I don’t know a business owner who has ever seen the bottom of their to-do list. There’s always something new that needs fixing or an idea that’s taking shape. A lot can get put off by default.
A dangerous trap that too many entrepreneurs find themselves in is prioritizing business growth over their personal financial security. Instead of building wealth outside of the business, they procrastinate savings in favor of re-investment.
The result is that they often end up hoping for a strong business sale to provide for their retirement. It’s a challenging risk, and thankfully, one that owners don't need to make. Here’s how we want business owners to think about building wealth apart and in addition to their equity in their business.
The Problem: Owners Delaying Personal Retirement Savings
We are business owners ourselves. Re-investing in the business is a necessity. It drives our upside when it comes to earning potential. I absolutely endorse consistent re-investment.
However, this tips out of balance when we consistently neglect to build wealth outside of the business. It’s why we end up seeing two kinds of business owners:
- I haven’t saved enough, but I hope I’ll get a high enough sale price to close the gap.
- I have enough to retire comfortably, but a strong sale would be a massive boost to our lifestyle and legacy.
Having worked with both, I can tell you wholeheartedly which one I encourage you to be. Not just because one sounds better, but because the first one is exposed to all sorts of unnecessary risks. A few examples of variables that are frequently out of your control:
- Market changes in your industry
- Sudden profitability sprints or slumps
- Unexpected economic downturns
And if one (or more) of those happen when the time comes to sell? Suddenly, that 3X valuation is looking like a 1.5X, and your entire financial plan falls apart.
How Personal Planning Empowers Business Planning
Disciplined saving with a clear personal plan is the best alternative that puts financial independence back in your control. You don’t have to choose between personal financial security while also keeping the business's growth and profitability on track. These two elements should be viewed as "parallel plans" that run concurrently but have their own distinct paths.
I mentioned it already, but I can’t overstate the importance: being personally financially independent as a business owner makes you far less dependent on market conditions when it's time to sell your business. This isn’t just a matter of being able to retire comfortably.
When you aren’t depending on the sale of the business, you have far more flexibility to sell:
- When you want – don’t get forced to sell because you need the funds or due to extenuating circumstances (ie, health, family, etc.)
- How you want – deal structure, timeline, and price depend on leverage
- To whom you want – sometimes internal succession doesn’t come with cash upfront
If you care deeply about your business, your employees, and the customers you serve, you want to position it for success after your exit. Personal independence lets you not focus exclusively on the purchase price. The best-fit buyer matters as well.
Building Your Parallel Plans
It's important to think of your personal wealth and your business as separate, yet interconnected, elements. Build personal financial independence alongside your business's growth to create a more stable and flexible path to retirement, one that isn't solely reliant on the eventual sale of your company.
If you are in a position where you need to get clarity (and positive accountability) to establish your personal retirement plan, our team is here to help.