Harvey G. Beringer, CPA

Small Business Owner’s Characteristics

Small-business owners are different from their counter-part in the large corporate world.  They tend to be hard-working, highly focused, smart and tenacious.  They have to be since businesses with fewer than 20 employees have only a 9 percent chance of surviving a decade.  Some are successful despite themselves, but fail when it comes to the planning stage.  Their tendency to hone intensely on their business results in them neglecting their personal financial planning.

Employee Benefits

They do not implement proper benefits, such as retirement plans, life and disability insurance and health insurance.  Too many small business owners fall into this class.  Benefits are often a low priority when one begins a business.  Costs may be prohibitive and such benefits are not reconsidered, however the absence of such benefits can play a crucial part in the difficulty of recruiting and the quality of new employees.  As a company grows, they may qualify for discounts that would greatly reduce the expense/employee.

Providing for Family

If the unexpected occurs, they have not properly provided for it.  They probably scrimp on disability or life insurance.  They think that because their business may be worth millions, their family will be taken care of after the business is sold.  This could be a very time consuming process and the business could be worth far less without them.

Saving Money Outside of Business

Small business owners may fail to save for their future because they are so focused on their business and pour money and time into it.  Growing and prospering override saving.  This may be why small business owners work far longer than they planned to –well into their 70s and even 80s.  They never drew sufficient cash out so they would have no other choice but to continue working.

Steps should be taken to prevent this outcome.  Retirement plans need to be funded during profitable times and investments made in a diversified portfolio.  Diversification can help lead to a comfortable retirement.

Business Credit and Loans

Many small business owners rely entirely on personal credit to finance their business venture.  They do not use business loans or establish business credit early on.  Personal credit may be the only option when starting a business but steps should be taken as soon as possible to secure proper financing as the business grows.  Unless owners sink their own finances into the business, growth will be stymied.  It is recommended that a minimum line of credit be secured early on in the business name.  This should be increased over time to show banks and other institutions of the ability of their cash flow to support such credit.