What Every Small Business Owner Should Do - According to a Financial Advisor

Running a small business is a dream for many—but behind the freedom and flexibility comes a mountain of pressure. Whether you’re going it alone or managing a business with partners, the reality is this: you’re not just wearing the “owner” hat. You’re the operator, strategist, HR department, bookkeeper, and sometimes even the janitor.

What often gets lost in the shuffle? Long-term financial security. Retirement. Risk protection. Tax efficiency. The things that matter for owning a business can be administratively cumbersome and are often put on the back-burner of priorities.

As a financial advisor, I see it all the time: successful entrepreneurs juggling cash flow, growth, and payroll—but leaving themselves and their business personally exposed.

Here are some of the most common risks small business owners face, especially where strategic financial planning makes a difference:

• Lack of Retirement Planning: No 401(k), SEP IRA, or defined contribution plan in place—relying solely on the hope of selling the business one day.

  
  

• Co-Owner Conflicts & Succession Planning: No buy-sell agreement to protect the business if a partner exits, dies, or becomes incapacitated. Will the business continue to run if you or a partner are no longer around?

  
  

• Mismanaging Personal Finance:  Failing to leverage available tools and resources to minimize taxes.

In the sections ahead, we’ll explore proven strategies that help business owners build wealth, reduce taxes, and safeguard their hard-earned success—while still focusing on the day-to-day grind of running a business.

Small Business Retirement 101

Setting up a retirement plan may not be as complex as you think. Company 401K plans are not exclusively for large corporations and not every plan needs to be administered directly by an annuity or life-insurance company. The plans can also be flexible enough to either be Top-Heavy and focus on benefits for the owner directly or non-discriminant and available for all employees to participate. Contribution rates might vary but these plans are specific for the size and type of company that they pair with.

• Self-Employed 401k

  Good for sole proprietors and single-member LLCs. Business owners can make their own employee & employer contributions much like one would if traditionally employed. Contributions are deductible from ordinary income and it requires minimal administration requirements for the IRS and business records; custodians may provide this.

  
  

• Simple 401k

  Preferrable for employers having 2-100 employees, it's similar to a 401k. Employers are required to provide matching contributions for employees. Between a traditional 401k and a Simple 401k, a Simple plan will have lower contribution caps and won't have loan provisions or vesting schedules (everything is 100% vested).

  
  

• Simplified Employee Pension (SEP)

  Great if you are a small company with a handful of W2 employees. The employer can use limitations on who is eligible to participate in the plan and all contributions are employer contributions deductible to the business directly. Useful for small business' with uneven cash-flows. Has no filing requirements with the IRS, simply an itemized business deduction directly into a tax-deferred account. Taxes are paid at distribution during retirement, as it is with all retirement plans, 401k, simple, etc.

Co-Owner Conflicts & Succession Plan

Going into business with friends, family, or trusted colleagues requires deep trust—not just in their character, but in their judgment, skills, and commitment. Disagreements happen. But the real disruption comes when something truly unexpected occurs: the death of a key partner… or even your own.

As a business owner, you’ve invested years of time, energy, and money into building something valuable. But much of that value depends on you and your closest partners. If one of you passes away, the financial impact can ripple through the company. Operations may stall. Clients may leave. Confidence could drop.

But what if you are the one who passes away?

Will your family be able to step in? Will they have the financial resources—or the experience—to keep the business running? Could they sell your share at a fair value? Or will they be left scrambling, forced to accept less than what you built?

• Key-Person Insurance & Buy/Sell Agreement.

  This strategy is setup to provide an insurance policy in the event a business partner suffers a critical illness or death. The business would then be able to buy out ownership. Suppose an agreement is not established in advance, a partner would have to seek ownership directly in probate or work with family members that might have little interest or experience in the business.

  
  

• Executive Bonus Plans

  This compensation structure is to provide business partners or key persons with some monetary compensation in exchange for additional time with the company. Using a Section 162 plan, also called an Executive Bonus Plan and 'golden handcuffs,' the business can fund a cash value life insurance policy. The business pays a premium as bonus to the employee, deductible to the business, and the employee sets their own beneficiaries. A "restricted endorsement" can be added so the employee can't access the funds until certain conditions are met. Funds can be accessed later as a loan or a withdrawal.

  
  

Both of these strategies mitigate severe catastrophic risks to the business as it relates to its human capital but they also provide very important protection when you need it most. The benefit of having a cash-value based policy is the leverage that comes with it, having the ability to surrender it to cash (minus a charge), or take a loan on it. Insurability is still a requirement, the primary benefit being a death benefit. The payment for a claim is income-tax free, but not estate-tax free, so proceed with caution and work with a trusted life-insurance expert before establishing a plan.

Additional Tax Incentives Plans

Beyond retirement savings plans and risk-mitigating business deductible insurance, there are smaller personal ways where business owners can take full control of their wealth management. As such, here is a short list of different tools to take advantage of as a business owner:

• Health Savings Accounts: Taking care of your health is as certain as death and taxes. Contributions to these accounts are tax-deductible and investment gains are tax-free when used for qualified medical expenses. Only those with a high-deductible medical plan can open and contribute to these.

• Education Savings Accounts: If its a mix of Coverdell ESA or a Section 529 Plan, contributions are using after-tax funds; however, the growth is tax free when used for qualified education expenses.

• Tracking and using Depreciation: Either using a straight line depreciation or using a Section 179 Deduction can help maximize depreciation and offset income taxes.

• Itemizing Car Expenses: If you use your car for business, and I'm not talking about the commute, your car must be used to transport materials, people, or otherwise conduct business, then there are two ways to itemize:

  • flat rate of $0.65 cents per mile of usage

  • Itemized expenses for car maintenance, insurance, and gasoline.

Conclusion

As a small business owner, you're already balancing many roles. But managing your finances shouldn’t add unnecessary stress to your plate. By taking advantage of strategic tax and retirement planning, risk mitigation strategies, and specialized compensation plans, you can safeguard your business and secure a brighter financial future for yourself, your family, and your employees.

Working with a trusted financial advisor can make a significant difference in how you manage your wealth and taxes. A financial advisor will help you identify opportunities to reduce taxes, protect your business from potential risks, and implement strategies that allow you to focus on growing your business rather than worrying about financial complexities.

Let a professional guide you through these intricate decisions, save you time, and reduce stress. Feel free to like and follow us on Facebook and Linkedin for more.