Are you a small business owner? If so, then allow me to give you a big “high five” for propping up the American economy at a time of uncertainty and lots of negativity.
Studies consistently show that small businesses – that is, businesses loosely defined as independently owned and operated, not dominant in their market or industry, and with a modest number of employees – employ more than half the American workforce.
However, recent studies also suggest that startups have declined and failure rates of these small businesses have accelerated. And with that comes the never-ending news from naysayers and news outlets, which then fuels the data for these studies. It’s a vicious cycle that becomes a self-fulfilling prophecy.
I am here to tell you that you don’t have to pay too much attention to it, and that failure does not have to apply to you, your business, or your next big idea. In fact, I am betting on your success, and I am making some powerful, simple suggestions to help you on your way.
Follow these steps and become the CEO of your own future:
Incorporate. A lot of new business owners overlook this step because they are small mom-and-pop organizations called “sole proprietorships.” In those cases, it pays to start out by creating an S-corp. This tax status allows the owner – usually a one or two-person shop – to treat themselves like an employee. They have to pay themselves a reasonable wage, and they are eligible to receive disability or unemployment benefits. This is a helpful safety net for a family if dad’s or mom’s business is foundering. Another incorporation status is the LLC, which provides some protection from liability but can also garner more attention from various authorities in certain states because they are so widely used (and abused).
Set up a defined benefit plan. This works hand-in-hand with incorporation. Once a business owner has completed that step, they can set up a defined benefit plan to make sure employees (i.e., themselves if they are a small enough operation) get fixed monthly payments in retirement based on their earnings, tenure and age, among other things. The owners have a reasonable expectation of what they will receive in retirement based on their own hard work, instead of depending on investments to fund their lifestyle after their working years.
Purchase life insurance. Using after-tax dollars, fund a life insurance policy for retirement – or other expenses that pop up. If an emergency arises, these accumulated funds can be tapped to cover them without paying a penalty (i.e., taxes). Policy holders can also loan themselves funds from the policy and can pay them back once conditions improve. However, they are not required to do so. These policies earn interest by being anchored to the performance of major stock indexes, yet maintain a certain “floor” if those indexes tumble. This limits losses and provides more flexibility than traditional retirement accounts.
Invest in real estate. Many financial planners will recommend buying money-making tools from which they receive a commission. At Palma Financial Services, we stress the value of real estate as an investment option. If a small business owner also purchases the building they occupy, they are lining up expenses for an overall maximum benefit to themselves. First, they are paying rent to themselves, not a third party. This money goes toward an asset, not into someone else’s pocket. Second, owning the building creates a tax haven by allowing them to claim the depreciation of the building in their tax returns.
And finally, it’s important to refresh your mind and spirit. Play golf, ride a bike, go hiking or pursue a hobby. If business owners join a group that enjoys the same interests, it can be a great way to network and drum up business.
In the meantime, keep your distance from the dire financial news.
We have to realize that there is still a lot of money there. There’s plenty of money. I just finished tax season, and many of my clients are still amazed at how much money they were making. You have to refocus when the economy is bad. But there’s only so much of that you can do. You have to look inside. And the No. 1 way is to get away from the naysayers. Get those negative vibes out of your head, and launch something that will make the world a better place.
Check out these links for additional resources to help start a new small business:
Small Business Administration
This entity is backed by the federal government and offers excellent advice on business plans, structures of organization, low-interest loans and more. This page collects many useful resources in one spot.
Small Business Trends
This award-winning online magazine was founded 10 years ago by a corporate attorney and covers all topics related to small businesses. Want to know which industry you should NOT enter? This handy list of failure rates of small business BY SECTOR for 2012 helps you avoid pitfalls before you get started.
This online and print magazine is a must-read for any small business owner. Chock full of the latest ideas, it offers dozens of handy tips across a variety of categories. This page gives great advice for a successful “exit strategy” – that is, the moment you sell the business and move on. On the other end of the spectrum, Inc also offers this page for advice for small business financing.
Like Inc, this online and print magazine should have a place in the office. Its content is eye candy for anyone who wants to start a new business. This page discusses a very important step that will help make a small business successful: knowing who the customers are, how the product or services is different than the competition, and how can it grow.
For more helpful information on a variety of business-related topics, check out our Articles page.