Solution to business owner’s finances can be right in the company

For Jeremy Porter, running his public relations company is a much bigger priority than tending to his own investments.

Personal finances are "the thing that gets pushed to the bottom," said Porter, co-owner of Atlanta-based Porter Moye Inc. "Managing the business keeps me from being able to manage the finances."

By Joyce Rosenberg

http://www.sltrib.com/2004/Apr/04252004/business/160154.asp

Many small business owners, intent on building or expanding their companies, neglect their savings and investments, or they funnel all their money into the business and figure that they’ll catch up later in the stock market or with retirement accounts.

But that attitude can turn into a costly mistake, because creating a personal investment portfolio can actually be part of running a company, with benefits to the owner and the business itself.

"At some stage in a small business owner’s life, they don’t have to keep plowing money back into the company," said Robert Reby, a financial planner in Danbury, Conn. "The first step in saving for your personal life is to set up a retirement plan. . . . It’s done through the business. It’s got immediate gratification, a tax reduction."

For sole proprietors without employees, the Individual Retirement Account is a good way to start. Once owners take on workers, Reby suggests they create a Simplified Employee Pension (SEP), a plan that can be set up at a local bank or other financial institution and that requires a minimum of paperwork and is quite inexpensive to operate.

Owners who filed extensions on their 2003 tax returns can still set up a SEP and take a deduction for it, as long as they do so by the date they file their returns.

As their businesses grow, Reby said, owners can move on to more sophisticated retirement plans, including profit-sharing plans and defined benefit pension plans. He suggested that owners make as much of an annual contribution to their plans as they can afford.

"There are not a whole lot of people out there who maximize their retirement contributions," Reby said. Those owners are shortchanging themselves in two ways — they might not be getting a full tax deduction for the business, and they are missing out on the chance for their personal investments to grow.

Still, many company owners are so consumed by the business that they don’t get around to setting up retirement accounts or plans.

One way to juggle a company and personal finances is to get help. Porter’s wife takes care of their personal finances, and also his company’s, since public relations, and not ledgers, is where his talents lie. An accountant or financial adviser is the solution for many other owners.

Jane Wesman, president of a New York-based public relations firm that bears her name, has taken care of her personal finances over the past 20 years using a formula similar to the one Reby suggested. She started by funding an IRA, and when she got her first employee, created a SEP.

"Eventually, I moved on to developing a profit-sharing plan," Wesman said. "I t’s important to take care of yourself that way. It should be a first priority."

But some new entrepreneurs might be reluctant to take money out of the business, believing the company will grow faster if every possible cent is put back in. Wesman disagrees.

"You should definitely fund your IRA to the full extent because of the compounding over the years. It’s not a big deal," she said, adding, "Cut back on Starbucks. Think about the long run and the fact that this money grows tax-free."

Seth Frey said he missed a lot of investment opportunities as he ran Granny’s Goodies, a promotional products firm with offices in Chicago and Washington, D.C.

"I think that at least for me, like a lot of entrepreneurs, they’re so passionate about the business that they lose sight of what’s going on at home," he said. He also said he had time management issues that stopped him from tending to his finances.

And Frey conceded he never learned enough about what to do with his money, letting it "sit in the bank at ridiculously low interest rates."

He’s trying a different approach now: "Being proactive and taking advantage of some of the opportunities that are out there . . . trying to balance the business with the personal."

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Joyce Rosenberg writes about small business for The Associated Press.

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