If you’re like most business owners, you may find yourself so engrossed in running your business that you neglect your personal financial goals. Balancing your desire to lead a profitable business and achieve your aspirations can often lead to stress and frustration—in some cases – it can even result in missed opportunities.
Below, we’re exploring strategies you can use to more effectively align your business success with your financial goals while working to strike the perfect balance.
Your Business and Personal Financial Goals Are Connected
Business owners have a passion and drive for what they do that’s unparalleled by most other professionals. They spend countless hours, energy, and capital getting their business going from the ground up—turning a concept into a profitable and successful entity. It’s no wonder that a business’s well-being is deeply personal and engrained in an owner, both emotionally and financially.
It’s critical to remember, however, that your business is also your primary source of income, which may be funding your future retirement or other long-term goals.
With continuous business demands and long workweeks, business owners must pay more attention to their financial planning responsibilities. Their goals feel so interconnected to their businesses that it becomes challenging to differentiate between them. Yet, someday, you will want to step back—or move on to other adventures and new roles. You need to be able to stand up as a financially independent individual.
In addition, some business owners have a “number” of what the business needs to be worth to sell it but have no idea if that would be enough to meet their retirement vision. Some may think that number needs to be a lot more than it needs to be. Again, it is important to have a plan so you know what you are working towards —because one has the power to impact the other.
Set Clear Personal Financial Goals
With an understanding of how your personal and business finances are interconnected, now’s the time to think about your financial goals.
While retirement is likely at the top of the list, you may also be interested in funding a child or grandchild’s future college education, buying a vacation home or investment property, or giving charitably to a cause close to your heart.
After considering your personal financial goals, it may help to break them out in order of importance and time horizon—near-term, mid-term, and long-term goals, for example. You and your advisor can use this to help determine your financial priorities and investment strategy.
The Risks of Neglecting Your Personal Goals
Until you put your personal goals as a top priority, you may be susceptible to certain financial pitfalls, such as:
Over-Investing in Your Business
Depending on how your business is established, you may be putting too many of your eggs in one basket—yes, it’s possible to over-concentrate in your business, just as with any other investment in your portfolio. Doing so is tempting, especially when you’ve poured your heart and soul into building something successful. But imagine—what if you could not work tomorrow, and your business income suffered? Or, what if a natural disaster or unexpected event shut down operations for the foreseeable future?
Consider how to protect yourself financially by building your savings and diversifying your portfolio—notably if the business can no longer support you financially.
Ignoring Your Future Retirement Needs
While retirement may feel lightyears away, those who prepare early reap the benefits of long-term investing and compounding interest. Delaying your retirement planning (especially if you don’t have traditional retirement savings tools like a 401(k)) can impact your ability to retire on time and maintain your existing quality of life.
It’s important to note that saving for retirement can feel expensive, especially if starting from scratch. However, it creates a discipline that will grow over time and the fees will become a smaller part of the equation. This can be counter-intuitive from a financial perspective but if it creates the habit of regular savings over time, this can be very valuable.
Working with an advisor, you can develop an intentional retirement plan that aligns your personal long-term goals with a business exit strategy that works for everyone.
How to Balance Your Business and Personal Financial Goals
As long as you’re a business owner, you’ll need to be thoughtful and intentional about balancing your business’s and personal financial goals. Here are a few critical areas an advisor can help you address:
Cash flow: You need consistent and steady income to support your personal goals. We can help you make decisions regarding profit distribution and salary planning and establish a budget that addresses your fluctuating cash flow.
Diversifying investments: Diversification is one of the most fundamental investment strategies used today, yet business owners often need to be more educated in their own business. We can help you develop an appropriate asset allocation within your portfolio that incorporates other assets like stocks, bonds, real estate, and more.
Tax planning: It’s important to incorporate tax efficiency and potential tax-saving opportunities into your financial life, such as making pre-tax contributions to your retirement accounts, using tax-loss harvesting within your portfolio, or pursuing more tax-efficient charitable giving strategies. In addition, tax planning while is business can also assist in tax planning for the future sale of your business.
Managing risk: Protecting your assets against risk is critical in both your personal life and your business. Risk management can take many forms, from reevaluating your insurance policies to creating a contingency plan and emergency fund.
Set Yourself Up for Success on Both Fronts
Business owners face unique challenges in addressing their personal financial goals and well-being. While it can be difficult to separate yourself from your business, doing so is key to achieving long-term goals like retirement or succession.
With the right planning and guidance, business owners can achieve success on both fronts—without sacrificing one for the other. To learn more about how TFS Advisors can help you balance your financial priorities, schedule a consultation with our team today.
