By Dan Owens, CPWA®
Small businesses are the backbone of our country. At Elk River Wealth Management, we specialize in helping business owners manage their personal finances, understand how their business fits into their overall financial plan, and avoid pitfalls that can derail life.
In working with our clients, we often see business owners make similar mistakes when it comes to managing their business and personal finances. Let’s discuss these mistakes and how you can avoid making them yourself.
1. Neglecting Personal/Family Retirement & Financial Planning
It’s easy for business owners to overlook their personal financial well-being—especially for an event that seems far away, like retirement. When you have a full plate with your business and other aspects of your life vying for attention, your retirement planning may take a back seat. However, neglecting your retirement plan could have serious consequences.
The longer you wait to develop a retirement plan, the greater the risk of not retiring on your terms. People say, “Time is money,” and it is also a helpful resource when planning for distant goals. The inverse is true, too; the lack of time can be a challenge difficult to overcome. As a business owner, it’s important to have clarity regarding what you want retirement to look like for you, so you can start building a plan to achieve it.
Will you continue running your business? Are you planning to pass it on to your children or grandchildren? Or do you plan to sell it and retire with the sale proceeds? What sale price would be enough to fund your retirement lifestyle?
With a skilled financial advisor, you can take the first steps toward establishing a comprehensive retirement plan that satisfies the needs of your business finances, your family finances, and your personal retirement planning.
2. Not Having a Business Succession Plan
You’ve poured your heart and soul (as well as many valuable years of your life) into building a successful business. Setting a business succession plan outlines essential details regarding:
- Business continuity
- Leadership succession
- Ownership transitions
- Who will buy the business and how will they fund the purchase?
If anything happens to you, or even your employees, there should be a clear plan of action that helps maintain the longevity and success of your business.
Another key component of a business succession plan often includes buy–sell agreements and key man life insurance. A buy–sell agreement outlines the process of buying out a deceased or departing owner’s share of the business. Key man life insurance supplements the business with financial support in case a key employee or owner passes away unexpectedly.
Without these succession planning components, your business could experience immense uncertainty if anything happens to you or another owner.
3. Not Choosing the Right Entity Structure and Business Insurance
Selecting the appropriate entity structure for your business, such as an S corporation or C corporation, has significant tax and liability implications. The choice can impact your personal liability, taxation, and even your ability to raise capital.
To choose the most advantageous business structure for your business, it’s important to research your options thoroughly; and consult with a financial planner professional for an informed decision that aligns with your business goals.
Additionally, business insurance is non-negotiable. Proper entity structure may protect you from liabilities arising from your business, and it is important to safeguard the assets of the business. An appropriate level of business insurance shields your business from unexpected events, such as lawsuits, property damage, or employee injuries.
Investing in the right insurance coverage safeguards your business’s financial stability. A financial planner professional can help you assess your insurance coverage and identify any gaps.
4. Inadequate Employee Benefit Structures
If you were one of the businesses affected by recent labor shortages, you know how crucial it is to attract and keep a dedicated team. Offering employee benefits like these helps your business remain competitive in the labor market.
- Retirement plans
- Health insurance
- Dental and vision
- Other perks
Without structured employee benefits, your business could experience higher turnover or face a lack of applicants for open positions.
At Elk River Wealth Management, we work with experts in benefits who will help you take care of your employees by working with you to design a comprehensive benefits package aligned with your business’s financial capacity and employee needs.
5. Neglecting Investment Diversification
Overreliance on your business’s success to provide financial security could backfire if the market shifts or the business faces a dip in profitability. Diversifying your investment portfolio beyond your business can help reduce the risk of putting all your eggs in one basket.
If there is a problem in the business, it is likely you will be called upon to fix it. The fix may mean changing how you do business, but it may also mean more capital, which means you need to be prepared.
It is smart to build a nest egg outside of your business. Construct a stable investment portfolio that has a mix of securities, such as:
- Real estate
- Exchange-traded funds (ETFs)
- Mutual funds
It’s important to diversify based on industry as well. For example, if your investment portfolio is made up only of stocks in the technology sector, a disruption in that industry could result in a larger negative impact on your investments.
During periods of economic downturn, the right diversification strategy could cushion potential blows to your portfolio and minimize losses.
Avoid Financial Mistakes With Professional Guidance
As a financial advisor for Elk River Wealth Management, we’ve worked with business owners like you, and we are familiar with how much you’re handling on a regular basis. You know your business inside and out, and you need someone just as familiar with your finances.
As a Certified Private Wealth Advisor® professional, I’ve helped business owners like you avoid financial pitfalls by developing a customized plan that fits their lives and their business. If you’re ready to get your small business on the right track financially, we invite you to schedule an introductory meeting by emailing email@example.com or calling (720) 452-1875.
Dan Owens is a Managing Director and Senior Wealth Advisor for Elk River Wealth focusing his efforts on the Arizona market.
Dan has over 20 years of experience in the financial services business and is a Certified Private Wealth Advisor® (CPWA®). Dan values building relationships with clients and focuses on the financial needs of individuals, families, and business owners. Dan enjoys what he does and is dedicated to helping people successfully navigate the complexities of the financial system.
Since moving to Arizona in 2003, Dan has been an active member of the community, volunteering for projects and organizations that support the greater Arizona community. He has served on local boards, committees, and foundations, including UMOM, HandsOn Greater Phoenix, SARRC, CoBiz Cares Foundation, and CoBiz Biz Bash. Today, he is a proud member of the Team Bradley Bear board helping families struggling to pay bills while battling pediatric cancer.
Dan met his wife, Kim, while both were volunteers and together remain passionate about helping others. They make their home in central Phoenix and enjoy riding bikes, hiking, and other outdoor activities with their two children.