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Financial Planning for Business Owners

Posted November 8, 2019

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Business owners have a unique situation

Financial planning and wealth management for business owners are much different from those for the typical W2 employee. The business is typically the most valuable asset in the family’s portfolio and, by its very nature, is a highly concentrated asset. This poses a major risk for the business owner because, essentially, all their eggs are in one basket. Despite this risk, the business will be the biggest driver of net worth and income, and because of this, the business and this risk need to be factored into the business owner’s long-term planning and goals.

Many advisors will say that the business owner needs to diversify out of their business and invest in the publicly traded companies through a 401k, profit-sharing plan, or some other brokerage account. These are absolutely fantastic options that should be considered. Still, depending on where the business owner is in their career, the business owner and the advisor should really be looking at if it makes more sense to reinvest back into the business instead of investing in the stock market. This is something that many advisors won’t say because they get paid to gather assets and then invest their client’s money. 

There are numerous ways to build wealth. One option to achieving a $5M net worth by retirement is to invest $50k a year for the next 25 years.1 The other way is to build a business that produces $500k in EBITDA and gets a 10x valuation multiplier. These methods lead the individual to a $5M net worth, but they come in two very different ways.2 Eventually, the business owner may have to diversify out of their business by either selling it, but that creates a whole different topic to talk about.

So the big question is, for the amount of risk you take by re-investing more money back into your business instead of diversifying, will you get a better risk-adjusted return investing in the stock market or in hiring that new sales rep or customer service team member that you may need? These are all precise questions that can’t be answered in this post, but it’s definitely food for thought.

Business owners have a plethora of levers to pull for building their wealth, so it’s important to focus on what will be the best method for building continued wealth. That’s why I love being a fee-only advisor because it allows me to look objectively at a client’s goals and situation. Because the business owner is paying me for my advice and not for the sale of investments or insurance products, I can eliminate conflicts of interest and focus on what’s best for my client.


Thayer Financial, L.L.C. (“Thayer Financial”) is a registered investment adviser offering advisory services in the State of North Carolina and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This website’s presence on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by Thayer Financial in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or according to an applicable state exemption.

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  1. Assuming a 10% growth in the S&P 500 https://www.nerdwallet.com/blog/investing/average-stock-market-return/
  2. https://www.duffandphelps.com/insights/publications/valuation-insights/valuation-insights-first-quarter-2019/north-american-industry-market-multiples

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