For a large number of self-employed people, their venture / business IS their retirement plan. A good deal of the wealth that they create tends to get re-invested into the business to keep it going and growing. The goal is that, eventually, when it is time to retire, the business will either continue to provide a sort of annuity when the heirs take over or a lump-sum from an external merger or acquisition.
Unfortunately, the last few years have not been kind to those business owners who have relied on this strategy, but more on that another time.
Additionally, our US tax code continues to be one of the most complex in the world. And, while Washington continues to play political football with tax reform, the average freelancer, independent professional, small business owner or entrepreneur is getting inundated with well-meant but often conflicting and confusing advice from all quarters – news media, financial advisors / institutions, friends, family. Not to mention the plethora of endless online and offline punditry.
So, unless you’re already investing in a qualified and professional financial advisor, how do you sort through the chaos? A book that I have found most useful recently is a little gem called Wealth Creation for Small Business Owners by James E Cheeks.
The book jacket describes Cheeks as a financial advisor to entrepreneurs and professionals for 25+ years “on techniques for converting business income into personal and financial wealth”. As a lawyer, he also taught graduate accounting courses on business taxation and financial planning at New York’s Pace University. [Surprisingly, I have not been able to find any online information about the author despite the a website address provided in the introduction.]
When I first started my business planning as an independent professional, I ploughed through several books related to taxation and financial management for the self-employed. NOLO does a decent and fairly comprehensive series overall but can be overwhelming for a newbie.
This particular book stood out for me because it specifically addresses how to use your venture / business as a tool for creating personal wealth – not simply a rulebook for how to manage your taxes – you can take free IRS workshops to learn that. Cheeks provides holistic and pragmatic strategies for how to protect your personal wealth and assets separate from your business. This point is key for small business owners who often tend to have their personal wealth mostly tied into their businesses. And, yes, there is a lot here that applies to freelancers and independent professionals too.
How Cheeks unfolds these strategies (75 to be precise) is the best part of the book. In addition to a decent chapter structure, he organizes these strategies around key categories based on business activities and the business owner’s relationships with family, employees, creditors, debtors, etc. Then, within each category, he identifies a specific set of wealth opportunities and the applicable strategies. This categorization of opportunities and strategies makes up the first few pages, allowing easy access to relevant advice as needed.
As an example:
Category: Spending and Enjoying, a Bit – you seek ways your business can enhance personal and family lifestyle
Wealth Opportunity: Several modest tax-favored perks are available
Strategies: 25-27 (which are also a part of Chapter 5 called “Giving Back — To Yourself”) discussing multiple topics such as charitable contributions, club memberships, company car, company credit card, life insurance, loans, paid parking, personal financial / tax counseling, relocation, spouse travel, travel, certain post-retirement perks, etc.
Each strategy is concise (no more than 2-5 pages) and clear, with the added bonus of brief case studies.
Recently, I recommended this book to an existing small business owner who said that he could not afford to hire a professional advisor during his current business cycle (paradoxically, when he needs one the most). We sat down over lunch and conducted a 2-hour “Wealth Opportunities Audit” using this book. He walked away with a shortlist of actions / tasks to investigate further. All for the price of a lunch and this book.
Now, let me be clear that I am not recommending that this book will solve all your financial problems as a small business owner. What it can do is provide a good checklist of wealth opportunities for you to “self-audit” within your business. I absolutely recommend that you then follow up with your financial advisor for further verification. And, I must caution against taking any financial actions on the basis of a single book – the IRS is not likely to accept that you filed something incorrectly because you read it in a book.
Drawbacks? The only one that I can think of is the lack of an “Additional Resources” list for readers who might want more information and are loath to spend the hours/days online trying to find it. And, since this edition is from 2010, I do hope that the author will bring out a 2013 edition with the appropriate revisions after the tax reforms are finalized (one lives in hope that the politicians will get past all their posturing soon enough).
Happy Reading. And, let me know if you have book recommendations along the same lines for my reading.
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