WHAT IS FINANCIAL PLANNING FOR BUSINESS OWNERS?
Financial planning is the process of creating a comprehensive plan to fund your current and future needs. Financial planning for business owners is the process of including your business planning in your personal financial planning strategy.
We get this question often, “How is business owner financial planning different than regular financial planning?”. This article breaks down the difference between the two and what looks different for business owner financial planning.
Personal financial planning includes the traditional pieces we think about including education, home purchases, retirement, and long-term healthcare. For most people, the ultimate goal of financial planning is to ensure that your wealth will allow you to live the life you want when you retire. Traditional financial planning includes reviewing your current financial resources and requirements, setting long-term goals, and continuing to save money with 401ks, IRAs, and other employer retirement account types.
FINANCIAL PLANNING FOR BUSINESS OWNERS
Financial planning for business owners expands on personal financial planning to include the unique needs and challenges business owners face.
For most business owners their best tool for creating wealth is their business and so financial planning for business owners should put that tool at the center of the plan. At Entrepreneur Aligned, we help business owners and entrepreneurs take advantage of everything their business provides for creating wealth, with the goal of ensuring that wealth creates the things they want for the business owner and their family. Our mission is to help entrepreneurs live remarkable lives throughout their business owner journey and not have to wait for a business sale to do the things they want. So how do you unify business owner financial planning and personal financial planning?
BUSINESS PLANNING VS. PERSONAL FINANCIAL PLANNING
Business planning and personal financial planning work on different things but can be unified.
Most people earn income through their wages and build wealth through their employee retirement accounts, savings or investment accounts, and homes. Business owners earn income when the business is profitable and build wealth through the growth of the business equity and building investments when the business produces a higher profit. Business owner financial planning must incorporate the difference in income and wealth generation into the planning. This difference impacts tax strategy, cash reserve needs, and investment strategies because each needs to be flexible and support the needs of the business so that it can continue to grow. while setting the new owner up for success.
BUSINESS OWNER ESTATE PLANNING
Business owner estate planning involves business continuity and exit planning.
Most people understand that estate planning is intended to make sure your family is protected if you pass away or become disabled unexpectedly. Estate planning also allows you to specify how to distribute your wealth at the time of your death. Business owner financial planning and estate planning must incorporate planning for the business. A business owner's estate plan should include provisions for what happens to the business operations, management, and equity if you are disabled or pass away. It must also specify how each of these scenarios is funded. Business owner estate planning should also plan for potential estate taxes and how they impact the business.
CREATING A RETIREMENT PLAN AS A SMALL BUSINESS OWNER
Creating a retirement plan as a small business owner should reflect your personal and professional goals.
As a business owner, your retirement plan should center on your business equity and business strategy. Your retirement plan must also be built around your goals and priorities and what matters most to your family. As the largest asset you own, your business equity is going to have a large role in the financial plan for your retirement. Along the way, you also have the opportunity to use tax-advantaged retirement savings plans that you create for your business including 401Ks, IRAs, 457s, and other types of business owner retirement strategies.
ASSETS OUTSIDE YOUR BUSINESS
As a business owner, you have more opportunities for investments than capital available. Any investing you do outside your business should be designed to do one of three things:
1) Provide liquidity so you have cash reserves available
2) Provide diversification from your business income
3) Offer a higher potential return than you can produce in your business
Part of business owner financial planning is creating and maintaining an investment policy statement or IPS. Your IPS should specify what your objectives are for each investment and their tax and liquidity requirements. This process allows you to say yes to the opportunities that fit your overall strategy and say no to even great opportunities that don’t fit.
BRINGING IT ALL TOGETHER - THE BUSINESS OWNER FINANCIAL PLAN
The Five Pillars of Entrepreneur Wealth are:
1) Get Clear – What are your goals and priorities?
2) Grow Wealth – How are you creating and investing your wealth?
3) Manage Risk – How are you protecting your business and personal wealth?
4) Entrepreneur Equity – What is your business operating and exit strategy?
5) Maximize Life – How are you savoring experiences, nurturing relationships, and investing in personal development?
Your process for business owner financial planning should focus on each of those areas. You need to know what your vision and values are for your family and what specific goals you have that involve money. You need to create an investment plan and investment policy statement that incorporates all your personal and business wealth. You must manage risks of litigation, liability, disability, and early death to protect your business and personal wealth. You need to create a business equity management plan for today and when you ultimately plan to exit the business. Finally, you must remember that true freedom extends beyond financial prosperity to encompass a life well-lived. Focusing on each of these elements allows you to unify your personal financial plan and your business owner financial plan.
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If you have a question or simply want to talk through your financial planning, we are here to help.
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DISCLOSURE: Jarrod Musick is an officer of Destiny Capital and Entrepreneur Aligned, a DBA of Destiny Capital. This article is for informational purposes only and should not be relied upon as a basis for your investment, business, or personal financial decisions. We recommend consulting with your wealth advisor, CPA/tax advisor and/or attorney, as applicable to your situation, prior to implementing any new tax, legal, or investment strategy. Advisory services offered through Destiny Capital Corporation, an Investment Adviser registered with the U.S. Securities & Exchange Commission.
ABOUT JARROD
Jarrod was born into financial planning and solving financial problems. With his financial advisor father Steve telling stories about finance around the dinner table from an early age, the idea that everyone has a different financial situation was always there. After an early professional career spent in nonprofit and government, Jarrod came back to his roots helping people plan and invest in 2011. Since then, he has worked with individual clients, led internal teams and ultimately became partner and the CEO of Destiny Capital in 2017. With a passion for helping entrepreneurs change the world, Jarrod ultimately oversaw the creation of Entrepreneur Aligned in 2020. With both Destiny Capital and Entrepreneur Aligned, Jarrod leads teams that help people live lives of abundance where money is simply a tool to let everyone be a positive force for the world around them. When he isn’t working with the talented teams for EA and DC you can find him chasing his twins, wily trout or a podium spot at an OCR race.
