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 startling your own electrical contracting or inspection firm, 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 entire lives’ savings into making their new ventures succeed — and that’s probably a big mistake. If you were a senior project manager for a great company and had a six figure retirement, don’t use those assets to start a new business. When you start up a business, you are already taking on a degree of risk, but you don’t need to jeopardize all your plans for the future.
So, before you launch your business, try to follow these basic guidelines:
- Build an emergency fund. 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 fleet repair, deal with rising copper prices 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.
- Review your insurance coverage. 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 keep up your house payments if you become disabled and can’t run your construction 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.
- Set up a retirement plan. If you worked at a large electrical 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’e going to have 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.
- Choose the correct ownership structure. As a small-business person, you could be a sole proprietor, you could form a partnership or you might 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 advisor before making a decision as to which route you will follow.
By following the above suggestions, you should be able to focus more intently on those tasks that can help you grow your electrical business. So, before you make the “jump,” plan ahead. You’ll be glad you did.