Financial Tips for Business Owners (7-Step Guide)

Owning a business requires smart financial decision-making. You need to aim for economic stability while keeping an eye toward growth and future opportunities. On the flipside, mismanaging your money can spell trouble for your business and your personal finances. Here are some financial tips for business owners. Read on to learn everything a business owner needs to know about money!

But before we get started, a brief intro.

Hi! I’m Ryan.

I’m a CPA and financial advisor for business owners in Houston, Texas, and across the United States. I’ve written several blogs on business owner financial planning that you may want to check out below.

LLC, C-Corp or S-Corp? A Guide to Protecting Your Business Assets

Top 6 Bookkeeping Tips for Business Owners

What is financial planning, and why should I do it?

And now let’s get onto the blog!

There are seven steps that every business owner needs to take when it comes to money. Here’s a summary. We’ll delve into each of these in more depth.

Choose the right business entity
Separate your business and personal finances
Figure out how to pay yourself
Plan out your taxes
Plan out your retirement
Pick the right insurance
Get an estate plan in place

Let’s start at the beginning. How do you set up your business correctly, so you are on solid ground from the start?

#1 Choose the right business entity

Here are the most common types of business entities:

Sole proprietorship. This unincorporated business entity is owned and run by a single individual. There is no legal separation between you and your business; you get all the profits and you are responsible for all the debts, liabilities and obligations. Sole proprietorships are good starter entities because they're easy to set up, but they are intertwined with your personal finances.
General partnership. These entities are owned by two or more partners who share in the profits, losses, debts, liabilities and obligations. You benefit from shared risk and responsibility, but your business is still intertwined with your personal finances. They are easy to set up, but it’s essential to choose the right business partners.
Limited partnership. Business partners can also choose a limited partnership, which creates legal separation between the business owners and the business. Some partners may be heavily involved while others have limited involvement, depending on their investment and ownership percentage. This entity is often beneficial for multi-owner businesses that need to raise investor funding.
Limited liability company (LLC). LLCs can belong to a single owner, multiple owners or other corporations or LLCs. Owners and shareholders are not personally liable for business losses. LLCs are popular because they’re easy to set up and provide the legal protections of a corporation.
C corporation. This entity exists separately from business owners and investors. C corporations must hold annual meetings and have an established board of directors. The business is eligible for more tax deductions, but is subject to greater reporting and financial disclosure requirements. Business owners may want to incorporate their business as it grows and needs more legal protections.
S corporation. This business structure has limited liability but still acts as a pass-through entity, where business profits and losses pass to the owner’s personal taxes. This is a good fit when you want legal separation from your business but you want to maintain tax flexibility.

The right business structure depends on the type of business, the ownership, your comfort with personal liability, startup efforts and more. As time goes on, you may find that the original structure of your business is no longer the best fit, and needs to change. A good business lawyer and/or tax professional can help you choose the right business entity.

#2 Separating business and personal finances

Drawing a line between your business and personal finances is essential, even when you own a pass-through entity where you personally assume responsibility for your business’s finances. Maintaining separation makes accounting and tax reporting easier and limits your exposure. It can even help you establish a business credit score. Here are some ways to keep your business and personal finances separated:

Open a business bank account. Keep separate personal and business bank accounts to maintain clean and accurate bookkeeping.
Get a business credit card. Open a separate credit card for your business. You can easily track business spending, issue cards to employees and build a business credit score. You can even earn rewards on common business expenses like gas, office supplies, utilities and more.
Apply for an Employer Identification Number (EIN). This government issued number works like a Social Security Number (SSN) for your business. EINs are required if your business pays employees, operates as a corporation or partnership, files tax returns and more. Even if you’re a sole proprietor or you have an LLC with no employees, it’s a good idea to get an EIN to establish your business for tax purposes, keep your personal identity private, open business bank accounts and establish business credit.
Apply for a DUNS number. Unlike EIN numbers, DUNS numbers are issued by Dun & Bradstreet, a private company. They are unique nine-digit numbers that track basic details about your business and complex financial data about your business’s credit history. This enables your business to build a credit score and help lenders, potential partners and potential clients make informed decisions about working with you.
Set up accounts in your business’s name. Utilities and other accounts that are used solely for your business should be set up in your business’s name to ensure it is your business, not you, that is receiving bills.
Apply for credit. Use your business identity to apply for credit that is intended for your business. This establishes business credit history.

#3 Figure out how to pay yourself

A big part of successfully managing your finances as a business owner is deciding how you will get paid. There are two common ways for owners to draw compensation from the business:

Salary. You can take a regular paycheck from your business and withhold taxes from your paycheck. This is a legal requirement for C corporations, S corporations and LLCs that are taxed as corporations. Your salary must be comparable with other people doing the same job in the same industry. While this method is more stable and predictable, you have less flexibility.
Owner’s draw. You can draw money from the profits your business earns, up to the percentage of equity you own in the business. While you don’t have to immediately pay taxes when you draw compensation, it’s a good idea to set aside money for tax purposes and make estimated tax payments (more on those later). This method gives you more freedom to pay yourself based on business performance, but your income may not be as predictable.

In some cases, you can adopt a hybrid approach where you pay yourself a regular salary and take an additional draw from business profits.

#4 Plan for your taxes

Tax planning for business owners can be complicated. Using the right strategies, you can reduce the tax bill for your business and/or your personal tax return. The larger and more successful your business becomes, the more valuable tax planning will be. And poor planning could result in a higher tax bill or even penalties and interest. Here’s what you need to know.

Tax deductions and tax credits

Take advantage of every tax deduction and tax credit you can. Here are just a few of the deductions and credits you might be eligible to claim:

Business expense deductions. Qualified business expenses range from partially to fully deductible. Eligible deductions may include:
1. Home office. Small business owners and self-employed individuals who use part of their home for the business can write off a portion of rent, mortgage, utilities, home maintenance costs and other related home expenses. The amount you can deduct is based on the percentage of your home that is devoted to business activities, or you can use the simplified method.
2. Startup expenses. Expenses incurred while creating or acquiring your business, including business analysis costs, consultant fees, marketing, salaries and wages, travel and more, are deductible up to a limit of $5,000.
3. Qualified business income. If you’re a small business owner or self-employed individual, you can deduct up to 20% of your qualified business income (QBI) reported on your personal tax return. Essentially, QBI is any income that is treated as “pass-through income” that you report on your personal tax return. This deduction is subject to eligibility requirements, including income limits.
4. Depreciation. Section 179 of the tax code allows you to immediately deduct the cost of depreciable assets purchased for your business, rather than deducting depreciation over time. This deduction is limited to physical assets such as equipment.
5. Ongoing business expenses. Many ongoing expenses can be deducted partially or in full. Eligible deductions may include utilities, insurance, rent, automobile expenses, office supplies, marketing and advertising, travel expenses, loan interest, bad debt, taxes, employee wages, employee benefits and more.
6. Barrier removal. This deduction allows you to write off costs for removing architecture or transportation barriers that would prevent the mobility of the elderly and people with disabilities.
Tax credits. There are many tax credits that can reduce the amount of your tax bill. Available tax credits include:
1. Work opportunity tax credit. Employing individuals who face barriers to employment, such as veterans, recipients of certain government benefits, ex-felons, youth employees and more may qualify you for this tax credit.
2. Disabled access credit. Small businesses with expenses related to providing access to people with disabilities may qualify for this tax credit.
3. Small business health care tax credit. Companies with fewer than 25 employees that enroll in a Small Business Health Options Program (SHOP) may qualify for this tax credit.
4. Employer-provided child care credit. If you provide childcare services to your employees, you may be eligible for this tax credit.
5. Energy credits. There are tax credits available to businesses that increase energy efficiency for certain building systems, build energy-efficient homes, or invest in qualifying energy products.

This list of tax deductions and tax credits is not comprehensive. Consult with a tax advisor to identify all the tax credits and deductions that your business may be eligible to claim.

Deferment and acceleration

Many businesses use the cash method of accounting for their books. This means they recognize income at the time it is received, and record expenses at the time they are paid. You can use this method to defer or accelerate income and expenses to gain certain tax advantages.

If you want to minimize your business’s tax bill for the current year, you can defer your income to the following year and accelerate your deductible expenses to the current year. For example, you could wait to send your clients invoices until later in the year to ensure they don’t pay you until the following year. And you can purchase deductible equipment or pay all your upcoming bills in the current year, even if you don’t immediately need the equipment and the bills aren’t coming due until the following year.

In some cases, it may suit your business to do the opposite: accelerate income to the current year and defer expenses to the following year. This might be the case if you think you will be in a higher tax bracket next year, and you want to avoid a hefty future tax bill.

Hiring family members

Hiring family members, such as your spouse or your kids, offers some tax advantages:

Hiring your kids. Children under age 18 aren’t subject to Federal Insurance Contributions Act (FICA) taxes or Federal Unemployment Act (FUTA) taxes, and children aged 18 to 20 aren’t subject to FUTA. If your child’s income is below the amount of the standard deduction for that year, income is tax free.
Hiring your spouse. Your spouse is not subject to FUTA tax when they work for your business. You can also achieve tax savings if you’re a sole proprietor and you have a Health Reimbursement Arrangement (HRA); your family can receive tax free reimbursements from your business for medical expenses (this strategy is only available if you have no other employees and your business hasn’t elected to be an S corp).
Hiring your parent. Your parents are not subject to FUTA tax when they work for your business.

You will need to make sure you adhere to all federal and state labor laws regulating the hiring of family members and, in the case of children, child labor. Make sure you pay your family members a fair wage, track their hours and responsibilities and assign work that is age-appropriate.

Charitable contributions

As a general rule, you can deduct donations of cash, property or equipment to eligible 501(c)(3) organizations on your federal tax return (use the IRS search tool to confirm that the organization is properly registered), and travel expenses for charity work.

Where you take deductions depends on the structure of your business. Pass-through entities like sole proprietorships allow you to take deductions directly on your personal tax return. Charitable donations that come from a legally separate business must be taken by the business itself.

Estimated payments

When you are in business for yourself, you generally need to make estimated tax payments throughout the year since taxes aren’t automatically taken from your paycheck. This helps avoid incurring future penalties or interest. And you can avoid a hefty tax bill coming due all at once when you pay your taxes throughout the year.

Sole proprietors, partners, and S corporation shareholders must make estimated tax payments when they expect to owe $1,000 or more in taxes for the year. Corporations generally have to make estimated tax payments if they expect to owe $500 or more.

Calculating your estimated tax payments requires you to figure your expected adjusted gross income, taxable income, deductions and credits for the year. You can make adjustments along the way for changes in income or tax laws. Estimated tax payments for the year are divided into separate payment periods, with a payment deadline for each period. You may send estimated tax payments with Form 1040-ES by mail, online, by phone or from your mobile device.

#5 Plan for your retirement

How do you plan to retire from your business? While it may be tempting to pour all your resources back into your business, you need to carve out space in your budget to plan for a comfortable retirement. Your options for savings vehicles depend on the business type and other factors:

SEP IRA. Simplified employee pensions (SEP IRAs) allow employers to make tax-deductible retirement contributions for the business owners and the employees (up to 25% of their income or $70,000 per year, whichever is less, in 2025). Almost any small business, including sole proprietorships, can participate. Employers must make equal contributions for all eligible employees.
SIMPLE IRA. Employers with 100 or fewer employees can enroll in a Savings Incentive Match Plan for Employees (SIMPLE IRAs) to allow both business owners and employees to contribute to traditional IRAs (up to $16,500 per year in 2025). Businesses can match employee contributions for up to 3% of their compensation, or contribute a 2% nonelective contribution for employees that opt out.
Traditional or Roth IRA. Opening a traditional or Roth IRA is one of the easiest ways to save for retirement, and it’s a great fit for self-employed individuals. You can open one whether or not you have employees and choose between traditional (contributions are tax-deductible) or Roth (earnings grow tax-free). The annual contribution limit for 2025 is $7,000.
Solo 401(k). Business owners or self-employed individuals with no employees (except for a spouse, who can also contribute) can save for retirement (up to $70,000 in 2025) with a solo 401(k). Traditional and Roth options are available.
Employer-sponsored 401(k). Employers can offer 401(k)s for their employees, including owners, to save for retirement. Traditional and Roth options are available. The employer may match employee contributions up to a certain limit and deduct the contributions match; some plans mandate automatic matching. Employees can contribute up to $23,500 to their 401(k) plan in 2025.
Defined benefit plan. In the age of employee-funded retirement plans, these pension plans are far less common. Contribution limits are set based on your age, expected returns and the predetermined benefit you will receive in retirement. You will need an actuary to determine your contribution limit, and there are high setup and annual fees. Because of the cost, defined benefit plans are likely best suited for a self-employed high-income business owner with no employees.

Remember, the specific retirement options available to you depend on your business structure, how many employees you have and other factors. A qualified retirement administrator or financial advisor can help you determine the right retirement savings vehicles for your business, as well as how much you should be saving to reach your retirement goals.

Retirement planning tips

Here are some tips to help ensure you’re on track to retire comfortably:

Hire a pro. Financial advisors can help define your goals, determine the right savings vehicles for you, look at opportunities for tax savings and tell you how much to save each month.
Start early. The earlier you start, the more you can take advantage of compound interest to maximize your potential future earnings.
Contribute as much as you can. Make sure you’re saving as much as you can reasonably afford. Most experts recommend saving at least 15% of your pre-tax income.
Use catch-up contributions. When you're age 50 and older, many retirement plans allow you to accelerate your savings with a higher annual contribution limit.
Automate savings. Set up your retirement contributions to automatically come out of your paycheck or bank account on a recurring basis.
Adjust your budget. Make sure to include retirement savings in your monthly budget. Look at areas where you can reduce spending in order to increase savings. Adjust your retirement allocation when your income changes.
Claim the retirement saver’s tax credit if eligible. This credit is worth up to $1,000 ($2,000 when married filing jointly) for mid and low-income taxpayers who contribute to a retirement account.
Make sure your business claims retirement tax credits and deductions. There are tax credits and deductions available to businesses that offer retirement plans to employees.

Developing an exit strategy for your business

Another key component of retirement planning is an exit strategy for your business. This will help you set a goal for retirement, determine how you strategically position your business and help you prepare for unexpected life events.

A succession plan can prepare your business for your departure and allow for a seamless transition to new leadership or ownership. Succession plans can appoint a successor (or successors) to run your business, create a transition plan, delegate responsibilities and more. Ideally your succession plan includes preparing the successor to run the business leading up to your exit, and provides guidance for what should happen in the case of an unplanned event, like your sudden death or unexpected absence.

When your business has multiple owners, you may want to draw up a buy and sell agreement with your partners to ensure a smooth transition of ownership. These agreements determine how a partner’s share of the business will be redistributed when they leave. Most commonly, buy and sell agreements state that your share of the business will be sold to the remaining partners (cross-purchase agreement) or the business entity itself (entity-purchase agreement). They can also establish a method for valuation of your ownership share, dictate a funding method for the purchase of your share, keep shares away from undesirable owners and more. Commonly, each partner will take out life insurance policies on the other partners in order to fund the purchase of an ownership stake when a partner dies.

Business owners should also have a contingency plan to use in emergencies, such as the sudden death or absence of the business owner. It would include key details such as contact information, access to critical documents and resources and instructions for running daily operations.

#6 Insure your business and personal life

It’s not a business financial tip per se, but still it’s critically important to make sure your business is insured and protected from emergencies, disputes and even lawsuits. Here are the common types of insurance coverage that businesses need:

General liability insurance. This covers your business from liability claims resulting from normal business operations.
Commercial property insurance. This covers your business’s physical assets from theft, damage or destruction.
Business income/interruption insurance. This covers lost income and expenses incurred due to a business interruption.
Professional liability insurance. This covers your business against claims made against you by your customers.
Worker’s compensation insurance. Employers are often required to obtain this coverage that provides benefits for your employees when they get sick or injured on the job.
Data breach insurance or cyber liability insurance. These types of policies cover losses and/or expenses directly associated with a cyber-related incident or data breach.
Commercial umbrella insurance. This extends your liability coverage, kicking in to cover costs when you exhaust the coverage provided by our primary liability policies.
Commercial auto insurance. You need to insure any vehicles your business uses in the course of its operations.
Key person insurance. This insures top executives and/or highly skilled employees whose death would cause a major financial blow for the business.
Business insurance bundles. Many insurance companies offer bundled policies to provide some, or all, of the insurance your business needs. For example, business owner policies (BOPs) can combine property insurance and general liability insurance into a single policy.

Of course, you also need to make sure you have insurance in your personal life as well. Here are the main types of policies you should focus on:

Health insurance. You need health coverage to pay for medical care for yourself and your covered family members. If your business offers health insurance to employees, you can get health coverage that way. If you’re self-employed or your business doesn’t offer health coverage, you can buy a policy on the marketplace.
Life insurance. You need life insurance to act as a financial safety net for your loved ones when you die, and your beneficiaries could use the death benefit to keep your business running. The amount of coverage you need depends upon your income, debts, the value of your business and more.
Disability insurance. You need disability insurance to protect your income if you get sick or injured and can’t work. Business owners may wish to buy own-occupation long-term disability insurance, which replaces your income when you become unable to do the job you were particularly qualified to do (in your case, run your own business). By contrast, any-occupation disability insurance only replaces your income if you can’t work in any job that fits your education and training.

#7 Get an Estate Plan in place

Business owners need an airtight estate plan to ensure that their wishes are carried out when they die. Estate plans provide instructions for the distribution of your assets (including your business), designate a person (or persons) to administer your estate and more.

If you plan to pass on your business to your heirs, you need to ensure your business is included in your estate plan. This can help minimize estate taxes, provide greater financial security for your heirs and avoid a lengthy probate process.

Estate planning may prove challenging when you have several beneficiaries in your estate plan, such as a spouse and multiple adult children. Some individuals may be prepared to inherit and run your business, while others may not. To achieve equitable distribution of your assets, you can assign value to your business and other assets and benefits (such as your home and life insurance payouts) and make plans accordingly.

Estate planning documents

Business owners can start with common estate planning documents to put together an estate plan:

Last will and testament. This document dictates how to distribute your assets when you die, names an executor for your estate, arranges the guardianship of your minor children and more. Without a will, your assets will be considered intestate and are distributed according to state laws.
Trust. This separate legal entity can distribute your assets in any way you choose, avoiding the probate process altogether. Trusts can give you more control over your assets and can help reduce estate taxes for larger estates. You must fund trusts by transferring your assets, such as your business, into them.
Financial power of attorney. Giving a trusted individual financial power of attorney allows them to make financial decisions on your behalf when you die or become incapacitated.
Medical power of attorney. Giving a trusted individual medical power of attorney allows them to make medical decisions on your behalf if you become incapacitated.
Living will. Also known as an advance healthcare directive, your living will lets you decide what medical treatments you want or don’t want in an end-of-life scenario, or when you become unable to make decisions for yourself.

The documents you need for your estate plan depend on how you want to distribute your assets, what you want to happen to your business when you die, your future vision for your heirs and more. Estate planning can quickly get complex for business owners, so it’s a good idea to hire an estate planning attorney to help you set up a plan that works best for you.

Need help managing your business’s finances?

Phew - this business owner money stuff can get pretty complex!

Business owners have their hands full managing a business and taking care of their personal finances. We hope our business owner financial tips have been helpful, and that this guide has taught you what you need to know about money as a business owner.

Got a handle on it by yourself, or could you use some help?

My name is Ryan Firth.

I am a CPA and financial advisor located in Houston, Texas, and I help business owners to reduce taxes and create a tax-efficient retirement plan. If you would like to discuss, please set up a time to speak with me.