Money Saving Tips & Retirement For Small Business Owners
A large cruise ship in a hurricane is going to fare much better than a tiny rowboat. The same is true of small businesses during times of economic instability.
Small businesses often operate on very narrow margins. Pandemics, inflation, political and economic uncertainty can have a devastating effect on a business. This is why it is crucial to do anything and everything to save your business as much money as possible.
It is also important to keep your endgame in mind. Some people want to work at their small business for as long as they can. Other people want to sell their small business and retire as soon as possible. Whichever route you are planning on taking, making sure your business isn’t paying unnecessary expenses is an important aspect of small business ownership that needs to be kept up with.
In this blog, we’ll discuss money-saving strategies as well as retirement for business owners.
Money Saving Tips for Small Businesses
There are many things a small business can do to cut expenses. Some might seem obvious, but some might not have occurred to you. Let’s take a look at some cost-cutting measures that small businesses can take.
Brick and Mortar
If the COVID-19 pandemic has taught us anything, it’s that many businesses don’t actually need a brick-and-mortar location to function. For safety reasons, many workers transitioned from going into the office to working remotely from home. As the pandemic died down, workers and employers started realizing there might not be a justifiable reason to continue coming into an office suite every day.
Small businesses pay anywhere from 2% to 20% of their sales revenue to rent office space. That is money that could be going toward research and development, marketing, health plans, raises, or any number of things that would help a business thrive.
As of this writing, less than half of the workers who have been requested to come back to the office have done so. For many businesses, it is simply proving to be unnecessary.
Inexperienced business owners often take a vendor’s price as being static. Vendors, especially during uncertain economic times, would rather accept a lower price than risk you going somewhere else for what you need.
Being proactive and communicating with your vendors about what the needs of your business are will help save you money.
Try to get your company as close to paperless as you can. If your business is one of the many that no longer has employees coming into the office, there is no reason to continue ordering office supplies. Pens, paper, ink cartridges, and other supplies aren’t cheap.
Today’s business world has gone digital. Even when physical paper is unavoidable, you can still print a document, scan it, then email it to whomever needs it. If getting office supplies is a must, many discount stores have an office supply section. You'd be surprised of how much you can get with a few dollars.
Leasing Instead of Buying
Leasing — especially if your business is new — can be a great way to save money. When you’ve paid for a piece of equipment the cost of maintenance now falls on you. When you lease, the cost for repairs and upgrades generally falls on the leasing company.
This is one that may not have occurred to you to try. It is possible to review and amend your tax filing for the last three years.
With a CPA that knows their tax code, it is possible to find deductions that were missed the first time around. This is easy to do and it’s possible that your amended tax return is tens of thousands of dollars more than your first filing.
Retirement Planning for Business Owners
All of the above-mentioned tips can help strengthen your small business’s bottom line. But what about you, personally?
At some point, most business owners are going to want to sell their businesses and retire. While those tips will help your business, it’s also important to prepare for the future. It’s important to strengthen your bottom line.
Small business owner IRAs are a great way to save for your retirement. There are a number of small business owner retirement strategies. Some might be a better fit than others for you, your business, and your employees. Here are some small business owner retirement strategies.
Roth IRA for Business Owners
A Roth IRA is a great way for a self-employed person to start saving for retirement. Contributions to a Roth IRA are post-tax. You pay the taxes upfront, as you contribute to the retirement account.
These contributions are not tax-deductible. But when you choose to retire, no additional taxes will be owed when you withdraw funds. Your contributions can be taken out tax-free.
For 2022 the contribution limits are $6,000 to your Roth IRA, or $7,000 if you are age 50 or older ($6,500 and $7,500 respectively for 2023). The additional catch-up contribution helps you put away more in your retirement savings but it's not required.
If you were enrolled in a 401(k) plan at your previous job, you can roll your 401(k) savings into your new Roth IRA. Not everyone is eligible for a Roth IRA, however. People making $144,000 in 2022 ($153,000 in 2023) or more are excluded from eligibility.
However, you can have a Roth IRA if you are sponsoring a Simplified Employee Pension (SEP IRA), Savings Incentive Match Plan for Employees (SIMPLE IRA), or Solo 401(k) for your small business. Keep in mind maximum contribution limits when holding more than one plan still apply. Talk to your CPA or tax advisor.
Solo 401(k) for Business Owners
As a small business owner, you can take advantage of a Solo 401(k). This plan is limited to the owner(s) and their spouse. This means that you do not have any employees.
Opening a Solo 401(k) has many advantages for a small business owner. The employer contributions and salary deferrals are high and a way to grow your savings faster.
These contributions from both employer (you) and employee (also you) help lower your taxable income. The plan expenses are deductible. Learn more about the benefits of a Solo 401(k).
IRAR Trust Company
There are many retirement strategies available to small business owners. IRAR Trust Company has many years of providing education and resources to those looking for tax advantaged plans to build retirement wealth. If you are interested in learning more about retirement plans for your small business, contact us for a free consultation.