Financial Planning and Wealth Management for Entrepreneurs
Business owners are frequently accustomed to taking charge and doing it all. Often times, they wear many hats and live by the old adage, “If you want something done right, do it yourself.” In some aspects of successful entrepreneurship, this can be a valuable motivator, but in others, say wealth management for entrepreneurs, this can produce bad results.
We understand why this happens: Many business owners feel like the only person they can truly count on is themselves to ensure that their business succeeds. Fewer hands in the pot means more control for the business owner, who ultimately wants to make sure things go according to plan.
However, when it comes to more complicated and nuanced areas of business ownership, like how a business affects your personal finances, taxes, financial planning and asset protection, it can actually be more beneficial to bring in an expert. By outsourcing these kinds of financial tasks to a professional financial advisor, a business owner can make sure the business is on track for growth, while the financial advisor can focus on optimizing the future wealth accumulation.
As a business owner, you have probably invested a considerable amount of your own personal financial resources into your business, as well as your time and energy. You want it to succeed, but while you’re busy running and growing the business, you may not have time to be concerned about many of the financial issues associated with running a successful business.
For example, do you have a comprehensive retirement savings plan? Are there asset protection strategies in place, and are they sufficient? A financial advisor who specializes in working with business owners can take some of these concerns off your plate by helping you manage them in ways that are best for you.
While you’re balancing the budget at the office, who is calculating your housing and healthcare needs for retirement? Many business owners are so laser focused on their business finances, they neglect their personal finances and things like retirement plans.
In order to keep the business on track, and to pay their employees or to reinvest in the business, business owners often take little or no salary, especially in the early years, with the expectation that when the business does take off, their personal finances will catch up. But what if the business doesn’t take off? No one can run a business and work for free forever.
The reason why some business owners fail to have a sufficient retirement savings plan is that they think they will sell their business and then be able to retire and live comfortably from the proceeds, or that they will continue to collect income from the business during their retirement years. But what happens if the business sells for much less than the owner expected, or if there is no buyer to be found at all?
A financial advisor can help you manage your finances in a way that allows you to draw a fair salary from a business and develop a more diversified and reliable savings plan for your retirement that is not contingent upon you having all of your nest eggs in one basket.
Business owners are sure to face the following important financial questions at some point in their careers:
What taxes am I responsible for paying?
Don’t assume you can fly under the IRS’ radar just because you’re a small business owner and may have relatively small tax liabilities. In fact, the IRS has recently been cracking down on small businesses shirking their tax obligations, by increasing the number of small businesses targeted for tax audits.
When it comes to taxes, a financial advisor can help you make sure you are maximizing your tax deductions and write-offs, paying the right amount of taxes – sales tax, property tax, self-employment tax, payroll tax, etc. – and paying them on time to avoid penalties and fees.
How would I protect my assets in the event of debt collection or litigation?
As a business owner, your personal assets may be at risk, depending on how your business is legally structured. If you’re not incorporated or operating as an LLC, your business’ creditors can go after your personal assets to recover funds.
Other asset protection strategies a financial advisor may recommend for wealth management for entrepreneurs include setting up a qualified retirement plan, carrying the right amount of insurance coverage and transferring assets prior to any creditor claims. Obviously, the hope is that you will never be required to actually utilize any of these asset protection strategies, but a good business owner will have them in place nonetheless.
How will I handle the sale of my business?
If you thought selling your business would be as simple as listing it and turning it over to the first person who offers you asking-price, you couldn’t be more wrong.
In reality, there are many factors to consider when selling a business. For example, there is a right time and a wrong time to sell your business: On average it takes two to four years to sell a small business, so if you’re planning to retire at 60, starting the process to sell your business at age 59-½ is the wrong time.
Likewise, it is easy to make up a number for your sale price, but asking for too much or too little could put you at risk of not selling at all, selling to the wrong person or shorting yourself. Setting a realistic price tag takes planning, research, complete and comprehensive record keeping and usually a consultation with professionals.
It can be hard to relinquish control and trust someone else when you’re trying to grow a successful business. But when you work with a financial advisor, you reduce the risk and the burden that dealing with these often-tricky financial situations can pose to you, which ultimately (and ironically) can give you more control over your business and its success in the long run.
Don’t be afraid to ask for help. Hiring the right financial advisor can be the best decision you make. Contact Linscomb & Williams to see how we can help.