Building Wealth Through Your Business (4/6): Mind the Gap- When Your Wealth Plan Falls Behind Your Business

Congratulations, your business has matured, and as a business owner, there's a good chance that your own financial wealth plan has not matured along with it. Let's get that right. My name is Cannon Carr, and welcome to our fourth episode in this miniseries on things that business owners often overlook when they're building wealth through their business.

 I see it a lot. A business owner is beyond survival stage of their business, and they're now entered into the stable stage of the business, and it's humming. They're doing great things, but their own financial plan has not kept up at all. The business now might be 10 years old, but their own tax strategy, estate planning strategy, and, and retirement planning, uh, as if the, it was only two years old, and it hasn't reflected how their own personal journey has evolved and the risks have changed

And a lot of that is because of ingrained habits. [00:01:00] On the budget side, you've been living a sa- you've been sacrificing for the vision, and those habits are, uh, die hard. On the leadership side, you're used to being in control and maybe being the hero, uh, solving all the problems, but you've probably outgrown that.

And on the estate side, it's often set it and forget it, or I'll do it later, and in the early days, and you've left it that way, despite the fact that the business and the value and the liabilities have changed significantly. So we need to get that balance right

So here are the five common things I see that owners have often ignored and need to update as their business has moved well beyond survival and into stability and maturity. And we don't have time to go into a lot of depth but they're, So we'll just touch on the highest [00:02:00] things. The first mistake I see is that owners let taxes drive their whole financial strategy.

Yes, it's important to manage taxes, and yes, in the early days, you often don't have to worry too much about them, or you d- you have the mindset of minimizing them every year. I see business owners often talking about, "I just wanna minimize taxes each year." And they carry that well into the later stages of the business.

But when you let taxes drive your decisions about financial planning, it's basically the tail wagging the dog. The better question is, you know, how does tax strategy support what I call your North Star over time? And that North Star is the ultimate definition of personal success and wealth generated through your business.

Uh, and this means, you know, spending time thinking about how funding your retirement can actually be an effective tax strategy for you, through the years. or being intentional about how you're using annual deductions, to truly, uh, be s- tax-smart in [00:03:00] strategies, uh, and maybe, timing it differently next year rather than this year.

Working with a good CPA, uh, or, or we can certainly help you figure th- those things out. But the key is being able to adjust and optimize the tax strategy to meet, uh, the, the business and your personal needs as it ha- as they've evolved, and not defaulting to the same playbook every year. And it's rarely a home run in tax strategy.

It's usually singles and doubles and base hits that win over the long term

The second mistake I often see is that, uh, owners have outdated estate documents. You know, when they started the business, they might've been single, uh, they d- or maybe they didn't have any kids, maybe they didn't have any business partners, and they set up if at all, a simple will and just basic estate documents.

But over time as the business grows, they have outgrown that simplicity. And now with a [00:04:00] family, uh, with partners, with obligations, uh, there's a lot of hidden risk or lack of planning to protect financial assets and protect what I'll say are true intentions i-i-in the modern world. So it leaves big questions unanswered uh, in many cases.

You know, who has control over the financial decisions in your, uh, in your estate? Um, h- who are gonna be the heirs and, and how do you want them to in-inherit? how do, how do, how does the concept of stewardship play in? Um, how do you transfer ownership? You know, all these things need deliberate thinking and, uh, when left untreated and a, a, and a life event happens that forces, uh, and unlocks questions about the estate, there can often be conflicts about, hey, what is actually happening is not matching my values and my intentions.

Uh, personal planning and business planning at the right stage are [00:05:00] inseparable

Third, business owners often carry outdated insurance policies and assumptions. many times they assume the policies cover more than they do. You know, the personal umbrellas actually don't touch business risk in the right way, or the business coverage, uh, doesn't protect, you know, the family the way owners often want it.

And I see it with term life insurance. They set it and forget it, uh, and it becomes stale and is no longer really serving the purpose it might need to do. and so when you, uh, you know, as the business matures, as your family matures, as your liabilities change, maybe you need a buy-sell agreement. it's important to know what your coverage is and revisit on an annual basis so that it stays very current.

A [00:06:00] fourth mistake I see business owners make is that their budget is unrealistic. Their business budget is unrealistic. And this one is sneaky for owners. Uh, they often underpay themselves or their team because in survival mode, that's what was required and they keep it that way. and they basically are overstating profitability when that happens.

And during due diligence, you know, the market will correct that and reduce the value of your company. this is just one example, but the key thing is, you know, keep your budget realistic and market-based, and don't ignore your balance sheet. that's the best health check. Uh, that's, for the long term, many entrepreneurs are so focused on profits on the budget side, they ignore the actual health of the balance sheet The fifth thing I see, uh, owners often overlook is they think more about legacy and how they can benefit their family or or the community if they're community-minded, without covering their own [00:07:00] founder independence first.

We always say take care of yourself first. I see a lot of, uh, goodwill and thinking and hoping to, uh, to benefit others. But if you can't take care of yourself first with your own financial security, then you're not gonna succeed in taking care of others. And this can be set in what I call your North Star, and we had an earlier episode talk about that North Star where you set your values and your independence number to help you guide your decisions.

Once you get that in place, you know, then you can plan for heirs, you can set up trusts th- that take care of them, uh, you can further your charitable goals and do that estate planning that benefits others bes- beyond just protecting yourself

So the point here is, you know, when you started your business, it might have been the, the job you created for you and a small team, but now that your business has grown and is larger it's gone way much beyond that and you've mo- moved [00:08:00] beyond startup and your wealth strategy needs to have matured along with it, uh, because your business is now a true wealth-generating engine.

And it requires a better comprehensive governance in terms of tax strategy, uh, legal and estate strategy, risk management budgeting, and clarity around what independence looks like. So we've covered those topics in this episode. if, uh, if you ... To ask you to maybe make this operational, l- listen to these five things that are commonly overlooked and choose one of these five and address it this quarter.

Don't wait for bad news or a scare or a buyer or burnout. pick one and address it this quarter. if you want a one-page checklist about what a wealth tune-up looks like as your business matures, DM me the words tune-up and I'll send it along to you. Thanks for listening to this episode. Tune in for the next one where we cover what a financial advisor's real job is, uh, and it's much more than money [00:09:00] management.