Financial Planning for Entrepreneurs

how to plan your finances as an entrepreneur

Finances for entrepreneurs are time and time again one of our biggest pain points. They can be confusing, overwhelming, and often one of the most stressful things to deal with. Guest blogger and financial planner Todd Moritz breaks it down for us in this incredibly info-packed post! 


As I’m sure you’re well aware, being an entrepreneur means handling every facet of your business. In the same way there are aspects of your business that may not be your specialty but still need to get done, handling your personal finances can be often be a similar struggle.

When you first started your business, whether you’re fully self-employed, working on a passion as a side-hustle, or considering taking the leap and going out on your own, one of the first things you had to figure out was how you would be able to make more money than you spend. This can look very different from industry to industry, but each individual has the same goal of more money coming in than going out.

Day one, that may seem like a challenge, but in order to stay ahead you need to be realistic. Taking loans or racking up credit card debt for start-up costs is sometimes the only option available, but taking a step back and looking at what is realistic and feasible should be a part of any beginning.

Similarly, years into your business, you will have more flexibility and opportunity to spend larger amounts and grow more rapidly. Regardless of where you’re at in your journey, being able to objectively determine what amount of debt is feasible, if any, is vital as the cost of that debt can often snowball.

As you watch and reevaluate what your spending can afford to look like, it’s important to identify some of the hidden costs that may arise. Again, there will be different costs that may be industry specific, but assuming you’re making a profit, the government will want their piece of that pie.

You’re your own boss! Congratulations! That also means you get to be the primary liaison between the government and your business. What state and city you’re in also will impact how big a slice the various government entities request from you, but two up front numbers that you’ll need to be aware of 12.4% for social security and 2.9% for Medicare. Combine that with whatever your tax brackets are at a federal, state, and potentially local level. And a standard rule of thumb is to set aside 25% of all profit to pay your tax bill at the end of the year.

Obviously this final number will depend heavily on how your business fared at the end of the year, but will also be impacted by whatever else may go on your tax return from other jobs, interest, investments, etc. The point here is not to give a specific amount to set aside, but is more to be aware that once spring rolls around, Uncle Sam will come knocking. If you’re financially minded, there is more research out there you can dive into. Otherwise, this is one area where contacting a CPA or tax professional is often worth the extra cost.

Since you don’t have an employer to pay your Social Security and Medicare share of the taxes, you also don’t have the benefit of an employer-sponsored retirement plan (if you don’t personally have a Traditional or Roth IRA.) Both of those would be good accounts to consider, but you don’t need to be self-employed to use either one.

First, let’s assume you have enough money saved up to cover ongoing expenses both personally, and for your business. Hopefully you’ve been paying yourself first in some manner and saving for emergencies or some sort of future funds (aim to set at least 10% of your net income aside for the future). If you’re business is turning a profit, you can open a variety of retirement accounts to help save for the future, but also to take advantage of the tax-deferred growth these accounts provide. There are many options here, so this is another area a CFP®, ChFC, CPA, or other financial professional would be worth speaking to further. Three of the most popular options are SEP IRAs, SIMPLE IRAs, and Solo 401(k)s. SEP IRAs are often the most common and you can contribute up to 25% of eligible employee compensation (up to $55,000 in 2018) and set one up with little to no cost up front.

One final thing to note is that life is difficult and complex. Building a support network around you of people you can ask questions of and offer help when needed is invaluable. This also means that things will change. Your business will not look the same a year, five years, ten years, or twenty-five years down the road. The same is true with the tax code, your personal finances, and your entire life.

No one aspect of your business of life is something you can just “set and forget.” These are all ongoing decisions and processes. Your tax situation will change from year to year and you will need to adjust and plan along the way. The amount you can save for retirement and general savings along the way will vary year to year, as will the economic outlook, and investment opportunities available to you.

Debt may be unavoidable, but being smart about what debt you decide to take on may also be the launching pad your business needed to fulfill its true potential. I always say to try and plan for the worst, and hope for the best. You’re the boss, and with the freedom and autocracy that your role brings, it’s paired with the burden of responsibility. In a similar way that you take charge in your career, take charge of your finances. They go arm in arm with each other, so let’s steer them both towards the best future they can have.


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Todd Moritz (CFP®, CPA/PFS) is a certified financial planner and a lover of dogs, beer, and The Office. He is a total money nerd, and specializes in bringing customized financial portfolios to the everyman. Find him at White Turf Financial.

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