Wealth management for small business owners can be difficult most times. As a small business owner, it can be a point of pride to watch your dreams translate into equitable profits.
However, the road to success has many potholes to avoid and expressways to take, if you recognize them in time.
With the vast array of personal finance knowledge out there, it can be tricky to figure out which advice is the best fit. This article would guide directly on strategic wealth management for small business owners.
What Wealth Management Entails
Wealth management is an advisory service that combines business planning and expenditure, to preserve wealth. In other words, wealth management is the practice of handling the assets of individuals and businesses.
The advantages of competent wealth management are numerous and varied, but they all revolve around one thing: giving you financial peace of mind. Others include;
- Helps you set goals & make strategic financial planning.
- Enlightens you with investment ideas.
- Provides your family with financial security.
- Helps eliminate financial stress.
- Provides as a source of income—with all those management knowledge, you can function as a consultant for others and get paid.
- Stabilizes your businesses and makes growth consistent.
10 Highly Effective Wealth Management Strategies for Small Business Owners
While building wealth, there are some simple steps we need to take in other to manage that wealth. Below we have listed the best and most effective steps to manage wealth for small businesses.
- Keep Personal And Business Finances Separate
- Pay Yourself First
- Treat Personal Finances The Same As Business Finances
- Stay Liquid And Plan Accordingly
- Surround Yourself With Experts
- Don’t Hold Excess Capital In Your Business
- Start some Contributions
- Cut/Minimise Costs
- Debt Reduction
- Know Your Numbers
1. Keep Personal And Business Finances Separate
Tales of folks “betting the house” to keep their business going may cause owners to take an inappropriate risk. Personal savings are for your family, so try to make them a last resort for your business.
2. Pay Yourself First:
Many times, small business owners want to reinvest all their money back into the business.
You may be thinking you’ll make more money than in the stock market; however, that is a short-term investment strategy. Do not invest all of your money into your business.
I believe you need to be saving 10–20% of your gross income for your long-term goals.
3. Treat Personal Finances The Same As Business Finances:
Just as you analyze your business’s income statement, cash flow projections, and balance sheets, you can do the same thing for your personal finances.
You can manage your expenses to increase your savings and investments in your retirement accounts and other assets to create stability in your personal life.
Not properly managing your personal finances can lead to trouble in your business.
4. Stay Liquid And Plan Accordingly:
Being able to withstand storms is an integral part of a business’s long-term survival. As you grow your business, make sure to try and keep 6 to 12 months of your expenses in liquid reserves at all times, i.e. saved in your bank account.
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Also make sure you have the proper protections and plans set up, like disability and health insurance. You can have a whole life insurance policy set up as well to make use of it in the future if need be.
5. Surround Yourself With Experts:
Small business owners often fail because they make decisions without finding out the facts from experts. Build a small network of key contacts to have at your fingertips.
For starters, you can look for a lawyer, an accountant, and a tax advisor. Also, if that’s above your budget, you can source relevant tips on the internet, follow influential business pros, and learn from their methods.
6. Don’t Hold Excess Capital In Your Business:
As many great investors have written, I believe diversification is critical to success. If you’re holding excess cash in one business, you may not be diversifying that capital effectively.
It possesses the same risk profile as your business, i.e. if your business crashes, all the money crashes with it. You can pull some money out and invest in something else.
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7. Start Some Contributions
In some parts of the world (Nigeria), it’s known as “akawo.” It’s something that sustains petty traders and even wholesalers. Could be weekly, daily, or monthly.
Invest a part of your earnings into contributions and watch it come back as passive income. If you’re scared of local collectors, you can do this in the bank—there are top-ups for continuous, untouched savings.
But while doing this you need to set make sure you are dedicated and consistent with it. You allow it for 1 year, 2, 3, or even more.
8. Debt Reduction:
While borrowing makes sense when cash flow is low or a business is in a period of growth, too much debt can end up being a heavy burden. Reduce borrowing.
9. Cut/Minimise Costs:
Lower expenses, and identify when spending is unnecessary. Do you have unused space or equipment? Consider selling it off. Is payroll to blame? Cut back on overtime and excess staffing as much as possible.
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10. Know Your Numbers:
Track everything that you spend, no matter how small. The bigger things are easier to remember, but it’s the small stuff that really adds up.
Book some time in your calendar every month to look at your numbers. When you are figuring out what to charge for your products or services, the first step is to know your numbers.
You need to know all of the business expenses, your time involvement, intellectual property (i.e. your innovative, lucrative ideas), and value are also big determining factors.
So far, we’ve been able to successfully go through the proficient strategies for managing our small business, and have also looked at a few beneficial outcomes.
To avoid further issues concerning poorly managed funds, wastage, and bankruptcy in business, do well to implement these strategies and recommend them to colleagues.
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Though following these tips on Wealth management for small business owners may be best with a single struggling business.
You need to understand that starting another business while the first business is still struggling may have a negative impact on both businesses and make the above tip not work. You can follow this article if you already own multiple businesses.