One way to get ahead of the game is to read up on the Seven Step Exit Planning process here.

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