How to Grow Your Business and Your Nest Egg at the Same Time

Many business owners face the same dilemma: What’s the proper balance of investing in your business and taking care of your personal financial needs?

Successful business owners will most likely have a high net worth on paper, and that’s good. Most or all of it is often tied up directly in the business, which is a good strategy for focusing on growth. But what does the future hold for your company? How vulnerable are you to a sudden downturn that could eliminate a double-digit percentage of your net worth?

Diversification can be a difficult conversation for business owners. Many are hesitant to pull assets out of the business because they might see it as a vote of no confidence or a sign that they are giving up and pulling back.

Nothing could be further from the truth.

Caution does not mean a lack of confidence or commitment. It is the smart move for any business owner serious about taking care of him or herself. Building a nest egg outside of your business can give you the income you need to maintain your lifestyle while continuing to run and grow your business. It can give you the confidence of knowing that a wrong move or economic slump won’t doom you to losing the shirt off your back.

Like in most financial matters, success is all about balance. That’s why we offer different scenarios to help business owners find the balance they are comfortable with. 

Scenario #1: Steady as She Goes

Some business owners simply say they aren’t interested in giving up any piece of their business or pulling out any money. Fair enough. You still have some options for growing a personal nest egg.

1. Borrow Money
   If your business is in a position to take on new leverage, you can secure a loan and use it to pay yourself a dividend. The proceeds from that dividend go into an investment portfolio that builds your nest egg. Meanwhile, the business is paying back the loan from normal cash flow.
   
   
2. Divert Some Cash Flow to Yourself
   If you don’t want to borrow, you can choose to take a personal dividend from the business instead of reinvesting it all. Again, that personal dividend can go into an investment portfolio.

Scenario #2: Sell Part – or All – of Your Business

This scenario isn’t for everyone, but it is worth serious consideration. It can produce a major influx of cash that can be invested to support the lifestyle you want. Depending on your personal situation, there are options for every comfort level.

1. Sell the Whole Thing
   If you’re tired of running your business, then why burden yourself with an all-consuming job? We can work with you to find options for selling your business to people you choose for a price you want.
   
   
2. Sell Most of It
   If that seems a little drastic, but you are still interested in taking a lesser role in the business, you can consider selling a majority stake. The new owner might keep you on as a full-time employee or even a consultant. Beware, though, that many business owners find it tough to follow directions from someone else, and employees can find it confusing to suddenly cut you out of decision-making.
   
   
3. Sell a Little Bit
   Many private equity firms are willing to buy pieces of small to mid-size businesses. You can choose the buyer, and we can work with you to find the right one. A major advantage of this option is that you can choose someone who will give you the amount of control you want or even find a partner who brings a skillset and expertise you have been missing.

Aside from the financial security you get when you build a nest egg outside of your business, it can also open up new avenues for growth. By not having your entire net worth tied up in the business, you can more comfortably explore avenues you otherwise might have dismissed as too risky. If you’re not being overly cautious to protect your own future, you can experiment with investment in a new market or even a new product line.

By working with a trusted financial partner like Pinnacle Wealth Advisors and PNFP Capital Markets, you can find greater prosperity for yourself and your business.

Nathan Kurita has worked in financial services since 2001 with a diverse career in asset allocation and security selection for both institutional and private wealth clients. He can be reached at Nathan.Kurita@pnfp.com.