Part I: Bridging the Financial Gap for Small Business Owners

Today I met with an old friend who recently made the transition from corporate executive to wealth management consultant. During our conversation, we discussed one of the greatest gaps in the financial equation for small business owners. When it comes to personal financial planning, sbo's often find themselves at a loss when attempting to finance a retirement that they haven't prepared for. They are so mired in the day-to-day operations that a vast majority of their wealth is tied to the success of the business.

What are some steps that small business owners can take today to minimize risk and maximize personal wealth while running a business?

• Diversify. Just like any other financial tool, your business is one of many investments. Even with recent stock market volatility, it's the riskiest part of your portfolio. A well-balanced investment portfolio includes a balance of high and low risk investment tools and gets adjusted as your goals change or as you get closer to your exit. If all of your net worth is tied to your business, work with your wealth manager to figure out what you can do to move some of that net worth into other investments, like real estate, stocks, bonds, and money market accounts. Keeping your finances diversified will help you better navigate economic recessions and other market downturns and average out returns for the life of your business.
  
• Treat your business as separate entity. Some people get this, some people don't. Treat your business as if it were a new life and get it set up as a separate entity, like an LLC or corporation. And don't mix finances between the two. If you learn to treat your business as a separate entity and stop putting business lunches on your personal credit card, you will be able to get a much clearer financial and strategic overview of your business. Like children, businesses eventually grow up and gain independence. You have to set up clear boundaries early in the development of your company, or you'll look up 20 years from now and wonder why you have a 35-year-old eating your food and leaving the gas tank empty.
  
• Pay yourself first. I know that small business owners hear this, but I don't think that enough of them "get it." I know people who have been running businesses for five or six years and have yet to take a paycheck or distribution. What's wrong with this picture? You forgot to include one of your most valuable assets in your business's financial plan: you! A business is designed to create jobs and generate wealth. Like it or not, you're actually a part of the team. If you remember to pay yourself first, you'll realize that if you're more than a few years in and still depleting your savings, maxing out your HELOC, and/or taking on another job to run your business, you haven't set proper financial goals. In your business plan, the financial plan should include your salary and benefits along with the rest of the team's. And set a realistic salary to help you meet your retirement goals. The only employer match you're going to get is the one you give yourself. Oh, yeah: you also pay double the taxes of an employee.
  

I will continue the final points on this topic next week. Stay tuned for more ways to bridge the financial gap. I am available to help you put together a financial strategy for your business plan and connect you with the right folks for your business and personal financial team.