For most American workers, managing household finances is fairly straightforward: Draw a salary, enjoy company benefits, and save for retirement through the firm's plan.
For business owners, though, the path to financial security is hardly straightforward. While entrepreneurship can certainly be a pathway to generational wealth, success isn't guaranteed—and getting there can be extremely challenging.
There are roughly 36 million small business owners across the country, according to the Small Business Administration (SBA), accounting for 46% of private sector employment. Every day entrepreneurs have to grapple with issues like dealing with cash flow; mixing business and personal finances; retirement planning on their own; and handling insurance coverage for both themselves and their workers.
How can I navigate unpredictable income and cash flow?
The nature of business is that you're dealing with unknowns. Ideally, you're on an upward growth trajectory, but the reality is that not all businesses succeed. About a third of small businesses last 10 years or longer. And even for those that do, income can vary wildly depending on sales, or seasons, or broader economic issues like tariffs or inflation or recession.
That makes financial planning doubly complex. But you can try to mitigate swings in your household finances by drawing a regular salary. Also, even more so than those in other fields, having a sizable emergency fund will help you cover expenses during slow business periods. This primer from Bank of America can help you puzzle out cash flow issues.
How can I juggle business and personal finances?
The right answer is to keep them as distinct as possible. Mixing the two, even just out of carelessness, can lead to all sorts of troublesome issues—with taxes and the IRS, for instance, or with personal liability.
So, deciding on the right business structure is a first step, depending on whether approaches like an LLC or a sole proprietorship are the best fit for you. The U.S. Chamber of Commerce has advice on that here.
Once you've established that, establish separate financial accounts for your business and personal activities. That will not only smooth operations and help with record-keeping, it will protect your personal assets. The Small Business Administration has collected advice for such separation of accounts here.
How can I plan for retirement on my own?
Without the benefit of an established plan from a large employer, the onus is all on you. It certainly makes things more difficult, but it also opens up possibilities. For example, you could look to the establishment of a so-called solo 401(k), or a SEP IRA, both of which are designed for independent business owners. The IRS outlines more details on retirement plans for the self-employed.
Of course, the broader reality for business owners is that much of their wealth is tied up in their business, so the eventual sale of that company is often your core retirement plan. In that case, you want to get the tax and timing issues right (the SBA has a good rundown here), in order to sell and properly fund your retirement years—or, potentially, pass the business onto your heirs.
Either way, you want to ensure you can enjoy all the fruits of entrepreneurship, and that your legacy is preserved.