Wealth, Succession and Financial Planning for Entrepreneurs

You’ve grown your business with care, nurturing it through each success and expansion, but business owners have unique wealth management considerations: How do you pay yourself? How do you protect your money from liabilities? Do you have a business exit strategy? Whether you choose to keep the business within the family, retain a role in the company or sell it outright, there will be financial pros and cons.

As an entrepreneur, you may be used to taking risks, but when it comes to securing your next phase in business and in life, there are some risks that may be reduced with smart decisions made sooner rather than later.

Family Business Succession Planning: Is That Your Vision?

It’s a common dream among entrepreneurs to build a legacy that can be passed on and expanded for generations to come. Transferring a business to family members can be a good way to keep your hand in the game. To ensure a smooth transition from one generation to the next, make business plans and decisions with a long-term view and communicate them clearly to all family stakeholders. Draw up a formal succession plan and be open about it with your family, to ensure that everyone has time to prepare for their changing roles. To avoid potential family conflicts, it may help to set up an independent governing board to help resolve issues. Planning together is the key ingredient for family – and family business success.

Business Succession Planning

On the other hand, if your family members are not passionate about the business to grow its value into the future, perhaps family succession may not be the best fit. However, it may be helpful to still identify and prepare a trustworthy successor or succession team, should someone need to take the helm for any reason. Identifying new leaders early can help you prepare them for a smooth transition.

It’s also important to consider your future role in the company. Business owners who want to retire or focus on other pursuits will need the company to run smoothly without them. This requires the development of a business model that works independent of your direct involvement on a day-to-day basis. With the right business model and leadership, you can step away from the hands-on management and collect dividends as a shareholder, to put towards retirement or possibly invest in another entrepreneurial endeavour.

Attracting Investors and Buyers

It is generally advised that from the start, enterprises should be run as if the goal is to someday sell them, whether or not it is the case. With this mindset, maintaining spotless bookkeeping, with meticulous records of every transaction and, most importantly, a detailed history of earnings reports would be crucial. When you can provide a transparent picture of daily financial activity and an accurate overview of profits and losses over time, you’ll likely attract more investor interest and command a more favourable bargaining position should you decide to sell.

Growing and Protecting Your Personal Wealth

While building and growing your enterprise, an important consideration is how you wish to be paid. Choosing to earn a salary or receive shareholder dividends can have implications for taxes and retirement planning. A portfolio should begin with backup savings, to maintain your personal finances and possibly even keep your business steady in challenging times.

Be careful of becoming so engrossed in your company’s financial health that you neglect your own. Take time to stay up to date with your insurance needs. Insurance is one of the most common ways to safeguard personal assets, and packages that include life insurance, health insurance, trauma insurance and income protection insurance can shield your accumulated wealth from catastrophe. Even in a limited liability business entity, owners can be subject to personal liability in certain instances.

Finally, estate planning may be the best way to protect your wealth for the next generations. A trusted professional can help you draw up a will or trust to transfer your assets to the right people at the right time and avoid heavy taxes that would erode the value that you worked so hard to create.

Achieving Financial Freedom

Place your earnings, whether from salary, dividends or sale proceeds, where they can continue to work for you. Avoid investing all your earnings and gains back into the company. Smart entrepreneurs are likely to have well-diversified investment portfolios, just like every other savvy investor.

And be prepared, as some entrepreneurs may encounter the feeling of ‘once an entrepreneur, always an entrepreneur’. After experiencing success in building something of great personal and financial value, it is not uncommon for entrepreneurs to use their wealth to start up or purchase another business. For this, one would need to consider the feasibility of maintaining both businesses and their future roadmaps.