If you’re like most business owners, you pour your heart and soul into growing your company, only to let your personal wealth management take a back seat. But the truth is that neglecting your personal finances typically doesn’t do you any favors. It usually only adds more stress to the already high stress levels that come with being a business owner.
Having a solid wealth management plan can make all the difference. It gives you the stability and peace of mind you need at home to focus more effectively on your business ventures.
Admittedly, creating a wealth management plan as a business owner is never quite as simple as it is for the everyday person. You have to factor in all the diverse—and sometimes competing—roles and goals you juggle as both a “civilian” and an entrepreneur.
But no matter how complex your financial picture may be, there are some tried-and-true essentials that should go into every business owner’s wealth management plan. Begin by making sure you have these 6 areas covered, and you will have a good head start on your path to a more stable—and less stressful—financial future.
#1: Diversify, diversify, diversify!
It’s tempting to put everything you’ve got into your business. But diversifying where you put your wealth is absolutely crucial if you want to protect yourself. A good wealth manager can help you spread the risk—and earn more stable returns over time—by investing in real estate, stocks, bonds, or even other businesses.
Keep in mind that diversification is not an indictment against your capabilities as an entrepreneur. There are many things outside of your control (remember COVID-19?) that can derail and devalue even your smartest business plans. Should the unexpected happen, you’ll realize that diversification was your smartest move of all.
#2: Protect your personal assets from your business risks
As a business owner, you’re more subject to more risk than the average joe (think lawsuits, worker’s comp claims, etc.). In order to protect your personal finances from getting gobbled up by business claims, you must first make sure you’ve chosen the right structure for your business. Are you better off as an LLC, an S corporation, or a C corporation? Your wealth manager can show you the pros and cons of each.
It’s also important to keep your business bank accounts and credit cards completely separate from your personal ones, and avoid mixing funds. And if you don’t already have business liability insurance, put that at the top of your to-do list.
#3: Understand the business’s ripple effect on your taxes
We could write a whole book around the decisions that impact how your business is taxed. But a good wealth management plan will extrapolate your day-to-day business decisions beyond your business’s needs to determine how they will also impact your personal tax liability.
For illustrative purposes, let’s imagine that your business’s profits—and therefore your owner’s distributions—are going to be higher than usual this year (lucky you!). With proactive financial planning, you can minimize the impact this has on your tax bill by greenlighting two big purchases you’ve been putting off in and recognizing them as expenses in the same tax year. A good wealth management plan will ensure that you, the hard-working business owner, get to keep more of what you earned.
#4: Make your cash flow as predictable as possible
Odds are that your income stream as a business owner is a bit less predictable than that of your employees who collect a consistent paycheck. As such, your wealth management plan should be regularly monitoring and planning for your cash flow accordingly.
This means maintaining the aforementioned separation of personal finances versus business finances, establishing a personal rainy-day fund to weather your business’s ebbs and flows, and regularly reviewing your personal budget and expenses to keep you right-side-up.
You may also consider applying for a loan or line of credit for added peace of mind—even when business is booming. You’re likely to get better rates or more funding when your business’s health is at its peak.
#5: Acknowledge that you deserve to retire, too
The latest data shows that more than a third of all small business owners in the U.S. have no retirement savings plan in place for themselves. 40% of those surveyed also said they are not confident they could afford to retire before the age of 65.
Personal financial planning forces you to think ahead and plan responsibly for your own retirement. This could include choosing an employer-sponsored retirement plan for yourself and your employees that aligns with your business’s needs and your personal goals. But there are also a variety of less conventional retirement savings tools, such as solo 401ks and life insurance policies, that can help you enhance your nest egg and your tax savings.
#6: Have a business continuation plan (not just a succession plan!)
You’ve probably thought about your succession plan, but a fiscally responsible entrepreneur will have a business continuation plan in place as well.
A business continuation plan maps out what will happen to your business if something happens to you. Even a short-term disability could wreak havoc on your operations. A good wealth management plan will make sure you have clear instructions in place to ensure that your business not only survives, but also thrives and retains its value in your absence.
P.S. If you haven’t thought about your succession plan, add it to this list! Whether you intend to pass the business on, sell it, or even donate it to charity, your decision will have a major impact on your finances in retirement that needs to be accounted for now. Download our free succession planning checklist now.
Bonus Tip: Find wealth manager who is experienced with entrepreneurs
Wealth managers are easy enough to find. But wealth managers who understand the complexities of a business owner’s finances are a rarer breed. Make sure the professional team you hire to help you manage both sides of the house—including your CPAs, legal advisors, and financial advisors—are all seasoned vets when it comes to supporting entrepreneurs like you.
Did you know? Advent Partners’ Certified Financial Planners® specialize in wealth management for business owners. Schedule an intro call with our team to learn how we can help you create a fully monitored financial plan that ensures your business, your family, and you are ready for good.
