Savings Plans for Small Businesses

This self-paced training exercise will give you an overview of savings plans and strategies for your small business. Learn about the contingency and long-term savings, tax breaks, retirement savings and much more.

Course Objectives
The course has four key objectives: One, explain the importance of saving
Two, explain the difference between a contingency savings plan and a long-term savings plan Three, list ways to save by getting tax breaks
Four, identify ways to cut costs and save money

Course Topics
This course will discuss areas that address why it is important to establish a savings plan from the very beginning-i.e., from the first dollar you earn as a small business owner. Although planning your finances can take a lot of work, this course will focus on three main areas that can help you be prepared with your money now and in the future. This course helps in:
– Planning your retirement savings
– Identifying tax-saving options, and
– Cutting costs

Numerous additional resources are identified to assist you. Visit the Resource icon in the course player or locate additional tools, templates, and mentors on SBA.gov once you finish the course.

Let’s get started!

Background
Have you planned your savings for surviving difficult situations such as recessions or for facing unexpected life challenges?

Have you planned your finances so that you can have a steady and adequate income after your retirement? As a small business owner, you need to plan for yourself and for your business, including for your employees.

Saving as a Small Business Owner
Saving for retirement is probably the last thing on your mind as you look at startup costs for your new business. Should you be planning your retirement savings so early?

Before taking risks with your business, think about how to withstand the ups and downs of the economy and how you can make smart investments so that you are prepared for the worst.

Don’t wait to start planning for your future. Be proactive when it comes to making the necessary preparations to your business in order to plan for your savings.

It may seem daunting to think about saving money in the early stages of your business venture. Before you put money aside, it is important to determine your goals in saving.

You need to plan your savings to ensure a steady and adequate flow of income, even during contingencies and after retirement.

Even a small amount saved every week can provide a beneficial security and fallback safety net that would outweigh the initial investment of time and money involved in creating a savings plan upfront.

Some people use automatic deductions to manage their savings investment, as this removes the temptation of spending money before they have a chance to invest it.

Developing a Savings Plan
Following are the three main areas every business owner should think about while developing a savings plan:
– Life events
– Retirement
– Taxes
Let’s look at each of them in detail.

Life events

Certain life events can happen at any time, although no one wants them to happen. As a business owner, you need to take into account the fact that you are the sole person responsible when something unexpected happens with your business. Therefore, make sure you always have a contingency plan.

Retirement

When it comes to your retirement plan, it is likely that you make this a low priority.

Compared to those who are in corporate jobs where an employer matches their 401(k) contributions, it is up to you to take the initiative to plan for your future.

Taxes

It is likely you will have a large tax bill each year. Having a long-term savings plan that takes this into account makes that tax burden smaller.

Also, you need to set aside money every year for taxes. When you were a corporate employee, you must have noticed that your employer deducted taxes from your salary. Your employer was paying those taxes to the government. As a small business owner, you have taken a whole new responsibility for paying your own and your employees’ taxes. Be prepared for it.

Life Events-Why You Should Save
It is always a good idea to have a contingency plan, because things in life don’t always go as originally planned, and your business will be no different.
Let’s look at a few events that you probably wouldn’t expect to have happen, but for which you need to be prepared.
– Emergencies
o    Emergencies can be related to life, health, or environment. These emergencies aren’t something anyone wants to imagine, but they happen. It is important to make sure that your business is insured against such events. Your business shouldn’t suffer because of such emergencies.
o    In addition, plan for the possibility of supply-line interruption. For example, if a supplier goes away, do you have the funds to pay market prices for raw materials? Be proactive and save for the ―what ifs.
– Sequestration and Government Shutdown
o    If you primarily perform work for the Federal government, have an action plan for how you will continue to pay and be paid if the government is shut down for a period of time.
– Lawsuits
o    You might not think that your product or your service could create a legal problem for you, but the fact is that it happens. Make sure you are prepared to get legal help should someone bring a lawsuit against you.
– Lack of Credit
o    That money you were waiting for so you could pay your employees is held up. Now what do you do? You need to have a backup plan to handle such situations. Make sure you have a solution to your financial woes.

You Want To Retire Someday-Where To Save
Without a doubt, retirement is one of the things small business owners must save for the most. A Certified Public Accountant for small businesses or even a financial planner can help you determine the best savings options for you and your business.
When thinking about where to put your and your employees’ money for retirement, decide on:
– How much you can contribute to it
– How soon you want to draw from it
– How much interest it can earn
– How convenient it is
– The amount of deductible tax

Savings for Retirement
There are many ways to save for your retirement. Many mutual funds allow as little as $50 per month for investing or saving. These contributions buy more shares when prices are down and fewer shares when prices are up, thereby protecting you by providing a low average cost.

For companies with 25 or fewer employees, the top three kinds of retirement plans are:
– Traditional 401(k)
– Savings Incentive Match Plans for Employees (SIMPLE) IRA and
– Simplified Employee Pension (SEP) IRA Click each plan to learn more.
Traditional 401(k)
Traditional 401(k) tops the list of most popular retirement plans.
The most attractive feature of this plan is the flexibility that it offers. It allows you to make contributions on behalf of all participants, to make matching contributions based on employees’ elective deferrals, or both. Traditional 401(k) contributions can be subject to a vesting schedule. There is an annual testing to ensure that benefits for the normal employees are proportional to benefits for owners or managers.
Savings Incentive Match Plans for Employees (SIMPLE) IRA
The second most popular option is the Savings Incentive Match Plans for Employees (or SIMPLE) IRA. This plan is easy to set up and has an affordable maintenance cost. You can contribute a fixed amount for your employees or can match the employee contribution.
Criteria for a SIMPLE Plan:
– You have to be a business that has 100 or fewer employees who earned $5,000 or more in the previous year
– You cannot have another retirement plan
Simplified Employee Pension (SEP) IRA
Simplified Employee Pension (or SEP) IRA is the third among the most popular retirement plans. This plan has an easy and affordable setup. Major features of this plan are: easy maintenance, non-mandatory contributions, tax-deductible contributions, and large contribution potential (25% of employee’s pay). Another advantage of this plan is that the contributions don’t affect your other accounts and can be terminated at any time.
To be eligible for an SEP Plan:
– Employer and employees should be at least 21 years old
– The employee should have performed service for you for at least three of the last five years

Taxes Can Hit Hard-Know Your Options
Tax codes and laws are constantly changing. It is important that you as a small business owner stay abreast of the latest happenings or have someone to do it for you. There are a lot of tax credit opportunities to choose from. Some of the great tax credit opportunities to take advantage of, if you are eligible, include:
– Write-offs
– Flexible Spending Accounts (FSAs)
– Health insurance
– New employee benefits, and
– Employee stock ownership plans
Click each tax credit opportunity to learn more about it.
Write-offs
As a small business owner, you are eligible to write off almost everything that helps you do business. For example:
– Office equipment
– Software
– Subscriptions
– Mileage
– Food
– Insurance premiums
– Retirement contributions
– Telephones
– Childcare and
– Many more
Flexible Spending Accounts (FSAs)
Funds deposited into a medical FSA by you and/or your employees aren’t subject to payroll tax.
Health insurance
If you cover 50% of your employees’ health insurance costs, you can claim a deduction on premiums paid for your employees.
New employee benefits
If you hire previously unemployed workers, you may be eligible for a tax exemption. Visit http://hireact.org/ for more information.
Employee stock ownership plans
This option is motivating to employees and can help you save big on taxes. The following are just a few deductibles:
– Contributions of stock
– Cash contributions
– Dividends

Saving or Cost-Cutting Tips
With an economy that’s struggling, every small business owner is looking for ways to increase profits, save money, and improve efficiency. If you are able to apply the long-term savings plans we covered earlier in this course, you may find that savings in certain areas will bring more money to invest in other areas. You can start by creating a cost-savings plan for your company and implementing it effectively.
Depending on your business, you can consider the following options to save money:
– Conduct audits
– Eliminate credit card processing fees
– Save on mortgage or rent payments
– Use e-mail for customer service
– Simplify products
– Use free software
– Be honest about revenue
– Encourage employees to save
– Piggyback on others’ marketing efforts
– Go paperless
– Shop around for insurance
– Negotiate
– Allow telecommuting and
– Cut back on travel

Summary
That was a lot of information. This course focused on why it is important to establish a savings plan from the very beginning-from that first dollar earned as a small business owner.
In this course, you learned about:
– The importance of savings
– Contingency and long-term savings plans
– Ways to save and get tax breaks
– Ways to cut costs and save
As you now know, many situations can come up that cost a lot of money. Don’t wait until it’s too late-start planning now.

1.14    Next Steps
There are many things that have been discussed in this course. The instructional part of the program is complete. It is now up to you to apply what you have learned.
Consider taking these next steps to establish a savings plan:
– Step 1 – Evaluate your current savings status
– Step 2 – Meet with an accountant or financial planner
– Step 3 – Identify a contingency and savings plan with the help of the accountant or the financial planner
– Step 4 – Determine where you want to put your savings and
– Step 5 – Start saving.