What are some mistakes business owners make as they manage their wealth?
Business owners have an entrepreneurial spirit, so they generally have a larger risk appetite. As they build their financial portfolios, they may overlook the fact that they already have a huge equity position in a company that they own.
If their investments go down and their company’s cash flow dips at the same time, they experience a major drop in their overall financial assets.
To prevent this from occurring, owners need to build a portfolio that complements their business. For example, if high gas prices negatively affect a company’s cash flow, that business could invest assets in oil companies. That way, when cash flow is down, the company’s investments are up.
Another mistake business owners tend to make is failing to plan for succession. We see large companies where owners put off this important process, and they end up losing a lot of money, whether the economy is good or bad. It’s never too early to begin thinking about what will happen to the business should the owner pass away or decide to exit.
What strategies can businesses adopt to secure their wealth in a down economy?
First, they need to ensure that their investment portfolio provides protection and works as a hedge for the business. For instance, if a business has a lot of international exposure, then the owner should consider investments in domestic markets. If the dollar weakens, the business will thrive and cash flow will increase, and if international markets are down, domestic investments will balance the loss.
Again, the key is to look at wealth as a whole.
Second, businesses shouldn’t shy away from long-term planning now, even if the temptation is to focus only on the here-and-now to keep the business running successfully. They should consider a succession plan and talk to a professional about the best way to transition from the growing wealth stage to the preserving and transferring wealth stages.
Whom should business owners partner with as they make these decisions?
A team should include a trusted attorney, accountant, commercial banker and wealth management adviser who can help direct the financial strategies discussed here. These advisers will help a business get that holistic approach it needs to grow and preserve wealth.
Stewart Beach is executive vice president of wealth management at Old Second National Bank. Reach him at (630) 906-5478 or [email protected].
