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5 Tips for Managing Wealth as a Business Owner

Savvy business owners, particularly those with good advisors, generally have a pretty solid grasp of financial management when it comes to planning, strategy and cash flow. Yet, like the shoemaker who sends his kids to school in holey boots, their own personal wealth management is commonly neglected.
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Savvy business owners, particularly those with good advisors, generally have a pretty solid grasp of financial management when it comes to planning, strategy and cash flow. Yet, like the shoemaker who sends his kids to school in holey boots, their own personal wealth management is commonly neglected.

Business owners are acutely aware that starting, growing and running a successful business can be highly demanding of your time and resources, typically resulting in other aspects of life – such as personal finances – being pushed down the priority list. Setting aside the time to focus on your personal wealth management plan in the short-term can pay big dividends later on. It can also provide you with peace of mind that the hard work invested within your business is keeping you on track to achieve the broader life goals that are important to you.

The underlying wealth management strategies and tools utilised are quite consistent for those who run businesses and those who don’t, however for business owners, it is the link between their business and personal world that holds the key to effective management.

Here are five key tips for business owners for managing wealth.

1. Ensure a degree of separation between your business and personal world

As a business owner, you need to treat your own personal finances as being distinctly separate to those of your business, even if you are operating as a sole proprietor. Businesses with multiple shareholders are generally better at doing this because they are typically forced to keep personal matters out of the business. At the most basic level, this means keeping your business and personal bank accounts and liabilities separate, not mixing personal expenses and business expenses, and having a clear strategy with defined objectives for both your business and personal plan. Maintaining financial separation between your personal and business affairs will not only minimise risk, it will also give you a clearer picture of how your finances are tracking and the areas where improvement is required.

2. Shift your mindset from having all of your wealth within the business

Business owners often think of their wealth management just in terms of their business. Superannuation is a classic example of this. Many business owners believe they do not need superannuation because their business is their super. Super is actually a great way to tax effectively extract profit out of your business and build wealth outside of the business, while potentially setting up wealth accumulation strategies that end up benefitting the business. In the early days, it may be necessary to focus on building your wealth inside the business, however as soon as it can be supported, you should look at ways of extracting wealth from the business in a disciplined and tax efficient manner.

World renowned motivational speaker and coach, Anthony Robbins, promotes the concept of placing a ‘personal wealth tax’ on your top line revenue. As part of your business plan, establish and factor into your planning a percentage of your income that is both sustainable and meaningful, to direct into a diversified portfolio of personal investments that will produce passive income. This, along with the effect of compound interest on your portfolio, will produce significant long term results.

3. Have a personal wealth 'business plan'

The best run businesses always have a business plan, with clearly defined short and medium-long term objectives. This will usually include financial and cash flow forecasting, risk management and strategies designed to help the business grow and prosper. As a business owner, you should apply the same philosophy to managing your own personal wealth. Your personal wealth management plan should set goals that are specific and are directly linked to what is important to you in life. It should include financial forecasting and budgeting to map out your personal wealth and set a plan to work towards both in the short and long term. As with a business, it’s important to monitor, evaluate and adjust what you are actually doing in relation to the plan on a regular basis to ensure that all risks and opportunities are considered. As with running a business, having a great handle on your personal cash flow is absolutely critical to ensuring that your plan is effective.

4. Understand the impact of your business performance

Business owners need to understand the direct relationship between the performance of the business and their personal wealth. Profit forecasts are important to measure the success of a business, however it is the net cash result of the business that has the greatest impact on your ability to achieve your personal objectives. You should understand the direct correlation that the financial results within a business provide you with personally and regularly review and adjust these objectives so there is a link between business success and personal wealth success. Again, this comes back to maintaining separation between your business and personal wealth. If you have this separation and you do not reach your objectives, you can identify what went wrong and adjust your plan and your strategy accordingly.

5 .Utilise technology and advice

When you have limited time to focus on your personal wealth management, effectively utilising technology and the advice of trusted professionals is invaluable. This assistance will help you stay on track with your personal wealth management plan and provide ongoing insights into how you’re tracking. Working with a team that intimately understands your business and personal objectives, goals and circumstances will ensure that the right strategies and structures are put in place, and that risk is adequately addressed.

By maintaining separation between your private and business wealth, developing a solid personal wealth management plan and having the right support in place, you can ensure that you minimise your exposure to risk, at the same time as maximising both your personal and your business wealth – with the ultimate goal of enjoying life more in the process!

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Did you know?
The origin of the BlueRock name is a mash-up of the founders two favourite things.
Through a mutual love of the Carlton football team and Dwayne 'The Rock' Johnson, a firm was born!