Foundational Planning for the Busy Entrepreneur

Sara Craven

Entrepreneurs are some of the busiest people on the planet.  Their responsibilities seem endless and their time is short.  When the “going gets tough and the tough get going,” having solid foundational financial plans for your business and family will help greatly.  In supporting entrepreneurial clients and their families, it is essential that the family is protected by keeping business risks contained and separate from personal ones.  

There are five key areas that require the entrepreneur’s attention:

Budget Building:

It’s safe to say that young entrepreneurs may not have a deep pool of liquid resources to float costs associated with building a business, while also supporting the family’s expenses, so the first step is to estimate what your cash flow needs are likely to be for your business and your family.  Knowing what you have to work with and having reasonable expectations of your cash needs over the longer term are critical to your effective decision-making process.  Your wealth manager can help you assess what your wealth and income sources can support both for family and business purposes – the foundation for your financial plan. 

Emergency Cash:

The amount of emergency cash to keep on hand varies between business owner and family needs.  Start your planning by quantifying your business and family’s burn rates.  A general rule of thumb for families is to keep 3 to 6 months of cash available in an easy-to-access account for contingencies.  By adding a young business, with uneven and potentially dramatically swinging cash flow needs, the entrepreneur may be pushed to reserve 6 to 12 months of overall expected expenses in reserve.  To augment the cash reserve, the business may be able to secure outside capital or a line of credit.  Relying on credit card debt is clearly among the least attractive options!

Securing a Risk Management Plan:  

Personal and business insurance, as well as determining the right business structure, will mitigate your risk exposures.  Choosing the right legal structure, whether LLP, LLC or S or C corporation, is an important layer of protection and requires careful investigation.  In most cases, it is vital to incorporate your business as a separate entity so as to limit your personal liability exposure in the event that the business experiences an interruption, poor performance or a legal challenge.  Part of this process includes addressing the titling of your personal assets, such as real estate, in order to protect them from legal issues surrounding your business.  

Separation of Church and State:

In order to protect your family’s cash reserves from business risk exposure, keep separate reserves – one for personal emergencies and one for business emergencies.  Having a separate business bank account will prevent confusion when it’s time to pay bills or payroll, in addition to allowing you to be better prepared for your tax filings.  If lines aren’t drawn between your business and your personal spending, you may find that in a crunch you are dipping into your personal resources to cover your business costs.

Team of Professionals:

Working with a team of professionals empowers you with the depth of experience to guide your professional and family wealth strategy.  Creating alignment between lawyer, accountant and financial advisor as to your goals will allow them to work together on your behalf, saving you time and expense.

By thoughtfully attending to these five key areas early on, you and your entrepreneurial family will be better equipped when discretionary time to get organized is in short supply.

The information provided here is for informational purposes only and is based upon the best information available, which may be supplied by other sources.  The preceding should not be considered individualized advice, and you should consult your CPA, and estate planning attorney for specific guidance.