Business foundersBusiness owner planning: Integrating your business and personal wealth

January 3, 2024

Key things to know

  • How you integrate your personal and business finances will depend on the stage of the business: startup, growth or maturity.

  • An integration strategy should include cash flow and liquidity planning, as well as incorporate succession planning and an exit strategy to prepare for life after the sale or transfer of the business.

  • A wealth advisor can help you manage the multifaceted issues associated with integrating your business and personal wealth.

A business owner’s personal financial success is directly linked to the performance of the business. Therefore, it’s critical to devise a plan that seamlessly integrates your personal and business finances. Such a plan is even more important for families with significant wealth, or when a family business is involved.

“There needs to be solid integration between an owner’s personal and business finances,” says Jenna Guenther, senior vice president and managing director of client advisory with Ascent Private Capital Management of U.S. Bank.

Stages of business development for owners

Guenther identifies three stages of business development that will have an impact on how you integrate your personal and business finances.

  • The startup stage: “At this stage, the owner has a great idea and is throwing everything into the business, both financially and non-financially,” Guenther says. Owners often make financial sacrifices on the personal side to get the business established.
  • The growth stage: In this stage, the business is generating enough cash flow to maintain operations. “There may be a lot of wealth on paper, but there may not be enough cash for the owner to take regular distributions out of the company,” she says. “Instead, cash is being poured back into the business to fund additional growth.”
  • The maturity stage: This is where there’s usually enough cash flow for owners to take regular distributions from the business and move this money into their personal finances. “However, while most owners have been trained how to manage business finances, many don’t know as much about managing their personal finances,” says Guenther. “This is why having a partner to help manage the multifaceted issues associated with your business and personal financial life is so important.”

 

“A wealth advisor can help owners devise a plan for how they will generate sufficient income to live the lifestyle they desire when they step away from the business.”

- Jenna Guenther, senior vice president and managing director of client advisory, Ascent Private Capital Management

 

A wealth advisor can help business owners accomplish a number of key objectives, including:

  • Maintain and enhance liquidity to meet current cash flow needs.
  • Evaluate options to unlock the value created in the business.
  • Develop effective and tax-efficient business transfer and succession plans.
  • Prepare for post-ownership financial life in retirement.

Strategies for integrating personal and business finances

Guenther identifies several areas to focus on when it comes to integrating your personal and business finances, starting with cash flow and liquidity planning.

“With much of the owner’s net worth represented by the business, liquidity can at times be limited,” she says. Guenther recommends merging the entire personal and business financial picture into a consolidated report to see how everything fits together.

It's also critical to ensure sufficient liquidity to cover estate tax down the road, since the business may represent a large portion of your personal net worth. Life insurance strategies can provide much-needed liquidity so that the business does not have to be sold prematurely to pay the tax.

On the investment side, incorporating diversification into your portfolio is important so you’re not overexposed to the industry your business is affiliated with.

“An owner’s personal money generally shouldn’t be invested in the same industry as their business,” says Guenther. “A wealth advisor can help owners create a diversification plan that protects their overall financial position.”

Determining the right business succession and exit plan

Succession and exit planning are two of the most important aspects of personal and business financial integration. Achieving a successful business transition requires significant planning and precise execution of key steps.

“Owners need to be methodical and take all the steps necessary to make sure that their succession plan is well thought out and properly executed,” says Guenther.

The first step is to decide which business transition option is appropriate for you; for example, would you like to transition the business to family members and/or employees or sell it to an external buyer? If you plan to sell the business, a few steps are required to make sure it is properly prepared and represented.

If the business is to remain in the family, open and honest conversations need to take place among family members about who will be involved in the ongoing business and what everyone’s roles will be to avoid complications and issues of perceived unfairness.

Business-related planning can also position your estate to utilize strategies to help limit the tax impact of the business transfer. This includes trusts, which allow for a more tax-efficient transfer of assets to future generations.

It's also important to plan for your financial life after the transition since this may change drastically when you’re no longer overseeing the business. “A wealth advisor can help owners devise a plan for how you’ll generate sufficient income to live the lifestyle you desire when you step away from the business,” says Guenther.

Guenther also stresses the importance of preserving a legacy as you look to the future, including your charitable intentions. She recommends documenting the history of your business and the philanthropic causes you support for the benefit of future generations and leaders.

How Ascent can help business owners

Ascent has helped many business owners integrate their personal and business finances, taking time to develop a thorough understanding of their needs to design strategies that help solidify the successful balance of their business and personal financial lives.

Ascent offers a wide range of services designed to meet both the personal and professional needs of owners. Learn how Ascent works with and supports family business founders and owners.

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