Question for Sole Proprietors / Small (Micro) Business Owners

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
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Solo Prosperity
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Question for Sole Proprietors / Small (Micro) Business Owners

Post by Solo Prosperity »

I know most who frequent this site are fairly knowledgeable & disciplined when it comes to their personal finances, but I know at some point that was not the case. I am looking to do some research and I wanted to ask the following question.

For those who are, or were, sole proprietors, self-employed, and/or small business/practice owners (less than 5 employees):

What are/were the most confusing/frustrating topics when it came to your personal finances: Business structure? Retirement Plans? Insurance Needs? Cash-Flow Management? Budgeting? Investing? All? Some? Something else?


Any and all feedback is appreciated!
casualflower
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Re: Question for Sole Proprietors / Small (Micro) Business Owners

Post by casualflower »

Well...a lot of those topics aren't "personal finance" ones unless all business-related topics are. A sales workflow was the hardest for me.

I have basically always operated without an accountant. I have a bookkeeper now, but in the beginning I did all the books and taxes and learned a ton from that. Everything else you mentioned, insurance, cash flow, structure, retirement...that all makes sense to a financially minded person.
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Solo Prosperity
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Re: Question for Sole Proprietors / Small (Micro) Business Owners

Post by Solo Prosperity »

metrunt wrote:Well...a lot of those topics aren't "personal finance" ones unless all business-related topics are. A sales workflow was the hardest for me.

I have basically always operated without an accountant. I have a bookkeeper now, but in the beginning I did all the books and taxes and learned a ton from that. Everything else you mentioned, insurance, cash flow, structure, retirement...that all makes sense to a financially minded person.
Thanks for the feedback.

I would think that as a sole proprietor/micro business owner, personal finance and business finances are mostly blended together? Not sure though, this is why I am looking for feedback.

So early concerns were more on the accounting/bookkeeping side. Great.
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EATaxGuy
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Re: Question for Sole Proprietors / Small (Micro) Business Owners

Post by EATaxGuy »

QuietProsperity wrote: I would think that as a sole proprietor/micro business owner, personal finance and business finances are mostly blended together?
It is recommended to keep as much separation as possible between business and personal finances. Different banks, different lines of credit, etc. Business expenses are tax deductible, personal expenses are (usually) not. If you are audited it is easier to demonstrate that you bought an item for your business if you bought it with money from your business account.
You may have been handed a cactus, but sitting on it is up to you.
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Solo Prosperity
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Re: Question for Sole Proprietors / Small (Micro) Business Owners

Post by Solo Prosperity »

EATaxGuy wrote:
QuietProsperity wrote: I would think that as a sole proprietor/micro business owner, personal finance and business finances are mostly blended together?
It is recommended to keep as much separation as possible between business and personal finances. Different banks, different lines of credit, etc. Business expenses are tax deductible, personal expenses are (usually) not. If you are audited it is easier to demonstrate that you bought an item for your business if you bought it with money from your business account.
Sorry I did not mean in the technical sense. I know they should be kept separate for many tax/financial reasons.

I meant from a holistic personal finance perspective. I.e. When planing for retirement, budgeting, cash-flow needs, etc. a sole proprietor (I think) would want to include the business in his/her analysis/planning efforts.

Although, now that I have had two responses about this topic, maybe I should start using separate terms, "personal finances" and "business finances". I guess I just assumed that for a sole proprietor they were so closely tied together.
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Artful Dodger
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Re: Question for Sole Proprietors / Small (Micro) Business Owners

Post by Artful Dodger »

I could give a number of answers related to being a small business owner, but I'm not sure I fully understand your question. If you're asking about how I chose my current retirement plan, it was related to the business structure, first sole prop, then S Corp. The structure also affected how I paid myself; first all income exceeding expenses was taxed as self-employment income, then as I grew and changed to S-Corp, I paid myself a salary, and then took distributions of profit.
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Solo Prosperity
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Re: Question for Sole Proprietors / Small (Micro) Business Owners

Post by Solo Prosperity »

Artful Dodger wrote:I could give a number of answers related to being a small business owner, but I'm not sure I fully understand your question. If you're asking about how I chose my current retirement plan, it was related to the business structure, first sole prop, then S Corp. The structure also affected how I paid myself; first all income exceeding expenses was taxed as self-employment income, then as I grew and changed to S-Corp, I paid myself a salary, and then took distributions of profit.
Thanks for responding.

My questions would be:

Outside of the day-to-day challenges of running & growing a successful solo/small business, which of the "back-end financial related aspects" gave you the most trouble or were the most frustrating to deal with? Choosing a business structure? Accounting/Bookkeeping? Choosing insurance coverage (Medical, Life, Umbrella, etc.)? Choosing a retirement plan (SIMPLE, SEP, Solo 401k, PSP, etc.)? Cash-Flow planning? Investing in the retirement plan? Maybe others I do not know about?

I know most Bogleheads have this stuff down pat at this point, but was there a point early in your solo/self-employed career where any of the above topics were frustrating to figure out?

The answer could be none of those and the only real struggles were more tied to the growth of the business and or keeping up emotionally? I do not know.
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