Many entrepreneurs don’t have a border between their business and personal lives. They think about their enterprises during the day and night. They don’t have any downtime away from their businesses. They spend every minute thinking about opportunities that they can exploit so as to grow or how to deal with any challenges that they are facing in the business. They convince themselves that for as long as they stay focused on the business, everything else will work itself out. One of the main aspects of business that spills over into the personal life of an entrepreneur is finances.
How do business finances spill over into personal life?
The most valuable asset to an entrepreneur is their stake in the business that they are growing. During the initial stages of any business, the founders tend to put the business first and everything else second. They believe that their personal lives will work themselves out. This mentality normally works in the formative years. However, it can also be risky in that the entrepreneur is left unprepared or exposed to financial risks. By letting the finances of the business spill over into their personal lives, any risk that the business faces can also affect the personal life of the entrepreneur. This is a dangerous position to be in.
How can an entrepreneur prepare themselves such that they are not exposed in this way?
The lack of a barrier between business finances and personal finances leaves the entrepreneur vulnerable. Thankfully, there are measures that they can take so as to separate the two and create personal financial security. An example is debt relief. This is important because it extends to their family and heirs. Here is how they can do it.
Plan for retirement as early as possible
The number one action when an entrepreneur gets capital is to reinvest in their business. This is actually the best use of this money. By applying knowledge, commitment and talent on this capital, they are able to grow their enterprise quickly. Reinvesting is essentially betting on their own company. This is always a good move. However, external factors require that the entrepreneur direct some of the capital towards retirement and an exit plan for themselves.
One should always create a portfolio of investments outside of the business. These should be in your name or that of your loved ones. As you grow your business and capital comes in, direct some of it to investments that you can rely on once you retire. Not only do these investments act as retirement benefits, but they also allow you to control your future in case anything negative happens to your company. Think of these external investments as a safety net for you and your family in case anything happens to the company.
Perform comprehensive risk management
During the growth process of your business, it is important that the assets of the business and those of the owner are separated and protected. One of the ways of doing this is incorporating the business. This process creates a single layer of protection for the owner. It allows for the establishment of business assets. However, once the entrepreneur begins reinvestment, it becomes difficult to identify which assets belong to the company and which ones belong to its owner. Also, if the company encounters liability of a legal nature, the difference between these assets comes into question and complicates proceedings. How can a businessperson protect their personal assets? Read on to find out.
There are institutions known as property and casualty insurance companies. These institutions advise entrepreneurs about the risks that exist in their companies. Examples of these risks are:
- Equipment failure
- Plant failure
- Compensation lawsuits from the employees
The insurance company representatives identify these risks and then provide the company with cover for them. It is very important to identify these risks much earlier on. In this way, the entrepreneur can protect himself from future liability as a result of these risks. This strategy is performed on the business perspective. This is a formidable layer of protection against losing personal assets due to business liability.
On the personal perspective, the entrepreneur can hire legal counsel to help in giving appropriate titles to the assets that they own. The legal counsel can help to identify the assets that are easy to protect and those that are more challenging. Moreover, they help the entrepreneur to identify which ones can be attached to other productive purposes and remain protected.
Conduct estate planning
One of the activities that entrepreneurs know they should conduct is creating plans for business continuity. Also, they should create plans for succession. These are estate plans for the company. However, many of them put off doing this as a result of the operations that they conduct every day. It is very important to come up with a plan on how the business will keep going after the founders step down. One should also create a plan on how the family property will be managed if the business changes hands.
A succession plan where another member of the family takes over the business is normally straightforward. However, one where the business goes to another person is fairly difficult to create. Also, the family estate plan is not easy. There are members of the family who are interested in running the business while others simply want the cash. Therefore, an entrepreneur should factor these in while making a personal estate plan.
In a business succession plan where the successor is not a member of the founder’s family, the length of time that the founder’s family should be compensated should be determined. Moreover, the amount of funds required for the change in leadership should also be discussed. Any tax issues that result from the change in leadership should also be addressed.
It is important for an entrepreneur to handle both the business and personal side of their finances. These two sides impact each other in unique ways. They require proper planning so as to balance properly and benefit the entrepreneur, the business and their family.