3 Key Steps to Financial Planning for Business Owners

Running your own business can be an exciting and rewarding challenge, with plenty of ups and downs along the way. However, as a business owner, you aren’t just in charge of your business. You’re also responsible for setting and working toward your personal financial goals. To help you get started on the planning process, here are three key areas we believe every business owner should focus on when addressing their overall financial plan.

1. Cash flow planning—Personal vs. business goals

In our experience, it’s important to understand that the goals for your business are often different from those in your personal life. For example, goals for your business may include increasing revenue or establishing a new business line. On the flip side, your personal goals may include things like buying a vacation home, paying for college or retiring early.

However, I believe it’s important to have balance when it comes to cash flow and where to allocate it. How much should you reinvest back into the business? How much cash flow do you distribute and how much should you save for retirement? Well, it depends on everyone’s unique situation, but here are a few general things to consider:

Emergency reserves.

Unlike salaried employees, owners may face variable and often unpredictable income based on fluctuations in business revenue, increased expenses, economic environment, etc. All of these factors may have an effect on your personal paycheck—therefore, it can be important to build an emergency fund with cash set aside (i.e., a “rainy-day” fund).

After-tax investments.

Once you’ve built up a reasonable rainy-day fund, we’ve found it’s also important to consider longer-term goals such as college, weddings, new cars, a vacation home, etc. Investments for these types of goals seem to usually be held in after-tax brokerage accounts, as they are readily available and often invested in some mix of stocks and bonds to help provide stability and growth.

Retirement planning.

This one is somewhat correlated when it comes to business and personal goals, since putting more into your business would hopefully increase the value when you exit, providing more money for your retirement years. In my view,it’s important to earmark some funds into retirement plans. Not only is there a tax incentive to do so during your high-income years, but investing over a long time allows the potential for returns to compound and grow more.

2. Diversification

Business owners often have much of their wealth tied up in their business. Of course, growth in a business is great, but sometimes it may pose considerable concentration risk for the owner’s overall finances. What if the business had done well for 10 years, and the owner reinvested all earnings to help continue the growth? It might sound ideal, but if an unforeseen circumstance subsequently causes the business to fail or face a serious setback, that’s when the owner needs to fall back on a diversified investment portfolio that has hopefully been built over time. Diversification mitigates risk by putting some earnings into different investments like stocks, bonds, real estate and private investments. These investments are still expected to grow over the long term, whether or not your business fails.

In our opinion, you should also get valuations done every few years to understand how much is tied up in the business relative to your total wealth. Additionally, it seems to be prudent to review your overall asset allocation to ensure adequate diversification across asset classes (like those mentioned above), to help maintain a solid risk-return profile for your investment portfolio.

3. Succession and estate planning

A business can be more than just a means of generating income. Many owners consider their business to be an integral part of their legacy, so it’s appropriate to plan accordingly. Crafting and executing a successful succession plan takes a lot of work long before the exit takes place. Do you know the approximate dollar amount needed to walk away and enjoy a successful retirement? Have you thought about whom you want to sell to, and if you’ll maintain any involvement afterwards? Do you have insurance in place if unexpected incidents arise? We believe these questions, among others, are important to address early in the process so you are well-prepared for a smooth and successful exit.

Estate planning often gets overlooked because, let’s face it, it’s not a fun thing to think about. However, it’s highly recommended to meet with your estate attorney early on, in order to think through any potential strategies to mitigate taxes and ensure that your assets, including your business, are managed and distributed how you want when the time comes.

As always, I believe it’s crucial to review this with your Corient Wealth Advisor whenever your situation changes, to help ensure that both your business and financial goals are achievable and can set you up for long-term success.



Brendan Manna

Brendan Manna

Associate Wealth Advisor

Brendan enjoys providing financial guidance and support so clients can focus on what is important to them in their everyday lives. He graduated from the University of Missouri where he earned a Bachelor of Science in Business Administration with a major in Finance and Banking. Brendan is a CERTIFIED FINANCIAL PLANNER professional and holds the series 7 and 63 licenses. Brendan is a part of the Investment Committee and working on his CFA designation.


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