Balance Personal and Business Financial Planning

For many successful entrepreneurs, it can be difficult to tell where their business ends and their personal lives begin. These driven professionals spend almost every waking moment (and sometimes even sleeping ones) thinking about the how to take advantage of opportunities for growth or, conversely, how to overcome obstacles that may keep their companies from running smoothly. Entrepreneurs often come to feel that, as long as they stay focused on the business, many other issues – both personal and professional – will work themselves out.

This blurring of the lines between a business owner’s personal and professional lives frequently extends to their thinking about financial planning, too – as well it should, since their most valuable asset will usually be their ownership stake in the company. Entrepreneurs need to be aware, though, that the practice of putting the business first and trusting that other matters will fall into place – while it may have served them well in building the company – can also leave them underprepared or exposed to unnecessary risks when it comes to personal financial questions.

In my experience advising dozens of business owners over the years, here are some of the key issues that entrepreneurs should bear in mind when it comes to positioning themselves to translate their professional success into financial security for themselves, their families and their heirs.

Retirement Planning: Diversification Still Matters. There is no question that a successful entrepreneur’s best use of capital is often to re-invest in his or her business. The know-how, talent and commitment that helped them establish and build the company in the first place will frequently mean that re-committing cash to the enterprise – in essence, betting on themselves – will yield a higher rate of return than might be available through traditional investment options.

Unfortunately, there will always be factors outside a business owner’s control that can impact a company’s valuation and the owner’s potential exit strategies. During the financial crisis, one of my clients – a successful long-time entrepreneur – encountered difficulties with his company at the same time that he suffered an unexpected death in the family. He needed to quickly shift gears and focus on personal matters, but the economic climate made a successful exit from the business highly unlikely.

Fortunately, he had been careful to diversify his assets by establishing and maximizing a defined benefit plan. When the crisis hit, he had built up a cushion large enough to allow him to retire from his company and focus on personal matters. Despite the pain of seeing his hopes for an orderly and lucrative exit fade, his foresight and willingness to develop a portfolio of assets outside the business meant that he had strong options – and the ability to control his own future – when the downturn came.


Risk Management: Establish Multiple Layers of Protection for Personal Assets. As a business grows and evolves, the question of how to separate and adequately protect both the assets of the company and the founder’s personal assets can come up repeatedly. Incorporating will provide only one layer of protection for an entrepreneur, and the demarcation between business and personal assets can become blurred as owners re-invest in their companies or – more painfully – encounter unexpected legal liability.

Business owners should seek to establish strong relationships with sophisticated property and casualty insurance providers who can help them assess the various sources of risk that may exist in their businesses, including from plant and equipment, workers’ compensation suits and others. Spotting such risks early and insuring against them can provide entrepreneurs with an additional layer of protection and prevent them from having to put personal assets at risk in the event of an unforeseen lawsuit or accident.

On the personal side, business owners can help themselves sleep better at night by working with legal counsel who can help them determine how to title various assets; identify which assets are attachable for various purposes and which are easiest to protect; and answer other key questions.

Estate Planning: Make Sure Personal and Business Planning Are Aligned. Most entrepreneurs are keenly aware of the need to establish business continuity and succession plans – in effect, an estate plan for the business – but they find it difficult to carve out time to develop these plans in the midst of managing day-to-day operations. Conversations about personal estate planning are a great opportunity for entrepreneurs to focus on business continuity and succession plans, as well, since these topics are often closely intertwined.

Especially for cases in which there will be a change in control for the company after the founder retires, business owners should be clear on how their own family’s desires will impact long-term plans for the company. Some family members may simply want cash, for example, while others may want to stay more closely involved. Personal estate planning conversations can be the ideal time to review key issues such as how long a successor owner will pay out the founder’s heirs; how a planned change of control will be funded; and how the entrepreneur’s heirs will handle any resulting tax issues.

For successful entrepreneurs, juggling personal financial needs with those of their business is not a matter of separating the two. Rather, it comes down to understanding how one side of the equation impacts the other, and how to plan ahead in order to balance both. By taking care to establish the right plans and protections for both halves of their overall financial picture, business owners can see to it that they and all of their constituencies – family members, employees, business partners and customers – reap the full benefits of their years of hard work.

The above material was prepared by Forbes.