You became a business owner for the benefits you could enjoy. You sacrificed, worked hard and took risks to make it happen. In some strange twist of fate, however, you’re always the last one to be paid. Sometimes, you aren’t paid. You continually sacrifice your own personal financial security for the health and welfare of the business, employees and other stakeholders.
You must serve others well to succeed as a business owner. Your customers are at the top of your list, followed closely by your employees. However, you must also serve yourself. If your business does not earn enough to adequately provide for you currently plus make a contribution to what you’ll need when you retire, you need to make a change. Often, the only change that needs to be made is your perspective.
For whatever reason, many business owners don’t feel comfortable making their own financial well-being a priority. Some feel guilty charging fair prices, holding people accountable, taking vacations and paying themselves well. This is ludicrous.
You rely on no one for your well-being. To the contrary, you provide for others, and pay much more than your share of taxes. As such, you deserve to be paid well so you can continue the important role you play in society. And you deserve a comfortable retirement – if not because you deserve and earned it then because it will prevent you from having to depend on others, such as the government. Moreover, you should have enough that, even in retirement, you can be a provider and a caregiver.
Convinced? Great! Today, you begin to make your own financial well-being a priority.
1) Retirement Savings: The first thing you must do is begin to adequately save for retirement. The government has a variety of programs that allow you to do so on a pre-tax basis. Get your time and money working for you. Make it a priority. A habit. The equity in your business is NOT your retirement plan. Putting all your retirement eggs in one basket is foolish and imprudent.
2) Life Insurance: If you have people that directly depend on your income, such as a spouse, children, grandchildren or parents, what will they do if you pass away tomorrow? Next year? Face it: you’re mortal. In addition, as a business owner, you probably have debt. Do you want your legacy to be, “Oh, yes, ______ is the guy that left his business and family in debt”? You need enough life insurance to pay off all your debts and provide for those that depend on you.
3) Disability Insurance: Now that we’ve gotten personal, we might as well address another issue. What if you become injured or incapacitated in a way that renders you unable to work? You’ll need to hire someone to run your business, and the business profits might suffer. You need to be sure that, in the event you are unable to work, you will have enough income to cover your business and personal expenses.
4) Buy-Sell Agreement: If you own your business with others, you need a buy-sell agreement. Let’s face it – you don’t want to end up being partners with the children or spouse of your partner. You also don’t want one of your partners to suddenly sell to another of your partners and give the buyer control. A buy-sell agreement dictates the protocol for how shares are sold and transferred. If you are not totally sure of the rights you and your fellow equity holders have (or don’t have) to sell or transfer shares, you need to find out. Talk to your attorney. Discuss the issues with your partners, create a new or improved buy-sell agreement, a stockholder agreement, or enact changes in other ways such as modifications to your bylaws.
5) Diversification: Private business owners are notorious for having all their wealth in their businesses. It’s the epitome of lack of diversification and a violation of one of the most basic and espoused laws of investment. As soon as your business makes it past the start-up stage and begins generating enough cash to meet your basic business and personal needs, start a program of diversification. You cannot predict the future and even the deftest businessmen and women can be sideswiped by changes in technology, the economy, or both. Begin by fully funding retirement accounts and paying off your home. Then begin investing elsewhere. Real estate should be an early consideration as it tends to be economically dependable and can provide passive income during retirement years.
Are you a business owner that puts long hours in year after year but you take little home? Book meager profit? Approaching retirement with few assets other than your business? Bear risks that remain unmitigated? Get help. Make a change. Turn over a new leaf. You can do it.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2014.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
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