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By: Owen Malcolm
Gwinnett Business Journal
From the February 2006 print edition
For most of us, our business is our largest asset. But unlike other large assets such as your home, you can control the value of your business. Sure, you probably spend most of your waking hours building your business, yet there are four critical strategies that are often overlooked by business owners. To build your business and subsequently your wealth, follow these four key strategies.
The first principle is to pay yourself first. Unless you’re in the first year of business, it’s critical that you pay yourself a fair market salary. Forgoing an adequate salary is justifiable in lean times, but without the habit of paying yourself first, other expenses will quickly arise and threaten to diminish your own income and wealth (not to mention the IRS, who won’t look kindly on a business owner looking to minimize payroll taxes). A similar adjunct to this principle is to invest in yourself. Obtaining professional credentials and becoming a member of key organizations can help distinguish yourself from the crowd. This is especially true in a service business, where your “product” is you, so don’t neglect to invest in yourself – doing so will grow your business and your wealth.
Once your company has been up and running for a few years, establishing an advisory board is a critical step to help take your business to the next level. When forming an advisory board, consider individuals from different disciplines including law, accounting, marketing, etc. The right group of advisors can provide keen insight and make strategic recommendations that you may not have considered on your own. It is also critical that your advisory board be objective. For the advice you receive to be unbiased, make sure that your advisors are not clients or vendors. If you’re doing your job you should already be receiving plenty of feedback from those two sources! If you feel that you don’t have a huge Rolodex or the budget for an advisory board, consider community sources such as the executive roundtable with the Gwinnett Chamber of Commerce.
Always remember to take advantage of tax benefits. Current tax laws allow business owners to claim large expenses in one year, thus lowering your reportable income. Although the infamous SUV loophole (where the entire cost of a large SUV could be fully depreciated in one year) is gone, “Section 179 expenses” can still be fully deducted in one year. These expenses include computers, office equipment, and other capital expenditures that allow you to grow your business. In 2006 you can deduct just over $100,000 of these expenses, so be sure to take advantage of the tax code. Another recent tax change allows business owners to set up a Health Savings Account (HSA) which provides a healthy tax deduction alongside that of your health insurance plan. Don’t confuse a HSA with older Medical Savings Accounts, as the HSA is simplified and relatively easy to administer for you and your employees.
Build your business wealth by setting up and funding a retirement plan. This is similar to the “pay yourself first” mantra, yet a business retirement plan provides a healthy tax deduction and a forced savings vehicle. There are numerous retirement plans from which to choose, so the right plan can be found based on company size and how much you’d like to invest on an annual basis (and if you want those investments to be voluntary). The most popular plans that our firm often recommends are the SEP-IRA (a simple, low cost option), Safe Harbor 401(k) (often best for companies with multiple non-owner employees), and Individual Defined Benefit Plans (best suited for highly profitable companies with only one or two owners). Talk to your financial advisor or CPA today about setting up the right retirement plan for your business. Even though it’s February 2006, it is not too late to set up and fund a plan for tax year 2005.
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