Key Takeaways:

  • Wealth management offers comprehensive, long-term guidance to help business owners align their personal and business objectives, initially targeting wealth generation and eventually wealth preservation for the future.
  • Small business owners and founders should work with wealth, tax, and legal advisors to implement risk management strategies that endeavor to separate and protect personal and business assets while diversifying income and investments.
  • Prior to selling their business, owners should arrange for their post-exit needs, including securing insurance, updating estate plans, optimizing tax strategies, and exploring new investment avenues.

Looking for a wealth manager? Harness can connect you with hand-picked tax, financial, and estate experts from around the United States.

Table of Contents:

  1. The Importance of Wealth Management for Business Owners
  2. Pre-Exit Wealth Management Planning Strategies
  3. Post-Exit Wealth Management Planning Strategies
  4. Finding the Right Wealth Manager for You

The Importance of Wealth Management for Business Owners

The term “wealth management” is often used broadly, referring to various services, but for a business owner, wealth management generally means holistic, long-term advice and execution for managing all of your personal and business assets, taxes, finances, and estate needs. Wealth management includes ongoing investment selection and management to ensure wealth creation and preservation are aligned with an individual’s goals. 

If you’re like many business owners, much of your personal wealth may be locked up in your company. Over time, taking profits out of your business to diversify your wealth can help towards securing your future. 

A wealth manager can work with you, along with legal and tax advisors (when necessary), to aim to accomplish the following:

In this guide, we provide 10 wealth management planning tips. We start with five strategies to consider before exiting your business, followed by five steps to take ahead of selling your business so you can endeavor to enjoy financial freedom in the years to come. 

Pre-Exit Wealth Management Planning Strategies

Whether you are just starting a business or have been up and running for years, the following five tips will help toward the goal of growing your wealth as you manage your business and plan for the future. Every business owner’s situation is different, but if you plan for these general wealth management areas, you’ll be headed in the right direction.

#1 Hire Credentialed Advisors

As a business owner, your role is to grow your business. It can be tempting to try to do everything yourself, but engaging with financial advisors, accountants, and tax attorneys who have relevant certifications and experience can let you focus on what you do best. These professionals can provide valuable guidance on financial planning, investment management, legal structures, and tax strategies tailored to your personal and business goals. 

#2 Protect Your Personal Assets

Working with your team of advisors, select the right business entity (partnership, LLC, C-corp, S-corp, etc) to shield your personal assets from business liabilities. This separation ventures to ensure that personal wealth is safeguarded against potential business downturns or litigation. Also, consider what insurance you may need to help protect both business and personal assets. For new startup founders, estimated costs and potential funding needs for your business should be planned for in advance to limit the risk of needing to tap into personal funds. 

#3 Diversify Personal Investments Beyond Your Business

It’s common for business owners to reinvest in the business, but having too many eggs in one basket can be risky, especially as your business grows and you have excess capital to invest. Part of a comprehensive wealth management plan is reducing risk by investing portions of your profits into assets unrelated to your business. This can include stocks, bonds, real estate, or mutual funds, with a goal to provide income and financial security independent of your business’s performance.

#4 Save For Your Retirement

According to SCORE, 34% of entrepreneurs have no retirement savings plan for themselves. Investing in your businesses is important, but not at the expense of your future. By taking the time to establish and contribute to retirement accounts like an IRA or 401(k), even in small amounts, you’ll be able to focus on your business, knowing that you have investments to fall back on.

#5 Plan Ahead to Sell Your Business

In Q4 of 2023, only about 6.8% of small businesses that were up for sale resulted in an exit transaction for the business owner, based on data from BizBuySell. Considering that less than 10% of businesses on the market are sold, it’s important to have a clear succession plan and understand the steps to sell your business. A comprehensive exit strategy considers the timing, valuation, and potential buyers of your business. 

Post-Exit Wealth Management Planning Strategies

As you get close to selling your business, whether you’re a tech startup founder or you operate a local shop, you need to consider what life after business ownership looks like. You’ll likely have a large profit from the sale that you’ll need to plan to preserve and grow. Work with your wealth, tax, and legal advisors to implement the following wealth management strategies. 

#6 Secure Insurance Coverage

After selling your business, you’ll likely have to change health insurance plans along with revisiting any other policies you had in place as a business owner. This includes life, disability, liability, and property insurance. Proper coverage endeavors financial security against unforeseen circumstances that could impact your personal wealth. Work with your financial advisor to select what coverage is appropriate for you after selling your business. 

#7 Create an Investment Plan

If you receive a large sum of cash after selling your business, your wealth manager can help tailor a diversified investment strategy that aligns with your risk tolerance, financial goals, and time horizon. Wealth managers may consider a mix of equities, fixed income, real estate, and alternative investments, and if suitable for your situation, they’ll structure it with tax optimization in mind.

#8 Use Tax Strategies to Preserve Your Wealth

Effective tax planning can enhance your wealth preservation efforts. This can include taking advantage of tax-deferred retirement accounts, tax-loss harvesting, and making strategic charitable giving, such as the use of a donor-advised fund (DAF). 

Bonus: See 20 ways to reduce taxes for company founders and business owners.

#9 Update Your Estate Plans

If you haven’t set up an estate plan and are considering exiting your business, now is the time to do so. Your attorney will likely draft your estate documents and work as needed with your tax advisor and wealth manager. You’ll want to consider your personal goals, family dynamics, and tax laws when using estate planning to help preserve the wealth you earned from the sale of your business. A comprehensive estate plan generally includes customized wills, trusts, healthcare directives, and power of attorney documents with the purpose of distributing your wealth according to your wishes.

#10 Consider Active Investment Opportunities

With the sale of a business, you may have doors open to additional investment opportunities. Work with your advisors to consider exploring opportunities for active investments that target higher returns, such as starting a new business venture, investing in or advising startups, joining boards of directors, or investing in private equity. Active investments require more involvement and higher risk but can yield higher rewards and further aim to diversify your investment portfolio. Roles like startup advisory or board memberships are also a way to share your business expertise to help other ventures grow.

Finding the Right Wealth Manager for You

First and foremost, as a business owner, you’ll want a wealth manager who has experience working with other entrepreneurs, founders, and business executives. You may find it helpful to ask other business owners in your area who they use for wealth management near you, or you can research online wealth management firms that specialize in working with business owners. 

As you talk with prospective wealth managers, consider the following:

Find Your Wealth Manager at Harness

At Harness, we connect you to experienced wealth managers, tax firms, and estate planning professionals to help you navigate business planning, investment management, retirement planning, and more. 

All advisors on our platform undergo an evaluation process for each type of firm (financial advising, tax, and trust & estate, screening for over 120 attributes to measure the quality of their services. Find a wealth manager with Harness today.

Tax related services provided through Harness Tax LLC. Harness Tax LLC is affiliated with Harness Wealth Advisers LLC, collectively referred to as “Harness”. Recommendations for registered investment advisers provided through Harness Wealth Advisers LLC, a paid promoter, internet registered investment adviser. This article should not be considered financial, tax or legal advice and is provided for informational purposes only. Please consult a financial, tax and/or legal professional for advice specific to your individual circumstances.

Harness cannot guarantee future financial results. An advisor’s past performance may not be indicative of future results. Not all advisors have the same skills, knowledge or expertise, including those that have certain credentials. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment strategy, product or plan will be successful or profitable, including diversification. Diversification comes with risks, such as higher costs, complexity, and market risk. In general, the higher the anticipated return, the higher the risk of loss.

This article does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only. To the extent you have questions regarding the applicability of any specific topic discussed above based on your specific portfolio or situation, please consult a professional adviser of your choosing.

Certain information contained herein has been obtained from third party sources and such information has not been independently verified by Harness. No representation, warranty, or undertaking, expressed or implied, is given to the accuracy or completeness of such information. Harness does not assume any responsibility for the accuracy or completeness of such information. Harness does not undertake any obligation to update the information contained herein as of any future date.