By Peter Mastrantuono
The conventional approach to wealth management isn’t always the best strategy for self-employed individuals and entrepreneurs. Knowledgeable financial advisors understand that business owners need to have an integrated wealth management plan that accounts for the intersection of personal, family and business goals and dynamically adjusts over time to reflect the different phases and needs of the business and individual.
Five Phases of the Self-Employed
- Start-Up: This is the most difficult stage for any entrepreneur. The demands of building a sustainable business are all consuming. Any cash flow is usually reinvested back into the business.
The financial needs are very basic. There is a need for banking and deposit services, access to lending and business insurance to protect against liability risks. Budgeting and cash flow management are essential financial building blocks if an entrepreneur is to survive those initial, difficult years.
2. Growth: As business growth takes hold, the self-employed may begin addressing issues ignored during those lean, start-up years. A business owner can now begin planning for his or her family’s financial security.
That means creating a financial plan to chart a course for the future, addressing all the insurance and risk management needs put off during the early years, like health insurance, disability insurance, key person insurance and establishing and funding a retirement plan to accommodate a growing business and its employees.
Cash management, loan products and corporate structuring are additional key concerns at this stage since the start-up years’ approach may no longer be optimal.
3. Maturity: With success and maturity come new imperatives, such as tax and estate planning. Asset protection is vital. Business valuation and succession planning become critical. Working with an experienced tax advisor is essential to maximize business return.
Business valuation will be important for proper insurance coverage and understanding the looming tax implications of the eventual transfer of the business.
Finally, investment portfolios must be constructed in a way that not only reflects personal investment objectives and historical market performance, but they must consider the risk profile of the business in order to fully diversify a business owner’s wealth.
4. Exit and Succession: Exiting a business or planning for ownership succession (e.g., to a partner or family member(s)) is not something to consider at the last moment. It takes years of careful planning. For instance, if a business owner wants his or her child to take over the business, a multi-year plan for education and training must be created and implemented years before the owner’s target exit date.
5. Post-Exit: At this stage, it’s time for entrepreneurs to enjoy the fruits of their labor and sacrifices. This is the time to structure wealth in a way to support life after work, plan a legacy and educate family members on how to prepare for the wealth they may inherit.
As most business owners know, success arises from a collaboration of many individuals, each of whom brings a unique set of skills and perspectives. An experienced financial advisor can help in two valuable ways: 1) with financial planning and investment management, and 2) by acting as the connective tissue in a holistic wealth management approach that brings together bankers, tax advisors and estate attorneys to help self-employed individuals achieve their personal, family and business goals.
Peter Mastrantuono is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.
