Wealth Management for Business Owners: The 7 Fundamentals

Wealth management for business owners requires a uniquely tailored approach, given that the bulk of your assets tends to be tied up in your business rather than in any personal accounts. And when you consider that the average human spends a third of their waking life working on their career, wealth management for business owners takes on a whole new level of meaning: a huge chunk of your very existence is on the line.

Taking an intentional approach to wealth management in this context is a great way to honor your time, energy and whole-of-life trajectory. Moreover, it presents special opportunities for growth and value creation for you, anyone who works in your company, and your wider community. Businesses have the power to change the world, both on the micro-level (your presonal involvement) and the macro (the people and causes you care about).

Unique Challenges for Business Owners

Perhaps here more than anywhere else, then, it’s important to emphasize the unique challenge business owners face when trying to hold their business needs in tension with their personal financial goals. It’s a balancing act most people never have to face, and it touches on everything from tax planning and investment strategies to succession planning and charitable giving; each decision you make is implicated…

…and at the same time every business owner like you has a different end goal in sight. You might be aiming to sell your business one day, or perhaps you would like to pass it on to a trusted family member; whatever the case, that aspirational horizon will have a large impact on how you conduct your affairs today.

In this blog post, we’ll explore the seven main focus areas of wealth management for business owners and how they can help you grow, share, and manage your wealth, both within your business and through your personal financial life.

The Iron Point Difference

A quick note before we go any further in this article about wealth management for business owners: at Iron Point Financial, we don’t believe in cookie-cutter solutions. Although we trust that the following 7 areas are worth paying attention to no matter who you are, we will not pretend that reading this article will magically solve all of your wealth management dilemmas.

Instead, we want to emphasize that there are no one-size-fits-all, formulaic solutions. Everything depends on your unique goals, timeline and values. That’s why we make it a priority to treat business owners like you a little differently from other financial advisors. That means we:

Walk every business owner who becomes a client through a rigorous, personalized evaluation process;
Develop a deep understanding of your needs a human being, not just as a business owner (including your values, preferences and life goals);
Analyze your investment objectives against those values, preferences and life goals in the form of a bespoke strategy;
Curate an investment portfolio that accounts for both your short- and long-term objectives; and
Actively monitor and adjust your portfolio based your goals and life circumstances, (not a market index).

In other words, our purpose is to put your dreams first and measure success by those dreams; those are what will drive all the work we do for you (and in case you are wondering, as registered financial fiduciaries, we are bound by a legal requirement to act in your best interests too).

Now, on to our first pillar of wealth management for business owners…

1. Investment Management: Maximizing Generative Growth

Investment management is one of the cornerstones of wealth management, and for business owners, this requires balancing any investments within your business with those in your personal portfolio.

Often, business owners have the majority of their wealth tied up in their company, which can expose them to increased risk if the business underperforms or faces an economic downturn. A smart investment strategy, however, can help you diversify your portfolio beyond your business.

Practically speaking, that means implementing a couple of key principles — one that applies generally to all investors and another that has greater relevance for business owners specifically:

Diversification: Given that much of your wealth may be concentrated in your business by default, it could be a good idea to diversify your investments. That means curating a careful mix of stocks, bonds, real estate, or other investment vehicles, across a variety of industries, to better spread risk and facilitate balanced growth over time.
Liquidity Management: Business owners often need access to liquid assets to cover personal expenses or fund business opportunities. Managing liquidity through the right investments ensures you have access to cash when you need it without having to sell off portions of your business (or, worse, wind down your company entirely).

This latter principle might sound a little bit nebulous, until you look into practical liquidity solutions like those we have helped business owner clients with at Iron Point Financial. Consider Derek K’s firsthand experience:

“Greg Liszka helped our company set up a joint investment account that allowed cashflow to be readily available without taxation complications, whether for a time of crisis or for any other business ventures on the immediate horizon. When I had to dip into it last year, it was a much needed help.”*

Whatever your unique business needs, a well-rounded investment strategy featuring tools like this can help you grow your wealth in a balanced, sustainable way, both inside and outside your business.

*This testimonial and/or endorsement was given by a client of the financial advisor and no compensation was provided directly or indirectly. This testimonial and/or endorsement is not a guarantee of future performance or investment success, and the testimonial and/or endorsement may not be representative of the experience of other customers. Please visit BrokerCheck (https://brokercheck.finra.org) to see more on the background of this professional.

Impact Investing

One final thought worth mentioning in this section on investment management is the possibility of using your assets to engage in impact investing — impacts made with the intention of bringing positive social change into the world.

This might not be number one on every business owner’s list, given that it may result in lower financial returns than other types of investments, but depending on your values, engaging in this kind of investing could be a great way to bring transformation not just to your personal finances but to the world around you.

Like we said in the introduction: businesses have the power to change the world; it stands to reason that your investments do too. And if you’re a business owner who started his or her company to make a difference in your community, then applying the same rationale to your investments could be a logical next step.

2. Tax Planning: Minimizing Liability, Maximizing Impact

Tax planning, our second pillar of wealth management for business owners, has an added layer of complexity for entrepreneurs, given that you have to deal with both personal and business taxes. Effective tax planning can help you minimize your tax liability while maintaining your integrity in relation to local and federal regulations.

Some key tax planning strategies we would highlight today include:

Tax-Efficient Investments: Certain investments, such as municipal bonds, may offer tax benefits, and benefit your local community too. Wealth managers like those at Iron Point Financial can help you identify tax-efficient opportunities like these that align with your overall financial goals.
Business Deductions: As a business owner, it’s critical that you take full advantage of the tax deductions available to people in your situation, including depreciation on assets, business expenses, and retirement contributions for your employees. To make the most of these deductions, we would recommend consulting with a dedicated tax professional.
Entity Structuring: The legal structure of your business (e.g., LLC, S-corp, C-corp) might also have a significant impact on your tax liability. Your wealth manager could help you choose a more optimal structure to minimize taxes and protect your assets.

In short, the overarching goal of tax planning is not only to reduce your tax bill but also to align your tax strategy with your long-term wealth-building goals and values (more on that later, in the charitable donations section at the end).

3. Risk Management: Protecting Your Business and Personal Assets

As Greg Liszka (CFP®, RICP®), Founder and Advisor at Iron Point would readily admit, “When I sit down with clients, although I would prefer not to focus on risk management, on a basic level it’s important to identify any problems ahead of time.”

Risk management, in other words, can be a boring, but necessary evil for safeguarding both your business finances and family wealth. Given that business owners face unique risks — market fluctuations affecting sales, liability exposure, etc. — having the right strategies in place can help to protect against the unexpected.

Here are a few risk management options to consider, broadly speaking (the specifics will depend on your unique business model and personal life):

Insurance Coverage: Protect your business with appropriate insurance, such as general liability, property, and business interruption insurance. Outside of your business, you might consider term life insurance or something like key person insurance (where your business relies heavily on your leadership).
Asset Protection: Many business owners use legal structures such as trusts or LLCs to protect personal assets from business-related liabilities. Ensuring that your assets are shielded from potential legal claims or creditors can make a big difference if disaster strikes.
Emergency Funds: These are the nuts and bolts of wealth management for business owners: emergency funds exist to cover both personal and business expenses and to protect you in the event of a downturn, lawsuit, or other financial challenge. It’s wise to maintain a consistent reserve when you can.

4. Retirement Planning: Envisioning a Beautiful Horizon

Retirement planning is often more complex for business owners because your business is likely your largest asset. As you build wealth through your company, you also need a plan to eventually exit the business and ensure you have what you need to hit your retirement goals.

For instance, Greg recently spoke with a couple who had a very specific retirement goal:

“I had some other folks in my community who came on as clients a few months ago. He retired, and they bought a camper! They want to make an experience out of it. It’s a very inexpensive way — after buying the camper and a vehicle to pull it — to travel around the country, finding campgrounds for sixty bucks a night. They clearly see that camper van as an asset. Fantastic!”

You might not have the same camper-based vision for your retirement years, but it’s important to know what future vision does motivate you, so that you can create a roadmap towards that vision in the present. With that in mind, here are a few basic retirement planning strategies you might want to pay attention to, in service of your long-term vision:

Retirement Accounts: Contributing to tax-advantaged retirement accounts such as 401(k)s, SIMPLE and SEP IRAs can help you build personal retirement savings independent of your business (and they could help you retain talent in your company, too, if you offer those to your employees).
Exit Strategy: Whether you plan to sell your business, pass it on to a trusted family member, or simply close it, having a well-thought-out exit strategy is a no-brainer. It won’t magically happen by itself, so it’s wise to be prepared, and to be intentional, long before it happens. Your wealth manager can help you determine how and when to exit the business in a way that maximizes your retirement savings and serves your hard-fought values.

Effective retirement planning strategy is all about starting with the end in mind, and working backwards to the present day. If you know where you want to end up, and how you want that to impact others, you can start building out a plan to accomplish your retirement goals today.

5. Estate Planning: Preserving Your Legacy

Estate planning or, as we prefer to call it, Legacy Planning, is about more than just creating a will— it’s first and foremost about recording the history of your business for posterity, and passing on a legacy others will cherish and steward long after you are gone. Secondarily, intentional legacy planning focuses on efficient wealth transfer.

Business owners have unique legacy planning needs, especially if your business is expected to be part of your estate. Some of those unique needs require you to be very specific with the strategies you employ, including:

Trusts and Wills: Establishing a trust can help you manage how your business and other assets are distributed upon your passing. A will ensures that your wishes are carried out for assets not placed in a trust. Both are great documents for communicating the story of your life and making sure the people you love most are taken care of.
Estate Tax Planning: Business owners may be subject to estate taxes that can significantly reduce the value of your estate. Proper, advance planning can minimize your estate tax liability and ensure your heirs receive as much of your estate as possible.
Business Succession: If you plan to pass your business to family members, a clear succession plan should be part of your estate planning process. This ensures that ownership transitions smoothly and according to your express desires (more on this in the next section).

Another key legacy planning tactic that encompasses all of the three above techniques is active storytelling (the key ingredient in legacy planning that differentiates it from standard estate planning).

What that means here is: taking the time to sit down and share your heart with those impacted by your will, estate tax planning and business succession. This time is essential for making sure that your priceless, intangible values will be passed down, in addition to your tangible assets.

6. Succession Planning: Fostering Continuity

We touched on this in the previous section, but we think it’s worth highlighting succession planning as an important part of wealth management for business owners in its own right. Whether you intend to sell your business, transfer it to a family member, or leave it to a trusted partner, having a clear, stage-by-stage succession plan can help to ensure continuity and minimize fractious disruptions.

Some basic steps involved in the succession planning process include:

Identifying a Successor: Whether it’s a family member, a business partner, or a key employee, you need to identify who will take over your business when you step down. This person should be well-prepared and aligned with your long-term mission, vision and company values.
Training & Development: Once you’ve identified a successor, it’s essential to ensure they’re fully prepared to run the business. This could involve training, mentorship, or gradually increasing their responsibilities, and it might even involve offering them a small ownership stake now, before you pass your your majority share.
Exit Strategy: Determine how and when you will step down, whether it’s through selling your shares, gradually transitioning out of the business, or fully handing over control at a set date. It’s important that you communicate transparently and compassionately to all who might be impacted by this decision, to minimize confusion and disruption.

A well-executed succession plan protects the future of your business and allows you to step away knowing your company can still thrive under new leadership. Even though you might not be at the helm, you can rest easy knowing that the mission, vision and values at the heart of your company can continue to leave their mark on the world.

7. Charitable Giving: Supporting Causes That Matter

Our last but by no means least important component of wealth management for business owners is charitable giving. For many business owners, charitable giving is a non-negotiable part of their wealth management strategy. Not only can charitable donations create a meaningful legacy, but they can also offer tax advantages and opportunities to give back to the community that has allowed your business to thrive.

You might want to consider the following options when incorporating charitable giving into your wealth management plan:

Donor-Advised Funds (DAFs): A DAF allows you to contribute assets (such as cash, stocks, or even business interests) to a charitable fund, receive an immediate tax deduction, and then distribute these earmarked funds to charities over time.
Charitable Trusts: Charitable remainder trusts or charitable lead trusts can be effective tools for donating assets while still retaining income for yourself or your heirs during your lifetime.
Philanthropic Planning: This is a way to harmonize your charitable giving with your personal values and business goals. Whether you wish to support causes related to your industry or your local community, intentional philanthropy can form a significant part of your legacy.

In sum, charitable giving can play a starring role in reducing your taxable income while also allowing you to make a positive impact on the causes that matter to you.

Summary Thoughts: Crafting a Holistic Wealth Plan

As a business owner, your wealth is inextricably linked to your business. This reality means that managing your assets effectively requires a comprehensive approach that covers both your personal and business financial goals.

By putting intentionality first and coming up with unique goals and roadmaps for each of the seven key areas we have discussed today — investment management, tax planning, risk management, retirement planning, legacy planning, succession planning, and charitable giving— you can help to ensure that your wealth is protected, diversified, and aligned with your long-term vision for the world.

Different business owners have different end goals in mind: some want to sell their business, others want to pass it on to family members, and others still may have more unique exit strategies.

Whatever your individual goals may be, we believe that working with a wealth manager who understands the complexities of business ownership, and is willing to sit down, listen and co-create a robust plan with you, can be essential for your long-term success.

If that’s something you would be interested in getting help with, why not reach out to Iron Point Financial today? We would love to talk you through all of the ways we can serve your wealth management goals.

And if you enjoyed this article, but don’t quite feel comfortable reaching out just yet, why not sign up for regular email updates from our blog, so that you don’t miss future posts?

Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA.

We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have registered broker licenses for 22 other states across the continental USA.

Disclosures

The information provided in this report is for educational & illustrative purposes only and should not be construed as individualized investment advice.
Past performance is no guarantee of future results.
All investing involves risk, including the possible loss of principal.
There is no assurance that any investment strategy will be successful.
Cetera Advisor Networks LLC exclusively provides investment products and services through its representatives.
Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business.
This information is not intended as tax or legal advice.