Retirement v. Business Owner Planning

We often get asked what the difference is between retirement planning and business owner planning when it comes to personal finance. The answer is focus. For most non-business owners the focus of financial planning is retiring successfully while hitting the major financial milestones of life between today and the day you retire. For business owners, the focus is on meeting all the needs, wants, and goals of the family while also nurturing and growing the business. In this article, I dive into some of the key differences in personal planning based on where the focus is.

Business Equity:

As an entrepreneur, your business equity should be at the center of your planning. It is almost always the best-returning asset you can invest in, and the equity value can grow significantly while also producing the cash flow that powers your family. Instead of a retirement plan, you have a business equity management plan. This plan should cover business continuity, business exit, and a risk management plan. The goal is usually not to sell a business and retire but to keep optionality so that the business meets all of your financial needs and you retain the option to sell it when it suits you.

Investing:

Your business is an investment so you need to treat it that way and include it in your investment planning. We work with clients to create an investment policy statement (IPS) that governs the purpose of each investment, its characteristics, and the tax outcomes you are seeking. Your business should be reviewed as part of this investment mix and any investing you do outside the business should be to provide something the business doesn’t. This can include providing liquidity, return diversification, or a tax outcome that helps the overall strategy.

Life Goals:

For retirement planning, focused life goals can be things like paying for college for your kids, buying a vacation home, or doing home renovations. For business owner-focused planning, the items can be similar but the scale changes a lot. The size or frequency of things gets bigger because the financial outcomes your business provides are bigger. So instead of planning for a family of four trip to Disney World, you may be planning for an extended family trip of 25. Instead of a two-bedroom beach condo, you may be planning for a 20-acre ranch purchase. The methods look similar, but because the size of the life goals tends to get bigger, you should plan differently. You need to be looking at modeling business cash flow growth and how to use that growth to fund these things, as well as thinking about capital reserves for the business and family instead of just saving for a specific purchase or event. When your dreams can and do expand, you need to plan a bit differently.

When you are looking at your life with a business or businesses at the center, it changes the way you go about planning and decision-making. You get to live in a world of possibility because as your business succeeds you get to go chase some truly unique experiences and opportunities for your family. For your business to succeed, fund what you need, and give you the option to change your mind about things over time, you need to have an adaptive mindset to planning. A business that generates $500,000 of owner benefit today may generate $5M of owner benefit in two years. How you plan for that change and make sure that money is always connected with the meaning you want it to have for your family is the key shift between a retirement focus and a business owner focus.

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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 provided by Destiny Capital Corporation, a Registered Investment Adviser.

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.