Start the New Year Off Right
4 must-make money moves to position your personal and business finances for 2010
The beginning of the year is a great time to take stock and do some financial planning for the new year. Here are four strategies for starting 2010 on a good financial foundation.
- Set up retirement plans
Start a retirement plan that will benefit you and your employees. Each dollar you save will lower your taxable income, give your business additional tax deductions, make your employees happy and give you an edge in employee retention. Plus, you'll build your own retirement nest egg. Depending on the size of your business and how much you want to save, you have several options:
. Solo 401(k): Solo 401(k) plans allow you to save more than other plans and are the newest retirement plan for the self-employed. "This one is best for business owners where there are no employees except the owner and a spouse and they want high contribution limits," says Bonnie Hughes, a certified financial planner with American Capital Planning in Reston, Virginia. You can make employee contributions of up to $16,500 in 2010 (with an additional $5,500 if you're over age 50), plus a profit sharing contribution worth up to 25 percent of your compensation, for a total maximum contribution $49,000 (or $54,500 if you're over age 50). You can borrow against these plans, too.
. SEP-IRA: SEP-IRA stands for Simplified Employee Pension Plan. Hughes likes these for those who don't think they want to borrow against their plan (because you can't) and for those who want to include employees. You can make up to a 25 percent match the employee's SEP-IRA account, up to $49,000 for 2010. This plan offers flexibility. In a tough year, you can contribute less, or nothing, for your employees, and in a good year you can contribute more, as long as you contribute the same for each employee.
. SIMPLE IRA: Eligible employees can save up to 100 percent of their salaries up to $11,500 for 2010 (or $14,000 for those over age 50). "A potential drawback is that employees must receive a one to three percent match subject to various rules," says Amy Noel, a certified financial planner based in Boulder, CO.
Before choosing a plan, talk with your CPA about which plan is best for your business. (Don't have a CPA? Read on!)
- Meet with your CPA
Calling a CPA a few weeks before the April 15 tax filing deadline may get the job done, but it won't help with year-long planning.
CPAs can do more than prepare tax returns. They can help you find tax saving opportunities, and because it's their job to stay up on continuously changing tax laws, they'll keep you posted on changes that impact your business.
"There is too much for an entrepreneur to keep up with so unless your business is being a CPA, let them give you this guidance each year and then execute it," Hughes says.
To find a certified public accountant in your area, try the American Institute of Certified Public Accountants .
- Meet with your business banker
Your business may not need cash right now, but in this credit and business environment, you must prepare for the unexpected.
Shop around at local banks and credit unions and establish a relationship with someone who is willing to get to know your business. Look for a bank that not only is willing to lend, but one that also keeps rates and fees competitive, Noel said.
Noel said it might make sense to have more than one banking relationship--you never know which banks will be around five years from now.
After you find a banker, work to establish lines of credit so you'll have funding available when you need it.
- Review your budget
Business budgeting is critical. Get a handle on expenses and realistically assess your cash flow needs. Guessing will only lead to trouble down the road.
Noel says businesses that are realistic, rather than those that make decisions on hope, will endure when the economy turns around.
"Especially now, the old adage really holds true: Those who fail to plan, plan to fail," she says. "Anything you can do to get more aware of your current situation will help you become one of the survivors."
Keep your recordkeeping and budgeting simple. Start with online business planning programs or use personal finance software such as Quickbooks.
As your business grows, you may want to hire an administrative employee such as a bookkeeper or a clerk.
Bookkeepers charge from $35 to $75 per hour, and while that may not be cheap, it can save you much more than you spend, said Hughes.
It will allow you to concentrate on your most important job: growing your business.