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It is Business and it is Personal – Why Financial Planning for Business Owners is Necessary Thumbnail

It is Business and it is Personal – Why Financial Planning for Business Owners is Necessary

By Erik C. Milam, Partner

My dad had a classic line, “Son, the only two certainties in life are death and taxes.” I would add a third: change. Anything that is alive changes.

This is certainly true for businesses.  For most business owners, there are three stages: survival, growth and exit.  Within these three stages are numerous challenges and opportunities.  This story highlights some of these, especially as it relates to personal values and personal financial planning, which are often forgotten as the business demands all the attention.

In the beginning, an entrepreneur’s primal need is to survive as most days are consumed by the business.  Sweat-equity is commonly used to describe the crucible of a new venture.  In “Seven Habits of Highly Effective People,” author and businessman Stephen Covey advises, “Begin with the end in mind.”  At the outset of any venture, it is useful to think about the desired destination and try to chart a reasonable path to get there.  For the business owner, doing personal financial planning alongside business planning can be essential.  Business affects personal and personal affects business.

Clarify your values before starting a venture.  Make a list of things you won’t do, like mortgage your health.  Have a conversation with your family about time away and the toll it will take on them.  Consider your feelings on debt and standard of living.  What sacrifices might you and your family need to make in the beginning?  What are your personal financial contingency plans if success proves elusive?

In the growth stage, you transition from survive to thrive.  It’s a time to re-imagine possibilities.  What does thrive mean for the business and for you personally?  Where is the next destination?  How long will it take to get there?  Should personal finances remain in survival mode, allowing the business to reinvest its earnings and achieve maximum value in a liquidity event?  These are important conversations to have, especially with others affected by these choices.

The final stage, exit, can come about in a myriad of ways: planned or unplanned, by choice or by forces out of one’s control.  You might picture a more secure and enjoyable life in your future after a liquidity event.  A less successful venture might cause you to picture an end coming from unpredictable market forces, tax law changes, unexpected health decline, death or disability, etc.

  • Are you stress testing your business and personal finances for these different scenarios?
  • What if the business sells at a date of your choosing, but for less than you planned?
  • Will you have saved enough?
  • What if you decide to pass the business on to your children?

Planning for the final stage is needed long before the end is in sight.

The most important part of the exit is defining what’s next.

  • What will life look like without the business you created?
  • What changes will you make in your personal life?
  • What activities will you want to stop, continue or start?
  • How do you want your new wealth to change you, or not change you?
  • What business expenses will now become personal expenses without the tax write-offs?
  • Will you start another business?
  • If you take time off, what will you do with the time?

All these questions are worth considering many times over during the lifecycle of a business.

An entrepreneur can start many businesses and achieve financial success, but he or she only has one life to live. An entrepreneur’s personal life and finances should be cultivated and planned for with the same dedication it takes to start, grow and exit a business. There certainly is a time for everything, but over the course of a lifetime, should the business owner serve the life of the business, or should the business serve the life of the business owner?

TrustCore helps clients navigate the unique planning challenges of entrepreneurship, including personal financial planning in each phase of business ownership. To start a conversation, ontact us.

TrustCore is one of the largest independent wealth management firms in the U.S. From its offices in Brentwood, a suburb of Nashville, TrustCore advises on client assets of $1.8 billion for clients in 34 states across the nation.

Financial planning and investment advisory services offered through TrustCore Financial Services, LLC. Investments offered through TrustCore Investments, LLC, member FINRA and SIPC®. This is not an offer, or solicitation of an offer, to buy or sell any security investment or other product.