Aligning Your Business and Personal Wealth: Finding Your North Star

For many business owners, the business is more than a source of income. It may represent years of work, a significant portion of their net worth and an important part of how they envision their future.

Yet business planning and personal financial planning are often treated as separate exercises. That separation can create challenges because decisions about the business can have significant implications for an owner’s personal wealth.

One way to bring the two together is to establish a “North Star”: a definition of long-term success that considers both what matters to you and what you may need financially to eventually become independent from the business.

Defining What Success Means to You

The first component of a North Star is qualitative. It involves identifying the values and priorities you want to preserve as you make decisions about the future of your business.

Business owners naturally spend significant time thinking about valuation. But maximizing the value of a company may not always produce the outcome an owner ultimately wants.

For example, an attractive acquisition offer could come with changes to a company’s culture, brand or employees. An owner seeking greater freedom might discover that a transaction requires several more years of significant travel and work.

Those considerations may not appear on a balance sheet, but they can have a meaningful impact on whether a business decision ultimately feels successful.

Identifying what you are—and are not—willing to sacrifice can provide a framework for evaluating opportunities before they arise.

Determining Your Financial Independence Number

The second component is quantitative: determining how much wealth you may need to become financially independent from your business.

This is different from asking what your company might eventually be worth.

Instead, consider what you may actually need from the business to support your financial life after taking into account factors such as taxes, debt, transaction costs and an appropriate margin for uncertainty.

That calculation can produce what might be considered a “freedom number”—a financial target that can help guide decisions about the business over the years leading up to an eventual transition.

Putting Your North Star in Writing

A useful starting point is to write down your North Star.

Consider identifying the values you want to protect, the things you are unwilling to sacrifice and the financial resources you believe you will need to eventually step away from the business.

Then revisit what you have written.

Your North Star does not have to be static. Reviewing it periodically and discussing it with a spouse, business partner or another person you trust can help you refine it as your circumstances evolve.

Using Your North Star to Guide Decisions

Once established, your North Star can become a filter for major business decisions.

Should you use debt to fund the next phase of growth? Does a new opportunity move you closer to or further from your long-term objectives? Would bringing in a new partner support the future you are trying to create?

These decisions may still be complicated. But evaluating them against a defined set of personal and financial priorities can provide greater context for making them.

Ultimately, aligning your business strategy with your personal financial plan can help ensure that the wealth you are working to create through your company also supports the life you want beyond it.

This article is based on the EP Wealth Insights podcast episode “Your North Star: Business and Personal Wealth,” from EP Wealth Advisors.

EP Wealth Insights Podcast Disclosure

The speakers featured in this podcast are employees and/or Investment Adviser Representatives of EP Wealth Advisors. The information discussed is provided for educational and informational purposes only and should not be considered personalized investment, financial, tax, or legal advice.

The views expressed are those of the speakers as of the recording date and are subject to change. Investing involves risk, including the possible loss of principal, and past performance does not guarantee future results.

Before making financial decisions, consult your financial, tax, or legal professional. EP Wealth Advisors is a registered investment adviser. For additional information, including our Form ADV, please visit www.epwealth.com.