As an owner, do you ever think about how your business would survive an economic downturn? Many business owners we talk with are concerned about five economic issues that are beyond their control:
- Inflation
- Interest Rates
- Market Volatility
- Access to Capital
- Employee Benefits
With many financial experts discussing the potential for a recession in 2024, along with economic uncertainties that may arise from a heavily contested Presidential election, now is the time to plan for these contingencies. It may be too late if you wait until these uncertainties become realities.
This is where Greenville Fiduciary Investment Advisors can assist you, bringing a unique blend of financial planning expertise that can make a difference for your personal and business needs.
In this blog, we’ll share our thoughts on five financial planning tactics you can take now to be better prepared for any market uncertainty that may present itself in the coming year.
"The secret of getting ahead is getting started." ~ Mark Twain
Financial Planning Tactic #1: Diversify Your Investment Portfolio
As a business owner, you must be flexible and adaptable enough to handle unpredictability, especially when making financial decisions. Ensuring your portfolio is well diversified is one of the key elements in handling unpredictability.
Your primary asset is the business itself. Then there are your investments. Expanding your investment portfolio to include additional asset classes, economic sectors, and geographical boundaries can serve as a counterbalance to market uncertainties. As the old saying goes, “Don’t put all your eggs in one basket.”
Investments in real estate, bonds, and stocks from diverse industries—technology and healthcare—can create a financial buffer. The reasoning is straightforward: industries can react differently to the same economic event. A healthcare stock might remain stable or even appreciate when consumer discretionary stocks fall.
For entrepreneurs like yourself, integrating this multi-tiered approach into your financial plan can reduce the impact of a bad investment on a significant percentage of your assets.
How to Combat the Rising Cost of Capital
As interest rates rise, as a business owner, your cost of capital may require a new strategy. Current debt may get more expensive, and new debt will be more expensive. Ideally, you have enough cash on hand to manage the operations of your business.
Check with the experts. It starts with a comprehensive financial plan custom-tailored to your specific business. For entrepreneurs in Greenville, partnering with a CERTIFIED FINANCIAL PLANNER™ (CFP®) can be a strategic move to combat liquidity concerns when interest rates are rising.
One important step is to evaluate your current liquidity ratio—how much ready cash or easy-to-convert assets do you hold against your current liabilities? A CFP® in Greenville can assist in analyzing this critical indicator to ensure your business isn't caught off-guard by unforeseen expenses or downturns.
Also, reassess your credit options. Establish lines of credit before you're in dire need. In unstable markets, those pre-secured financial lifelines can be invaluable for managing short-term obligations without sacrificing the long-term integrity of your business.
A forward-looking cash flow projection, developed with the expertise of a Greenville CFP®, can give you a clearer view of potential financial pain points, allowing you to plan and act preemptively.
Watch our video: “ CDs-Not for Long-Term Money”
Tax Planning for Business Owners
Another consideration you should include in your financial planning process for your business is taxes. Each year, we see new tax laws implemented or changed that can have a significant impact on your business.
- Be diligent in identifying all eligible deductions. Keep detailed records of business expenses, including travel, equipment, and office supplies. This can reduce your taxable income and lower your overall tax burden.
- Consider establishing retirement plans like a 401(k) or a SEP IRA for you and your employees. Contributions to these plans can be tax-deductible, providing short-term tax benefits and long-term financial benefits.
- Timing can be crucial in tax planning. Coordinate your business income and expenses to minimize your tax burden. For instance, defer income into the next tax year or accelerate deductible expenses when it makes sense for your financial situation.
- Be aware of any tax credits or incentives available to your business. These can vary by location and industry. Our Greenville fee-only financial advisors can help you identify and leverage these opportunities to reduce future tax liabilities.
Offer Employee Benefits Without Breaking the Bank
You can provide competitive employee benefits without straining your financial resources. Following are five strategies to pursue this while also considering more sophisticated tax planning solutions.
- Customize your employee benefits packages to meet the specific needs of your workforce. Conduct surveys or discussions to understand what benefits matter most to your employees. By offering benefits that are highly valued, you can maximize their impact without overspending on unnecessary services.
- Leverage tax-advantaged benefit plans such as Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs). These plans can help employees cover healthcare expenses with pre-tax dollars, reducing their tax burden and lowering your company's payroll taxes.
- Invest in employee education regarding their benefit options. Often, employees may need more clarification on the value of the benefits you provide. By providing clear information and guidance, you can ensure they make informed choices and utilize their benefits more effectively.
- Implement wellness programs to promote employee health and well-being while reducing long-term healthcare costs. Healthy employees are less likely to require extensive medical care, which can lead to lower insurance premiums and potential tax deductions for your business.
- Consider offering retirement plans like 401(k)s or IRAs with employer contributions. Not only does this demonstrate your commitment to employee financial well-being, but it also provides tax advantages for both your business and employees. Employer contributions may be tax-deductible, and employees can benefit from tax-deferred savings.
How Global View Can Help
At Global View, we understand the pressures of running a business. We also have a business to run, and planning for both the expected and unexpected is crucial to your business’s success and ours.
When managing substantial wealth, the focus often shifts from accumulating assets to preserving what you have with a certain amount of growth. At this stage, it is not about chasing the highest returns; instead, it's about leveraging every available advantage to boost your returns while controlling risk exposure.
Tax considerations are also a critical component in this equation. While it's said there's no such thing as a free lunch, optimizing the tax efficiency of your investments is the easiest way to improve your net, after-tax returns.
In addition, as a business owner, estate planning is a cornerstone of comprehensive wealth management. The aim here is twofold: firstly, to maximize the inheritance for your beneficiaries by minimizing the tax bite, and secondly, to remove any guesswork or conflicts they may experience when the time comes.
If you’re ready to get serious about financial planning for business owners, connect with us today.
