Don’t give up security to open a business |

Don’t give up security to open a business

Tina DeWitt and Charlie Wick
Special to the DailyTina DeWitt

Last year, more than 670,000 businesses opened their doors, according to the U.S. Small Business Administration. In fact, hundreds of thousands of people set up their own shops every single year. If you’re considering joining these ranks, you’ve got a lot to be excited about, and you may be prepared to make large sacrifices to help your business succeed. But there’s one sacrifice you don’t have to make: your financial security. Unfortunately, many business owners pour their life’s savings into making their new ventures succeed ” and that’s probably a big mistake.

When you start a business, you are already taking on a degree of risk, but you don’t need to jeopardize all your plans for the future.

Before you launch your business, try to follow these basic guidelines:

Make sure you keep at least six months’ worth of living expenses available in some type of liquid account ” one that is completely separate from your business accounts. If you need to pay for a major car repair, buy an expensive appliance or cover a major medical bill, you’ll want to be prepared. And if you can’t pay for these items, your business will likely suffer, too.

Do you have enough life insurance to pay off your home and educate your children if anything happens to you? If not, you’ll want to upgrade your coverage. You also might want to add a mortgage protection benefit to your life insurance policy, so that you can afford your mortgage if you become disabled and can’t run your business for a while. Disability insurance may also be valuable, though you’ll need to shop around for a reasonably priced policy, as this coverage can be expensive.

If you worked in a large company before striking out on your own, you might have contributed to a 401(k) or other employer-sponsored retirement plan. But now that you’re the business owner yourself, you’ll have to set up your own retirement plan.

Fortunately, many good plans are available. For example, if your business has no employees except you and your spouse, you can choose a SEP IRA, an owner-only 401(k) or an owner-only defined benefit plan. If you plan to hire employees, you might want to explore a SIMPLE IRA or a Safe Harbor 401(k).

All these plans have both advantages and limitations; to find the one that’s right for you, meet with a financial professional who is experienced in helping small-business owners.

As a small-business person, you could be a sole proprietor, form a partnership or set up what’s known as an S corporation. The ownership structure you choose can have a big effect on some important issues, such as whether your health insurance premiums are tax-deductible.

Consequently, you may want to consult with your tax adviser before making this decision.

By following these suggestions, you should be able to focus more intently on those tasks that can help you grow your business. So before you make the jump, plan ahead. You’ll be glad you did.

Tina DeWitt and Charlie Wick are Investment Representatives with Edward Jones. They can be reached in Edwards at 926-1728 and in Eagle at 328-4959.

Vail, Colorado

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