Is Your Wealth Tied Up In Your Business?
Ryan Sullivan, PE
I Craft Personalized Wealth Blueprints for Architects and Engineers | Engineer Turned Financial Planner
Welcome to this week's edition of The Weekly Trail Report, where we share,
1 Story, where real stories of architects and engineers meet tailored financial strategies,
1 Actionable Tip, to provide actionable insights and guide you towards financial success,
1 Financial Term, to demystify key concepts and empower your decisions.
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1. Story: Henry Faces the Fear of the Unknown
Henry, a seasoned architect, had built a thriving firm from the ground up. His success wasn’t just in the buildings he designed but in the business he nurtured over the years. But with every new project, a lingering fear crept into his thoughts—a fear he couldn't shake off.
“What happens if something goes wrong?” Henry confided in me during one of our first meetings. “My whole life, everything I’ve worked for, it’s all tied up in this business. What if the economy shifts, or worse, something happens to me? My family, my future, it’s all riding on this.”
Henry’s anxiety was palpable. He was proud of his business, yet that very pride was the source of his worry. The realization that his financial well-being was almost entirely dependent on the success of his firm weighed heavily on him. It made him feel vulnerable, as if everything he’d built could be at risk with a single downturn or unexpected life event.
“Henry, you’re not alone in this,” I reassured him. “Many business owners feel the same way. But the good news is, there’s a way to alleviate that burden. The key is diversification.”
As we dug deeper into Henry’s financial situation, it became clear that he needed a plan—one that wasn’t solely reliant on his business. We began by creating a holistic wealth management strategy that would allow him to diversify his wealth across different assets, reducing his exposure to the risks that came with being heavily invested in a single entity.
We looked at investments beyond his business: real estate, stocks, bonds, and retirement accounts. We discussed asset allocation strategies that would align with his long-term goals, ensuring that even if his firm hit a rough patch, his financial future wouldn’t be jeopardized.
“This is what I’ve been needing,” Henry admitted, a sense of relief washing over him. “For the first time, I feel like I’m not putting all my eggs in one basket.”
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With this new approach, Henry could finally breathe easier. He had a plan that made him feel secure, not just in his business but in his personal wealth as well. The fear of the unknown was still there, but now it was manageable—a challenge he was equipped to face.
2. Actionable Tip: Diversify Beyond Your Business
As a business owner, it’s easy to pour all your resources and focus into the firm you’ve built. But relying too heavily on your business for wealth can leave you vulnerable to industry shifts, economic downturns, or personal challenges.
To mitigate these risks, consider diversifying your wealth beyond your business. Here are some steps to get started:
1. Assess Your Current Situation: Take a close look at your overall assets. How much of your wealth is tied up in your business? Ideally it should be less than 60%.?
2. Explore Other Investment Options: Look into a variety of assets such as real estate, stocks, bonds, or crypto. Diversifying into different asset classes can reduce your risk and provide a more stable financial foundation.?
3. Create an Asset Allocation Strategy: Develop a strategy that aligns with your goals and risk tolerance. A balanced portfolio that includes a mix of income-generating, growth, and preservation assets can help you weather financial storms.
4. Automate Savings and Investments: Set up automatic transfers to move funds from your business into investment accounts. This ensures that you’re consistently building wealth outside of your business.
5. Regularly Review and Adjust: Your financial situation and goals may change over time, so it’s important to regularly review your portfolio and make adjustments as needed.
Diversifying your wealth is a proactive step toward securing your financial future. By spreading your investments, you reduce the risks associated with over-reliance on your business and increase your chances of achieving long-term financial stability.
3. Financial Term: Liquidity
Liquidity refers to how quickly and easily an asset can be converted into cash without significantly affecting its value. In the context of a business, while the business itself may generate substantial wealth, it is often considered an illiquid asset because selling it or extracting value from it can be time-consuming and complex.
For business owners who rely heavily on their business as their primary source of wealth, this illiquidity can pose a significant risk. If an unexpected financial need arises or if the business faces a downturn, accessing cash quickly can be challenging. This is why it’s crucial to maintain a portion of your wealth in liquid assets—such as cash, savings accounts, or easily tradable investments—alongside your business holdings.
By ensuring you have liquid assets readily available, you can cover unforeseen expenses, take advantage of opportunities, and maintain financial stability, even if your business faces temporary setbacks. Liquidity is a vital component of a diversified and resilient financial strategy.
Happy Trails,
Ryan
Disclaimer: We employ fictional characters to illustrate financial concepts faced by individuals in the architecture and engineering industry. Any resemblance to real persons, living or dead, is coincidental. While the stories are inspired by our experiences, the specific details, circumstances, and outcomes mentioned are entirely fictional and created for educational purposes only. Real client information is strictly confidential and never disclosed without explicit consent. Our aim is to provide relatable examples for educational purposes, respecting the privacy and confidentiality of our clients.