The lives of many entrepreneurs frequently get defined by their business.
Business owners are typically smart, hard driving people with their eye on one thing only – SUCCESS. Entrepreneurs take on an alter ego that makes it very difficult to separate their lives from their business lives.
There are six common missteps that, if avoided, can make wealth planning much less stressful.
- Their work – life balance is off. It sometimes takes 24/7 dedication to launch and grow a business to significance. But let it be known that there is life beyond your business. Developing a work life balance is healthy and can add vigor to your life, and hence your business.
- The relentless focus on business growth frequently causes an imbalance to your assets, liabilities and cash flow. Cash flow is the first to make noise. During the start-up phase, sweat equity, or working for little to no pay is a common situation. Be sure to have adequate reserves and a low cost of living to survive this stage.
- Debt becomes unmanageable, and minimizing personal debt will ease the pressure of taking money out of the business. Most businesses will be better off with capital in the till rather than the overhead of a large owner’s salary.
- Many entrepreneurs also fail to recognize the consequences of personally guaranteeing business debt. This may impact your credit score and your ability to access financing for a home or education. Owners also need to consider what happens to that debt if the entrepreneur passes away pre-maturely.
- The balance sheets of many successful entrepreneurs become lop-sided where the business asset is the single largest asset on the personal balance sheet.
- Just like you wouldn’t invest retirement funds in only one company, your company shouldn’t be your only investment. Business owners need to diversify and invest in retirement plans, other assets and generally in vehicles that are segregated from the business.
All businesses have a fiduciary liability to their employees and customers to have a succession plan. A succession plan includes many different parts. You need a legal agreement, funding and an operating plan to continue without your leader.
Just because you love all four of your children does not mean that all four should be future owners when you retire or die. Talented people become owners and key employees based on merit, not blood line. Deal with family succession issues on an arm’s length basis – rewarding their experience and ability to continue, maybe even grow the business.
There are many creative ways to equalize the estate of an entrepreneur for your children not involved with the business without compromising the businesses ability to survive beyond the passing of you the founder.
John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA. Visit napierfinancial.com for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Legal counsel should be consulted for specific advice or recommendations about any individual’s personal legal circumstances. Investment and financial planning advice offered through US Financial Advisors and Great Valley Advisor Group, Registered Investment Advisors.
