If you’re a solo business owner, there is no other skill that is more important than money management. Finance is the flesh and blood of your business. Remember, any kind of financial mistake can invite the vicious cycle of high-interest debt.
You may have to sell your business to get out of debt. Because it is impossible to get out of the huge business debt without the professional debt relief help.
Thus, to avoid business debt, you should take the best steps to secure your small business organization.
Unlike a large business organization, a small business organization is solely linked with your personal finances. You may even have to shut down the doors of your business if you don’t learn how to manage your business finances.
Moreover, the business debt can spoil your retirement. You may not be able to secure your financial future if you can’t manage your business debt.
Here are some skills that you should learn to keep the business debts under control while saving for retirement.
5 Ways a small business owner can avoid business debt
1. Don’t take too many risks
Though it’s a fact that you have to take some business risks to make the best returns, yet when your business finances are in a state of haywire, you must look before you leap. Determine the amount of risk that you may be able to tolerate and stick to take the minimum risk. Don’t overstress yourself as this may have a harmful impact on your commercial life.
2. Diversify your income
As you’re a solo business owner, you must always diversify your income so that you reduce the risk of running short of money. According to business experts, this is the most important mindset shift that the entrepreneurs must adopt if they want to keep debts at bay. Despite making a good amount of profits from your present business, don’t be satisfied. Try to look for secondary sources of income so that you can use the proceeds in paying for your some sudden emergency.
3. Scrutinize every little purchase and look for discounts
You may not be directly involved in making purchases, but try to poke your nose there too! If you leave an entire department of purchasing goods to your employees, you may run into financial problems in the near future. Ask them to buy goods in a bulk so that they may qualify for discounts of various kinds. Check the receipts from the suppliers to avoid any future discrepancies and keep track of the prices in the market.
4. Stay out of high-interest debt
Debt is a business killer and if you don’t want your business to be killed by this evil, try to take all the needed steps to repay the debt at the right time. Keep a written list of all the debt obligations that you owe your lenders and creditors so that you can easily remember making the payments on the due date to avert the risk of being subject to late fees and penalties. You may even resort to business debt relief companies like commercial debt counselors who may help you get back on the right financial track.
5. Start a business emergency fund
Whatever little money you can save here and there, accumulate it and try building an emergency fund. You may be suddenly subject to a financial emergency and lack of funds during that time may compel you to take out loans. Build that fund so that you can utilize the proceeds during such an emergency.
4 Retirement planning strategies a small business owner should consider
a. Determine your future living costs
Small business owners should know what their living costs will be after their retirement. Thus, they can compute how much they will need to live on, in retirement. Some financial service firms (Fidelity, T. Rowe Price, TIAA, and Vanguard) offer online retirement worksheet and calculator for free. You will get a clear knowledge about your future expenses by using these calculators.
b. Hire a financial advisor to get help
Having a retirement plan is important; it will help you to stay motivated while working. A Certified Financial Planner (CFP) can help the small business owners to get a solid retirement strategy. Hire a good CPF to get your own retirement plan.
c. Get the best retirement plan
Some tax-deferred retirement plans are available mainly for small business owners like SIMPLE IRA, SEP IRA, and Solo 401(k). It is important to know about all the options before investing money for your financial future. You can either take help of the CFP about the best-suited retirement plan or read about each plan to understand them.
However, to choose the best plan, you have to take into account how much time you have for planning, how much you want to save, and whether or not you need a big amount for growing the business.
d. Fix the saving amount
Once you know how much money you need to save to secure your retirement, you have to fix the amount that you need to save.
You have to decide the amount you have to save or invest to achieve a secure retirement.
Lastly, securing your financial future while managing a business is only possible when you’re armed and equipped with the steps that can keep your business finances in an organized manner.
If you can’t manage your business finance smoothly, you should seek help from a financial advisor. It will help you to get a proper money management guide to manage your business financial while saving some money for the future.