Building Wealth Outside Your Business

by Kristin Larson, CFP^®, CPWA^®, Founder & Wealth Advisor

Successful business owners become accustomed to putting money back into their companies, whether hiring employees, opening new locations, upgrading technology, or pursuing new opportunities.

Those investments can create considerable value. They can also leave much of your financial future tied to a single company.

Even when you have accumulated significant investments elsewhere, your business may still represent a substantial portion of your net worth, provide much of your annual income, and influence many of your financial decisions.

Building personal wealth outside the business can give you greater financial independence while you continue investing in the company you have spent years building.

Invest in Yourself

You have spent years putting money back into the company to fund growth and invest in employees, opportunities, and the people who depend on you.

As the business grows, it is worth considering how much money should be invested back into the company and how much should be put toward your personal wealth.

Your company may continue to be where you take concentrated risk and pursue growth. Personal investments can provide liquidity, diversification, and access to capital without relying on the performance or eventual sale of the business.

Creating Choices Outside the Business

Financial independence as a business owner means building enough personal wealth to support the life you want without depending on the business to fund it.

That can give you more choices and greater flexibility in the years ahead. You may want to work fewer hours, spend more time away from the business, help your children, support a cause, invest in another opportunity, or retire.

It can also put you in a stronger position when circumstances change. You might receive an offer to sell and decide the timing or terms are not right. You might encounter a difficult year and want your personal plans to remain intact.

Having personal financial resources gives you more freedom to make those decisions on your own terms.

Finding the Right Balance

There is no formula for determining exactly how much wealth should remain in your business and how much should be built outside it.

The answer can change. Reinvesting heavily in the company may make sense during periods of growth. As the business matures and your personal priorities change, building wealth outside the company may deserve greater attention.

Start with what you need your personal wealth to accomplish for you and the people you care about. You may want enough income to support your lifestyle without relying on business distributions, liquidity for unexpected needs, money set aside for your family or charitable interests, or capital available when another opportunity comes along.

From there, you can begin to make informed decisions about how much capital goes back into the company and how much goes toward building your personal wealth.

An advisor can help you look at your business and personal finances together and determine how much you need outside the company to support your lifestyle, family, and plans for the future.

Creating Greater Freedom

After spending years creating value for customers, employees, and family, your success should create opportunities for you as well.

Having personal wealth outside your business can give you greater freedom to enjoy what you have built, pursue new opportunities, and decide what you want the years ahead to look like.

At NewSpring Wealth Partners, we help successful business owners understand the relationship between their business and personal wealth and build a financial plan that supports both.