If you’re an entrepreneur, it would be completely understandable if you lost track of a thing or two.
You probably have a thousand thoughts running through your mind 24/7. Add in your never-ending to-do list, tasks that need to be outsourced or delegated, and big ideas you want to tackle, and it’s no wonder that some things may slip through the cracks.
Like, you know, some of the finer details of your financial plan.
Obviously, that’s not something you want to leave on your mental backburner. That’s why I’m giving you a quick reminder on the 5 things you need to make sure are taken care of to avoid putting your financial success and security at risk.
1. Saving for Your Own Retirement
The number-one financial concern you may be neglecting? Retirement savings.
It’s obvious when you stop to think about it, but many small business owners — as many of one-third of entrepreneurs! — don’t save for their own retirement or future financial freedom.
You may have gotten into business for yourself because you wanted the freedom and flexibility entrepreneurship offered over working for someone else. But getting stuck in your own business is just as bad as being trapped in someone else’s.
That’s what’s likely to happen if you fail to save for your own financial future. I get that it’s tough, especially without the benefit of something like an employer match to a retirement plan — but you can keep yourself covered by getting one of these plans made for small business owners.
2. Disability Insurance to Protect Your Earning Ability
When you’re young and building your business, your biggest asset probably isn’t the money you already saved in the bank. It’s your potential for earning, saving, and investing more money into the future.
But what would happen if you suddenly couldn’t work, run your business, or do anything to earn an income? You’d still have bills and living expenses, but no way to pay for them.
No one wants to think about worst-case scenarios, but the reality is things happen that we don’t foresee, plan for, or want to deal with. Life throws curveballs. We know that happens, even if we don’t know exactly what that curveball will look like.
That’s where the good news is, because it means we can plan for these things. You can protect yourself from a complete worst-case scenario — not having any income coming in — through disability insurance.
If you become injured or ill, disability insurance can kick in and provide you with an income stream so you can continue to support yourself or your family, even if you could no longer work.
3. Life Insurance to Protect Your Family
I know thinking about facing a disability is daunting enough — but we’re going to have to get a little darker, just for a moment. Disability insurance would only cover your income, which is important.
But if you were to face a true worst-case scenario and pass away, your family wouldn’t receive anything from a disability insurance policy. That’s why you need life insurance as well.
The purpose of life insurance is to protect someone who currently depends on your income from financial hardship should that income suddenly disappear through your passing. You need life insurance if you have a spouse (even if that person works) and if you have minor children.
You may also need what’s called “key man” insurance if you’re an entrepreneur. If your business couldn’t run without you, and something happened to you, this type of policy would help the company survive in your absence.
When you consider life insurance, know that most people just need term life. Unless you’re in a very special circumstance, whole life or permanent life insurance doesn’t make financial sense for most business owners and their families.
You can learn more about the insurance that’s appropriate for you in this episode of the Work Your Wealth podcast.
4. Your Business Continuity Plan
Your business doesn’t just need insurance to survive if something happened to you — you need a clear plan of how the company should continue to operate if you were no longer around to run it.
This is known as a business continuity plan, and yours should outline important topics like:
- Critical functions and responsibilities that need to be handled
- Roles and individuals who would be responsible for carrying out specific tasks
- Areas of the business that depend on each other (and would be impacted by your absence)
- Plans for maintaining normal operations even in a crisis situation
You may also want to include notes about what is most likely to be negatively impacted if you were no longer able to perform your duties, and create clear plans around how the business will recover from your loss.
Once you have what feels like an appropriate plan on paper, don’t just trust that it works. Test it and see how well it stands up to the stress it might one day be under. As you find flaws or holes in the plan, address those accordingly.
5. Professional Liability Insurance
There’s one more piece of protection planning you should do for your business (but may be forgetting about). Do you know what would happen if someone sued you or your business tomorrow for something they claim you’re liable for?
Without that insurance, your entire business could be at risk. If you provide professional services to other individuals or businesses, you need to at least consider some form of professional liability insurance.
Professional liability insurance (which is also known as errors and omissions insurance, or E&O), will cover you where general liability insurance will not. You might not think you need this because you don’t intend to do something bad or harmful to your clients, but mistakes happen.
E&O insurance includes issues over things like inaccurate advice, which can happen even when you have the best of intentions. This policy is just another way to cover your basis and ensure you don’t put everything you’ve worked hard to build at unnecessary risk.
As a busy entrepreneur, these are just some of the things you need to consider and include in your financial plan. But there’s a chance you could forget other important factors that need your attention.
To make sure nothing slips through the cracks, double-check with a fee-only financial planner who can review your plan — and maybe even spot opportunities or potential pitfalls that you missed. Having a second set of eyes on your financial picture can give you a lot of added confidence and peace of mind.
Or, you can go the DIY route. Just make sure you get the right guide to use along the way. I’m in the process of writing that very guide right now! Click here to be the first to know when you can get Work Your Wealth for Entrepreneurs.