Mind the Gap- When Your Wealth Plan Falls Behind You

A business can change considerably over 10 years. Revenue may increase, the team may expand, ownership may become more complex and the company may move from survival mode to a more stable stage.

But an owner’s personal financial plan does not always evolve at the same pace.

Tax strategies, estate documents, insurance coverage and even compensation practices established during the early years of a company may no longer reflect the owner’s current circumstances.

As a business matures, there are several areas owners may want to revisit.

1. Letting Taxes Drive the Financial Strategy

Managing taxes is an important consideration, but minimizing taxes in any single year does not necessarily constitute a long-term financial strategy.

As circumstances change, the better question may be how tax planning supports your broader personal and business objectives.

That could involve evaluating retirement-plan funding, deductions and the timing of certain strategies rather than automatically following the same approach every year.

2. Relying on Outdated Estate Documents

Estate planning completed when a company was young may not reflect the owner’s life today.

Family circumstances may have changed. New business partners or obligations may exist. The company itself may be considerably more valuable.

Those changes can raise important questions about who controls financial decisions, how heirs should inherit assets, how ownership might transfer and whether existing documents still reflect the owner’s intentions.

3. Assuming Existing Insurance Is Still Appropriate

Insurance needs can also change as the company, family and owner’s liabilities evolve.

Personal policies may not address certain business risks, while business coverage may not provide the protection an owner expects for their family.

Policies that once served a particular purpose can also become outdated. Periodically reviewing coverage can help determine whether it still aligns with current circumstances.

4. Maintaining an Unrealistic Business Budget

During the survival stage, owners may underpay themselves or members of their team to preserve cash.

If those practices continue as the company matures, however, the business may appear more profitable than it would be if compensation reflected market rates.

That distinction can become particularly important during due diligence, when a potential buyer may adjust financial results to account for the actual cost of replacing an owner or other employees.

Owners may also want to look beyond the income statement and regularly evaluate the health of the balance sheet.

5. Planning for Others Before Establishing Your Own Independence

Successful owners may begin thinking about what their wealth could eventually provide for family members, charitable organizations or their communities.

Those legacy objectives can be meaningful, but they should be considered alongside the owner’s own financial security.

Establishing what financial independence means for you can provide a foundation for later decisions involving heirs, trusts, charitable goals and other legacy planning.

Allowing Your Wealth Strategy to Mature

A company that began as a job for its founder and a small team can eventually become a significant wealth-generating asset.

When that happens, the owner’s planning may need to become more sophisticated as well.

Tax planning, estate strategy, insurance, budgeting and personal financial independence increasingly become interconnected with decisions about the company.

Rather than waiting for a transaction, unexpected event or other catalyst, periodically reviewing these areas can help keep your personal financial plan aligned with the business you have built.

This article is based on an EP Wealth Insights podcast episode about updating your wealth strategy as your business matures, 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.