As a small business owner, you’re not just building a company—you’re creating a legacy. Yet, according to the U.S. Small Business Administration, only 50% of small businesses survive their fifth year.[1] This sobering statistic highlights why comprehensive financial planning is essential for both business sustainability and personal financial security.
The Unique Financial Challenges of Small Business Ownership
Small business owners face a distinct set of financial challenges that employees don’t encounter. A 2023 Federal Reserve survey found that 73% of small business owners reported financial difficulties, with cash flow management being the primary concern for 82% of respondents.[2]
Unlike employees with steady paychecks, retirement benefits, and employer-provided insurance, small business owners must create these financial safety nets themselves. This requires strategic planning that integrates both business and personal finances.
Essential Financial Planning Components for Small Business Owners
1. Cash Flow Management
Effective cash flow management is the lifeblood of any small business. According to a U.S. Bank study, 82% of business failures are due to poor cash flow management.[3] Implementing robust cash flow forecasting, monitoring, and management systems provides the foundation for all other financial planning.
Action steps:
- Maintain separate personal and business accounts
- Establish emergency funds for both business (3-6 months of operating expenses) and personal needs (6-12 months of living expenses)
- Implement accounting software that provides real-time cash flow insights
- Consider working with a financial advisor who specializes in small business finance
2. Retirement Planning Beyond the Business
Many small business owners make the critical mistake of viewing their business as their retirement plan. A TD Ameritrade study revealed that 42% of small business owners aren’t confident they’re saving enough for retirement, and 38% don’t have a retirement plan at all.[4]
Action steps:
Explore retirement plan options such as:
- SEP IRAs (ideal for solo entrepreneurs)
- SIMPLE IRAs (for businesses with fewer than 100 employees)
- Solo 401(k)s (offering higher contribution limits)
- Traditional 401(k) plans (for larger small businesses)
- Diversify investments beyond your business
- Consider how your business fits into your retirement strategy—whether through sale, succession, or continued income
3. Tax Strategy Optimization
Small business owners have unique tax planning opportunities. The Tax Foundation reports that small business owners spend an average of 19 hours and $1,110 per year dealing with federal taxes.[5] Strategic tax planning can significantly reduce this burden.
Action steps:
- Structure your business appropriately (LLC, S-Corp, etc.) for tax advantages
- Maximize deductions through careful record-keeping
- Consider timing of income and expenses
- Explore qualified business income deductions
- Implement retirement plans that offer tax advantages
4. Risk Management and Insurance Planning
Risk management extends beyond basic liability insurance. According to the Insurance Information Institute, 40% of small businesses never reopen after a disaster.[6] Comprehensive risk management is essential for business continuity.
Action steps:
- Assess insurance needs for:
- Business liability
- Property and casualty
- Business interruption
- Key person insurance
- Cyber liability
- Review personal insurance including life, disability, and health coverage
- Create business continuity plans for various scenarios
5. Succession and Estate Planning
Only 30% of family businesses survive into the second generation, according to the Family Business Institute.[7] Succession planning is crucial whether you plan to sell the business or pass it to family members.
Action steps:
- Develop a clear business succession plan
- Create a comprehensive estate plan including wills, trusts, and powers of attorney
- Review and update beneficiary designations regularly
- Consider life insurance to provide liquidity for estate taxes or business buyouts
The Value of Professional Financial Planning
Working with financial advisors who understand the unique challenges of small business ownership can provide tremendous value. A CNBC survey found that 96% of business owners who work with financial advisors feel more confident about their financial future.[8]
At HBKS, our team of financial advisors specializes in creating integrated financial plans that address both business and personal financial goals. We understand that your business isn’t just your livelihood—it’s your passion and legacy.
Implementing Your Financial Plan: The Next Steps
The path to financial security begins with a comprehensive assessment of where you stand today. Consider these initial steps:
- Assess your current financial position for both business and personal finances
- Establish clear financial goals with specific timeframes
- Create an integrated financial plan that aligns business and personal objectives
- Implement the plan with appropriate financial products and strategies
- Review and adjust regularly as your business evolves and market conditions change
Conclusion: Building a Financial Foundation for Success
Small business ownership offers tremendous rewards and challenges. By implementing comprehensive financial planning strategies that address both business and personal needs, you can increase your chances of long-term success while building personal financial security.
While the financial plan is the foundation of a successful business, small business owners and entrepreneurs may wish to seek other resources to help the sustainability and growth of their business. Organizations like the Chamber of Commerce, Small Business Development Center, and your local government’s planning and development office are great resources for additional assistance.
Remember, financial planning isn’t just about protecting what you’ve built—it’s about creating the freedom to grow your business with confidence, knowing that both your business and personal financial futures are secure.
Contact HBKS today to schedule a consultation with our team of financial advisors who specialize in small business financial planning. Together, we can create a roadmap to help secure your business legacy and personal financial future.
Important Disclosures
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
HBKS Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
The historical and current information as to rules, laws, guidelines, or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified but was obtained from sources believed to be reliable. HBKS Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
Investment Advisory Services offered through HBK Sorce Advisory LLC, d.b.a. HBKS Wealth Advisors. Not FDIC Insured – Not Bank Guaranteed – May Lose Value, Including Loss of Principal – Not Insured By Any State or Federal Agency.
References:
[1] U.S. Small Business Administration Office of Advocacy, “Small Business Facts: Survival Rates and Firm Age,” 2022.
[2] Federal Reserve Banks, “Small Business Credit Survey: 2023 Report on Employer Firms,” 2023.
[3] U.S. Bank, “Small Business Failure Analysis,” 2020.
[4] TD Ameritrade, “Small Business Owners Survey,” 2020.
[5] Tax Foundation, “Compliance Costs of IRS Regulations,” 2022.
[6] Insurance Information Institute, “Business Continuity and Disaster Recovery Planning,” 2021.
[7] Family Business Institute, “Succession Planning Statistics,” 2022.
[8] CNBC and Financial Planning Association, “Business Owner Financial Confidence Survey,” 2022.
