Integrated Business and Personal Financial Planning Strategies

By: Brian Seay, CFA

Founder, Capital Stewards

As a business owner, integrating your personal and business financial planning strategies produces the best long-term results. Liquidity, exit planning, taxes, and investing cross lines between business and personal finance. Here are a few key holistic planning considerations:

Liquidity and Cash Flow:

Building 6-12 months of cash reserves to cover both business and personal needs a great goal, but often not the starting point. In the absence of significant reserves, planning for business cycles and seasonality is key to understanding when your business will have excess cash flow throughout the year. It’s also important to understand personal funding goals. Do you have tuition payments to make? Funding calls for outside investments? Debt maturing? Working with your financial advisor and accounting teams to build a comprehensive view of your cash flow is critical to effective management throughout the year.

Exit Planning:

Planning to exit the business touches a variety of risk management, tax, investment and even estate planning issues. Often business owners forget to plan for “unexpected exits.” It is critical to ensure there is a plan in place if you are no longer able to run the business. That includes leadership succession within your business and the financial resources to buy-out your shares to protect your family. Often this is accomplished with insurance until the business is more mature. These solutions should work in conjunction with your personal disability and life insurance.

Selling your business to pursue other goals or retire is a significant milestone. Financial Planning that occurs early on can help minimize taxes. You may be able to transfer shares to other members of your family early in the business lifecycle when the value is lower, reducing your overall estate. Additionally, structuring ownership of real estate and other business assets may provide unique opportunities to trade or liquidate assets with less tax impact. Each of these opportunities requires advance planning ahead of a sale.

Taxes:

Business owners often have unique opportunities to control their income. Most business owners already expense as many items as possible; the opportunity is not in additional tax deductions or expenses. The tax planning opportunity lies in controlling realized income and structuring your business and personal assets. Income can be deferred and saved through Solo 401Ks, IRAs and even pension plans. Business owners have the added advantage of contributing to these plans both as an owner and employee in some situations. This dramatically increases the tax deferral opportunity. In some situations, a C-Corp, LLC or S-Corp may help reduce your tax bill. Choosing to pay yourself a salary vs. taking dividends has an impact on your business and personal tax return. Each business is different and the most tax efficient structure is different but working with your Huntsville financial advisor and tax advisor in a holistic fashion is key to optimizing results.

Investing:

How much should you invest in your business? What about outside investments in the industry? What about investing for retirement in liquid markets? Your investment portfolio is not just your outside retirement accounts and stock holdings, it includes all the assets you own across your business and personal holdings. Perhaps your business had a banner year and produced significant income when the broader stock market was down. Realizing losses can help offset your business income. This is just one example of showing how your investment portfolio should be managed holistically to achieve your short and long-term goals.

If you would like to discuss integrating your business and personal financial planning, schedule a call and we would be happy to discuss further.