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Small business owners frequently have their entire lives—including their personal finances—wrapped up in their business. Some owners may even make the mistake of investing their full net worth in their company, taking on too much debt or hinging all retirement plans on the eventual sale of the business.
Economic conditions, market fluctuations, and personal issues can damage even the soundest of companies or complicate the sale of any business. Given these unknowns—combined with the uncertainty surrounding the future valuation of any business—it is prudent to build wealth outside of your business.
Building your personal balance sheet is germane to minimizing the risks posed by uncertainty and providing the resources to enable you to be financially independent, either prior to your company’s sale or after a well-planned transition and sale.
At a minimum, develop a diversified and well-balanced portfolio that is independent of the business and designed to accommodate personal risk tolerance and achieve financial goals. Use available cash flow from the business in peak earning years to help accommodate this. In addition, if your current balance sheet contains mostly individual and nonqualified investments, it may be very appropriate to be aggressive in the building of qualified assets such as 401(k) and defined-benefit plans. Saving for retirement through your company can result in significant tax savings. It can also help you work towards building personal wealth, in addition to not overweighting the personal balance sheet from a tax-diversification perspective.
President and Founder
McGervey Wealth Management
North Canton, Ohio
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