Financial Planning for Business Owners



For many business owners, their personal life and business life are practically inseparable. That is why it’s important to integrate all the aspects of owning a business in developing a personal financial plan.

To deliver the combined expertise that a business owner needs, BWFA created a Business Services team last year. We are already working with numerous clients who have the unique challenges and opportunities that come with entrepreneurship.

When a new client who owns a business first starts to work with BWFA, we usually find that he (or she) has most of his wealth tied up in the business. Business owners see their business as their best investment; after all, it’s what they know best, and they believe strongly in their ability to succeed.

The issue is that the business owner has made a risky decision. In effect, he’s doubled-down on his investment, just like a person who puts all of his 401(k) into his employer’s stock. For every very successful business, there are many others that either fail or only have a modest return. For this reason, we recommend building a diversified investment portfolio with some of the wealth generated by the business.

Business Structure

Selecting the right business structures (LLC, S Corp, Limited Partnership, etc.) is a crucial decision. Different structures have different tax implications, and they also affect many non-tax aspects of a business, such as an exit strategy and the ability to shield personal assets from creditors. Also, the business structure that made sense three years ago might not be ideal today, if the business has evolved and/or tax laws have changed.

Insurance Planning

Insurance is another area that business owners need to address more carefully than non-business owners.In addition to the typical insurance policies of non-business owners (life, health, disability, etc.), business owners need to consider liability, property, health insurance for employees, workers’ compensation, business interruption insurance, and insurance for succession planning, among others.

Retirement Planning

Business owners have more retirement plans and options available to them than non-business owners. While greater choice is generally a good thing, the complexities of the choices can make choosing the right retirement plan very difficult.

Many factors should be considered before implementing a plan, including: the number of employees in the business; their access to company-sponsored retirement plans; the business owner’s tax situation; and the business owner’s retirement goals and need to build a nest egg.

Exit Strategy

Lastly, because the business is typically the largest asset for a business owner, an exit strategy is possibly the most important issue to address. Planning for an exit strategy needs to start early and should address the following: determining if the sale price of the business meets your retirement goals, determining the tax implications, and developing an investment strategy for the proceeds.  For details on implementing an exit strategy, see Brian MacMillan’s article on developing an exit strategy for a business.

If you are a business owner and are interested in learning more about how BWFA can assist you, in creating a comprehensive financial plan for you and your business, contact us at 410-461-3900.