Business Planning - Retirement, Savings, Crisis
Businesses do not survive without business plans. A business plan is not a one-time build either. There are many areas of focus, and planning is extremely broad. Currently, still in a pandemic, we want to cover 3 areas. Retirement accounts, savings accounts, and crisis planning.
Retirement Planning As a business owner, you are self-employed. Meaning you are on your own. You must begin putting money away for retirement. The SBA reports that small business owners over 50 are later to retire, and some never do.
There are a few options to consider when it comes to retirement planning, and of course, it depends on the company's size. For "solo-prenuers," a SEP-IRA is a great option. This is our opinion. We are not retirement experts but, we can put you in touch with someone who is.
You can contribute up to 25% of your annual earnings with a SEP-IRA and contribute when earnings are down. However, for companies with employees, the business must match employee annual contributions to what the owner contributes to themselves. This can be a turn-off for small businesses with employees but still something to consider.
Other Retirement Planning Options:
Solo 401(k) - This is an option offered to self-employed individuals and their spouses.
Account-holders can elect to defer up to 100 percent of their earned income. In addition, the account holder can contribute up to an additional 25 percent of their earnings per year.
If your business acquires $250,000 or more in assets, the account holder must file an annual report.
Traditional or Roth IRA - Annual contribution options for both types of accounts are the same. The difference lies in how the contributions for each account are taxed. Traditional IRA contributions are pre-tax dollars, and ROTH contributions are after-tax contributions, and future withdrawals are tax-free.
If you plan on your income growing substantially up until you retire, you may find a ROTH IRA as the best option, as contributions are based on your current tax bracket and not your retirement tax bracket. However, if you plan for your income to be significantly less when you near retirement, you may find a Traditional IRA the best option. Traditional IRA contributions are based on your tax bracket at retirement age. Again, we are not the experts on retirement planning but can refer you to someone.
All of the accounts mentioned above, from a SEP-IRA to a Solo 401(k), Traditional IRA, or a ROTH IRA, are all tax-advantaged accounts. You want to find a trusted advisor to give you guidance on allocations and investments.
Savings Accounts A business savings account is an account opened to save extra capital and potentially grow those funds. There are three main types of business savings accounts.
General Savings Account - This is a liquid account that can be withdrawn from regularly if needed. With this type of account, there is usually interest accrued based on the balance in the account. Typically there are free withdrawals for a certain number of withdrawals per month.
High Yield Savings Account - Depending on how much your business is bringing in, a high yield savings account could be a great option. Similar to a general savings account, you can deposit and withdraw money as needed. However, High yield savings accounts offer substantially higher interest earnings and usually come with a minimum deposit amount within a time frame and monthly fees. This could be a great option for a business looking to grow the business savings quicker than in a general savings account.
Certificate of Deposit Account - A Certificate of Deposit or CD account is an option, but it is the most limiting option. The money you deposit into a CD is strictly meant for investing. Once your money is invested, you cannot access this money without incurring an early withdrawal penalty. Interest rates can be comparable to high yield savings accounts.
This is a great conversation to have with your accountant (we can help with that).
Crisis Planning Given circumstances surrounding the pandemic and shutdowns due to protests, one should understand that businesses can slow down or stop operations for many reasons. A crisis usually happens unexpectedly, and there is no telling how long it can last. Our best gauge when it comes to timeframes would be history. However, there are no guarantees there either. It is your job to protect your business the best you can by planning ahead. Here are 6 simple steps to building a crisis plan for your business that we pulled from a great article by RockDove Solutions.
6 Simple Steps to Building a Crisis Plan for Your Business:
1. Assess your risks.
Identify potential issues and crises that would disrupt your business function and/or processes. Work with leadership, your crisis response team, and other key stakeholders to begin listing all relevant threats and vulnerabilities that could impact the organization. These might include public relations blunders, social media gaffes, product recalls, cyberattacks, workplace issues, and extreme weather events.
2. Determine the business impact.
A business impact analysis (BIA) qualifies the potential impact of a business-disrupting issue.
Completing a BIA can reveal a variety of impacts, including:
Customer dissatisfaction or attrition
A damaged reputation in the public eye
Lost or delayed sales or income
Increased costs
Regulatory fines
3. Identify contingencies.
Now that you have determined what risks could impact your business, you can begin identifying which actions will help your organization respond effectively to each threat.
4. Build the plan.
Once you have determined a contingency for each potential threat, flesh out the plans by working with relevant stakeholders. Key employees, such as department supervisors.
5. Train your staff All employees must understand their roles during a crisis. Stress and panic can make it difficult to remember your role in crisis response.
6. Revisit the plan frequently. Once your plan is written and approved and has been tested, be sure to revisit it frequently. It is vital to keep the plan up to date, especially as employees join or leave the company, new technologies are implemented, and other changes occur.
We think this is enough for one blog, right? We hope this information was helpful. Please do not hesitate to reach out to us at Touche Financial Solutions for all of your accounting needs. We are here for you.