5 Challenges Successful Business Owners Face

You’ve done what seems impossible to others. You started a business, built it up, and now things are clicking along. There are still challenges (that’s what keeps it interesting) but you know you need to focus some of your energy on your personal financial picture. Here are five personal finance challenges business owners face as their businesses grow:

Taxes are starting to take a big bite out of your cash flow.

You know you need to put away money for the long-term but don’t know where to start.

You may feel your whole life (personally and financially) is wrapped up in your business.

You worry about what would happen to your family/partner/business if something were to happen to you.

Exit Planning: what would life without your business look like and how can you maximize the value of your business?

Challenge #1: Reducing Taxes

The good news: you have a great income. The bad news: you’re writing large checks to the IRS. Every dollar you send to the IRS is a dollar that no longer works for you. While you have to pay the taxes you owe, a Certified Financial Planner ^TM  practitioner can help you reduce your taxable income through proper, forward-looking tax planning.

On the business side of your financial picture it’s critical you work with a savvy CPA. Are you meeting with your CPA to check-in throughout the year? Your CPA is an invaluable resource to help you navigate your business finances.

A fiduciary Certified Financial Planner™ will partner with your CPA to make sure you are maximizing your future tax planning opportunities where your personal finances and business finances intersect. There are a variety of ways small business owners can build wealth outside of their business and reduce their tax bite, ranging from Healthcare Savings Accounts, SEP IRAs, 401(k) plans, and even Defined Benefit plans. On top of those savings vehicles, at Spark Financial Advisors we layer on tax-savvy investing and asset location  to build tax-efficient portfolios.

Challenge #2: Saving Money for the Long-Term

You may not particularly identify with the idea of retirement. Many small business owners are driven and high energy, so the idea of 30+ years of leisure may not appeal to you. On the flipside, you may be ready to work less, volunteer your talents to worthy causes, or simply spend your time more freely.

You may be planning on a business sale to fund your retirement, but that’s a big gamble.

First, clients often underestimate how much money they will need in retirement to support their lifestyle.

Second, in a knowledge economy the value of a small business may largely be the freedom and income it provides to the small business owner. While you may be able to sell your business for something, it may not be enough to support you for 20-40 years.

In other words, there may not be much equipment, ongoing client revenue, etc. to sell to a new owner if you are no longer working in the business. There’s nothing wrong with this scenario; in fact, our mission is to empower business owners to live their best lives.

There is a catch here. (You knew there would be, didn’t you?)

You are solely responsible for your financial future. Frankly, even if you do sell your business when you’re ready to move on, you still need to build wealth outside of your business to hedge your bets and protect your family.

By starting the wealth building process early, you have the power of time and compound interest on your side, while mitigating the risk of putting all of your eggs into the ‘business sale’ basket.

Bonus: building wealth outside of your business often reduces your tax burden as well.

(Compound interest is the money you earn on the money you’ve saved. It’s the whole “my money is working for me all the time” idea. Compound interest is incredible, but it needs time to work its magic.)

Challenge #3: Your Whole Life Revolves Around Your Business

My business is like a 4th child to me. I love it, I enjoy spending time with it, it takes up a lot of my time and energy.

Is your business like a well-behaved child, or more like a bratty-child throwing a temper tantrum and demanding all of your time and energy?

According to a CBS News report, many small business owners report freedom and independence to be very high as the reasons for starting their own business. Yet somehow along the way, the thing that was supposed to give us freedom and independence starts to be the very thing that keeps us tied down and demands all of our time.

Or, perhaps you have wrapped your whole identity into being a business-owner. You’ve pushed off doing the things you loved to do in the past, or always wanted to do, in the name of running your business.

When was the last time you did something a little scary or unexpected? When I went through my own life planning process, a few things came out of it. One of them was around experiencing different cultures with my kids and enrolling in Italian language school as a family.

Oddly specific, but that’s the beauty of life planning.

I’m happy to share with you that we’ve taken the first steps to make this a reality. We’ve scheduled a three-week trip to Italy in 2020, booked our vacation rentals, and talked to an Italian language school. Our hope is to do something like this at least every other year.

Will I be completely unplugging? No, I will still be working some, but on a drastically reduced schedule and from a foreign country while spending most of my day walking around the old city walls of Lucca and trying to remember the Italian I studied in college.

What’s something you’ve always wanted to do but never thought you “could?” At Spark we go through a life planning process with all of our clients to get really clear on how you want to live your life. We also apply this life planning framework to your business because for most business owners, their personal lives and business are inextricably linked.

We want to empower business owners to live their best lives.

Challenge #4 What if something happens to you?

While the concern around a disability or early death is not unique to business owners, business owners do have some unique risks here.

If you were to become disabled, could someone at your firm run the business in your absence?

If you weren’t able to work and your business income was drastically reduced, do you have any assets outside of the business to support your living expenses?

If you were to die unexpectedly, would your spouse have the emotional bandwidth and time to run your business? Even if they “only” needed to run it until they were able to sell it?

Would your spouse be able to sell the business for what it was actually worth if you were to pass away unexpectedly?

If your children were to inherit the business, do they want the business?

If your business is your primary asset and it goes to one child, do you have a way to equalize the estate? (Holiday dinners could be really awkward in the future if you don’t.)

Look, no one likes paying for insurance. As a Fee-Only, fiduciary financial planning firm we don’t sell insurance, but we do want to make sure you have the proper coverage and understand your risks. Especially if the risk is to future family harmony.

Challenge #5: Exit Planning

Few things bring up more questions than the idea of leaving your business. You created something out of nothing. You’ve lived and breathed your business. Could you really turn your business over to someone else? What if they run it into the ground? (Or, perhaps just as darkly, what if they make it wildly more successful?) How would you spend your time if you didn’t have a business to run?

These questions and more are lurking in the subconscious of many business owners. Yes, there are many technical aspects to selling or transitioning a business.

What is your vision for your exit from the business?

If this is a family business, is there anyone who is both capable and interested in running the firm?

Have you gotten a realistic estimate on the value of your business?

What steps can you take to improve the value of your business?

And just as importantly:

What will you do with your time? Do your expectations line up with your spouse or partner’s? Do you have the assets set aside to support your vision?

We know these are tough questions. We don’t expect you to have all the answers. Instead, we hold the space for the conversation. We help our clients step out of the day-to-day running of their business and taking care of their family to pause and reflect on their vision.

Then, as you go through the process and clarify your vision, we help facilitate the exit planning process in partnership with the rest of your team (CPA, attorney, management team, insurance broker, etc.).

Challenges and Opportunities

These are just a few of the challenges faced by the small business owners we work with. The beauty of being a small business owner is that you also have tremendous opportunity. It can be easy to put off thinking about or handling these challenges because you don’t know where to start.

The value of our planning process for business owners here at Spark Financial Advisors is we help you prioritize your financial picture and coordinate with your team (or help you put one in place) to get it all done. We work with your existing accounting and legal team to make sure you are diversifying your risk, minimizing taxes, and building a life you love.

Questions for Lauren?