As solo business owners, it’s easy to get so focused on working in your business that you forget to take the time to work on your business — which includes making smart choices about finances. 

As the nation faces inflation, stock market swings and other economic uncertainties, it’s more important than ever for solo PR pros to have an understanding of the financial factors that affect them both professionally and personally.

In this episode of That Solo Life: The Solo PR Pro Podcast, hosts Karen Swim and Michelle Kane invite Andrew Shapowal of Canon Capital Management Group to answer questions about business entities, inflation, retirement planning and more.

How can I protect myself and my business from the effects of inflation? 

There’s no doubt about it — inflation is here. And while you can’t control rising prices or the amount other people charge for goods and services, you can implement better plans for the future.

Here are three tips for managing inflation in your business:

• Account for inflation when you run projections. Expect high prices to stick around and make adjustments to projected expenses in your budget, which will help to better manage your cash flow.
• Cut unnecessary expenses. If you can do without it, don’t buy it. “Don't just look at what the business is spending money on,” Andrew says, “look at what you're personally spending money on — so that you require less money out of your business.”
• Pay down debt with a variable interest rate. One of the tactics to combat inflation is for the government to raise interest rates. Minimize the amount you’ll pay out of pocket by reducing or eliminating variable-rate debt.
• Pay your people first. “Turnover is very expensive,” Andrew says. “So if we’re talking about reducing costs, consider paying your employees first and making them happy so they don’t leave and force you to hire a new person at a much higher rate because of inflation.”

How much money should I save for a ‘rainy day?’

Solo PR pros often work with variable income streams and feast-or-famine cycles, so it’s crucial to have an emergency fund set aside. The general guideline is to aim for an amount equivalent to three to six months of expenses, but Andrew points out that this is flexible.

“In an inflationary time, you might want to consider bumping that up to the higher end, like the six month side,” he says. “Whereas if the economy is booming, and you've got so many places for your capital, and things aren't super expensive, maybe you can drop that down to the three month side.”

If you’re concerned about allowing a chunk of change to sit in your bank account without doing anything — or worse, having its value slowly eroded by inflation — it may help to think of your emergency fund as an insurance policy. Just like other types of insurance, you have it in the hopes that you don’t have to use it. 

“Think of that erosion as your insurance payment,” Andrew says. “You are providing yourself peace of mind. You’re providing yourself with liquidity.”

How should I be planning for retirement? Do I need a wealth manager? 

“Building wealth, as a concept, is actually quite simple,” Andrew says. “It's regularly, continuously investing into a well-diversified portfolio for your entire life. It's just a regular dollar amount — it's called dollar cost averaging — you put it in there, you set it, you forget it.”

Despite that simplicity, there are a number of options a business owner can choose from in order to make that investment, based on the business entity you’ve formed (see more about that below).

A wealth manager is a person who can help you understand the options and who will also invest your money into various funds based on your preferences.

And don’t let the term “wealth manager” scare you! Even small business owners can benefit from their guidance. When you meet with them, listen to their pitch and see if you align with their philosophy. You can run a BrokerCheck to look into their background before you get started.

How do you know if you should incorporate your business? 

Many solo business owners start out by treating their business as a sole proprietorship. No paperwork is required to start working, and when tax time rolls around, you file a Schedule C form to count your net business income as a part of your personal taxable income.

As a sole proprietor, there is no legal distinction between you and your business. And while this is the simplest way to form a business, it leaves your personal assets vulnerable should anyone file a lawsuit against you or your business.

For solo businesses, the next step in pursuing some liability protection is to form an LLC (limited liability company). It requires some basic paperwork to set up, but once you have filed your business with the state and requested an Employer Identification Number (EIN — it’s like a social security number for your business) from the IRS, your business is now its own legal entity. 

“With this, there is a legal distinction of the business,” Andrew says. “So as long as you don't breach the ‘corporate veil,’ the business assets are the ones that are liable for lawsuit, but your personal assets are protected. So this is a very good step to take for business owners.”

For businesses that are well-established and generating consistent income — especially if it’s beyond the amount you pay yourself — an S corporation can provide some significant tax benefits. Here’s a simple way to think about the taxes you pay as a business owner:

• When you work as an employee of a business, you’ll see deductions for taxes, Social Security and Medicare. But what you don’t see is the other half of those taxes that your employer is responsible for paying.
• As a sole proprietor or LLC, you’re essentially responsible for both halves of those taxes. Self-employment taxes total 15.3% of your net income — not an insignificant amount.
• As an S corp, you can consider yourself an employee of the business. And while you’ll still pay federal income tax on all of the money your business makes, you will only owe employment taxes on the salary that you pay yourself.

Be sure to talk to your accountant about which business entity makes the most sense for your situation.

What about cryptocurrency? Should I invest in Bitcoin?

As Canon’s digital asset specialist, Andrew keeps a close eye on the cryptocurrency market and believes there’s definitely a role for crypto to play in the future of finance.

Investors should be open to considering crypto, but he says it’s important to have the rest of your financial house in order first. Here are some questions to ask yourself:

• Have you saved a sufficient emergency fund?
• Are you, as an individual, adequately saving for retirement through traditional means?
• Is your debt under control?

Even with all of these things in place, investors should advance with caution.

“You should only put the amount of money that you’re willing to lose and write off entirely into crypto,” he says. “It’s something to keep your eye on. But if you’ve got other more important things related to your business or to you personally, you need to take care of that first.”

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