Owning your own business is one of the most risky investments you can have. Whilst you take on more risk being in business, ideally the returns should also be bigger –whether it is financially or non-financial through flexible work conditions or work life balance.
As a business owner, there are some important financial aspects that should be considered to ensure that you aren’t disadvantaged compared to being an employee.
Risk: One of the considerations when being in business is the risk to your family home or assets, should the business find itself in hot water. Separating this risk from your personal assets should be considered. For example the husband may hold the risk by being the director of the business and the wife may hold the personal home in only her name.
Superannuation: Whilst most employees have Super Guarantee of 9% of their salary paid into superannuation, nearly 50% of business owners aren’t paying super for themselves and are relying on the sale of their business to be their retirement fund. Selling your business is never guaranteed so paying yourself superannuation along the way is a great way to assist in your long term retirement planning. Ideally your super contributions should be the same as if you were being paid as an employee working for someone else.
Wage: Paying yourself a market wage is always a hot discussion point as most business owners say that they only get whatever profit is left at the end of the day. It is important to make sure that you are being rewarded for being in business and one way to make the business accountable is to pay yourself a market wage.
Diversify: If your business is making good profits, it is important to diversify. By taking some profit out of your business and investing in passive assets such as term deposits, shares or property allows you to diversify your investments but also builds up money outside of the business for a rainy day or retirement.
Finally keeping your finger on the pulse is the key. According to the Bureau of Statistics only 58% of Queensland businesses survived in 2011. Now more than ever, holding good levels of cash, reviewing your numbers on a more regular basis and seeking strategic advice from a specialist financial planner is essential.
Olivia Maragna is the co-founder of Aspire Retire Financial Services and has been recently named the Australian Adviser of the Year. She is providing finance advice as part of brisbanetimes.com.au's Good Advice project. Olivia's advice is general in nature and readers should seek their own professional advice before making any financial decisions.
Send your finance questions to Olivia at scoop@brisbanetimes.com.au or contact@aspireretire.com.au
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