Successful business owners often struggle to balance reinvesting in their companies with building personal wealth. This balancing act can be particularly tricky for established entrepreneurs. Are you struggling to separate your company and personal finances?
Neglecting personal financial goals can create instability. It blurs the line between business and personal finances, making your business overly dependent on personal assets.
A 2021 study by Wealth Adviser, Steven Boyce, of 50 successful business owners sheds light on their successes and learnings, which we’ve summarised below.
The challenge
Across Australia, business owners face a common problem. They’ve built multi-million dollar companies but often can’t tell where the business ends, and personal finances begin.
One business owner bluntly said, “What the business needs, it gets.”
While this approach often drives growth, it can create an imbalance that puts personal financial goals at risk.
The constant juggling act can lead to significant stress and strain. You may feel overwhelmed by business demands, leaving little time or energy for personal financial well-being. Like many business owners, you may be in this situation without realising the long-term consequences – think financial instability, relationship strains, and increased anxiety about the future.
The solution
To address this challenge, carefully consider strategies for extracting and diversifying your wealth. Here are some practical strategies you can use:
Dividends
One smart move for your business is prioritising owner dividends by building regular wealth extraction into the business model.
“We decided to set owner dividends as a KPI for the business and build it into our overheads. It was a game-changer. The business adjusted, we kept growing, and our personal wealth multiplied beyond our wildest dreams.”
This approach ensures that personal financial goals are met while the business thrives.
Investing outside of the business
Investing outside the business is a crucial strategy for long-term financial stability. While reinvesting profits into the company often feels right, diversifying your investments by building a portfolio beyond the business is essential. This approach mitigates risk and ensures that personal wealth grows independently of the business’s performance.
This might mean investing in stocks and property or boosting retirement funds. Diversification isn’t just a buzzword; it’s a safety net ensuring your financial goals aren’t entirely dependent on your business’s success.
Seeking expert advice
Many business owners who feel confident about their finances work with advisers who see the big picture.
Fiduciary-certified advisers offer unbiased advice and manage your entire investment strategy. They help you understand your family’s financial situation and goals. Ready to build your bespoke plan? See how our independent advice team can help.
Including spouses in financial planning
It’s surprising how often business owners forget to involve their partners in financial discussions.
This oversight can lead to tension and potential problems if your partner needs to take control unexpectedly. One interviewee noted that bringing his wife into financial conversations improved his marriage. It gave him peace of mind. Knowing his wife understood their financial position allowed them to explore future goals and plans together.
Have you considered involving your partner in these discussions?
The results
The above strategies have the potential to transform your financial house and well-being. It’s about ensuring your peace of mind, so that you can get on with achieving both your business and personal goals.
The strategies listed above can help with:
Less stress and better decision-making
A clear plan for wealth extraction and diversification lifts the mental fog, leading to better business and personal decisions and promoting a more balanced lifestyle.
Improved family financial security
Consistently building assets outside the business ensures that your family’s financial goals don’t depend solely on the company’s continued success or eventual sale. It’s about creating multiple sources of security.
Balanced growth and security
This approach lets you grow your company while building personal wealth. It creates a positive cycle. Your business stays competitive and efficient while your personal finances become more secure. How balanced is your growth strategy?
Clear boundaries between business and personal finances streamline planning, making it more efficient and effective. This separation aids in a strong business strategy, succession planning, and organised family planning, ensuring better decision-making and harmony.
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