Question

I recently started a business and set it up as a sole propriety. I am having a hard time separating personal from business and ideally would like to set up a savings plan for my family. How should I do this? 

Answer

Congratulations on starting your own business.   

I think the first thing you may reconsider would be your choice of business entity. The laws in this country can offer wonderful benefits to business owners if they take advantage of them. If you are like most business owners, you are starting small.  In time with your success, I'm sure you hope to add more employees, maybe a fleet of vehicles, etc.  The amount of liability for you that could potentially come from your employees driving around in your cars or working in people’s houses, apartments, etc. without your supervision is limitless.   

A trip to the attorney's office may be money well spent. I would be willing to bet that they would not recommend you being a sole proprietor. There are easy and cheap corporations you can set up that give you a lot of protection.   

Now for saving plans. It is important to have a separate business checking account that can simply be put into a DBA (Doing Business As) name and which is still technically your account since you are sole owner. You may also consider opening a business credit card to help further separate the business expenses. The reason this is important is because when it comes time to file your taxes, you’ll likely want to have business expenses and income separated out to properly report income and deduct expenses. 

As for the savings for your family, the steps will really come down to whether or not you are referring to establishing an emergency reserve account, retirement investment accounts, or some other form of savings. The end goal for the money is going to drive the method that you will use to set this into motion. For instance, if building a retirement fund is your goal, you can look at a traditional IRA, a Roth IRA, a simple IRA, a SEP IRA, a 401(k), or a pension plan. Your cash flow, taxable income, desire to match contributions for employees, etc. will determine which account you should open. You can set up these accounts with almost any financial planner.   

In both business and personal, you need to have a sufficient cash reserve. Individual factors do make a difference here, but a good rule of thumb is having six months in a safe and liquid position. After that, you should evaluate your current debt position. When you have an adequate cash reserve in place and the unnecessary (bad debts) are paid off, then you can look at building some other savings plans. I would consider a bank or credit union for these emergency cash funds. 

For a review of retirement options available to you as a business owner I would speak to a local financial planner from FPA and review the articles on FPA's All Things Financial Planning blog.