Business owners and operators lead complex and demanding lives while being exposed to a broad array of risk.

The unrelenting demands of business require operators to wear many hats and log substantial work hours with little time left for personal finances.
Meanwhile, gaps in their knowledge of basic principles of estate planning, asset protection and risk management pose both a challenge and an opportunity for multifaceted financial professionals.

A business owner’s challenge often comes from an intermingling of both business and the personal. Every bet business owners make on their businesses can have profound consequences for their personal finances. This is where the right financial advisor can make all the difference.

All too often, as an advisor targeting C-suite executives, I have seen business owners and operators disadvantage themselves. These are some of the recurring challenges and issues I have witnessed:

They Underestimate Their Personal Exposure To Business Risk. The risks in operating a business are constant and changing. Most operators fail to fully appreciate their exposure to risk and the need to proactively establish protective barriers to their personal assets. This is particularly challenging since most banks require personal guarantees on commercial loans. Property and casualty insurance can’t protect against liquidity risk or a “black swan event.” In an ever-accelerating cycle of progress and obsolescence, emerging disruptive technology and product obsolescence, a company’s niche has become increasingly vulnerable, and the days of secure franchises and long-term business client relations are waning.

They Double Down On Market Risk. When business owners realize extra income, they often reinvest in what they know. For example, I have seen construction CEOs take excess cash out of their businesses only to buy real estate or speculate in distressed housing, effectively doubling down on cyclical construction and real estate (which come with inherent liquidity challenges). People tend to invest in what they know, and that familiarity creates blinders to alternatives. From a macroeconomic perspective, maybe they should consider investing in countercyclical assets that offer greater liquidity.

They Loot Their Retirement Funds To Save Their Businesses. All businesses are vulnerable to economic cycles and will invariably find themselves in a negative carry at some point. The difficulty lies in determining how long it will last. Typically, operators tend to be overly optimistic about an economic turnaround and wait too long to pare down their overhead during economic slowdowns.

Many operators also fail to appreciate the importance of categorizing and segregating special purpose funds. If a business is failing, it makes no sense to delay that outcome by draining one’s retirement fund. Especially when federal and state laws provide special protection to individual retirement funds such as 401(k)s, IRAs and annuity holdings, including whole or partial protection from court judgment and seizures.

They Focus On Control. Business owners have a tendency to covet control at the expense of all other options, when in reality it’s advisable to surround their businesses with experts who can facilitate results and help the businesses overcome barriers. Not only can these individuals help remove obstacles that could potentially hamper the business, but they could be a source of much-needed capital during a crisis.