A Goal without a Plan is Just a Wish – Financial Planning for Business Owners

Jim McCarthy, CERTIFIED FINANCIAL PLANNER™ with Directional Wealth Management, LLC, provides comprehensive financial planning and wealth management services to individuals and business owners. Jim works with his clients to provide a tailored financial game plan encompassing both personal and professional goals. Whether its using the business to provide the client and their family with benefits, retirement planning, disability and life insurance coverage, and/or a mix of all of the above, Jim stresses that understanding a client’s long term goals, risk tolerance, and ultimately, the value of their business, are all equally important in achieving the financial freedom we all seek one day upon retirement.

Below are excerpts from Jessica Timmerman’s conversation with Jim regarding his approach to financial planning for business owners:


JT: How do you work with business owner clients to fit their business, which is most likely their largest asset, into their financial planning equation?

JM: We usually employ a 4-step process with business owners:

  1. The first meeting is defined as the discovery meeting. During this kick off, we get to know the client, discuss their specific concerns, identify some concerns they haven’t thought of, and talk through how the client’s personal and professional lives, goals, and financial health contribute to their total planning picture.
  2. The second meeting identifies the road map the business owner can follow to achieve those goals.
  3. The third meeting entails deep diving into the data – income, expenses, assets, liabilities. It is at this point that a business valuation serves as an integral tool in compiling the client’s personal balance sheet. Not only is the business more than likely the client’s largest asset, but it also traditionally, their main source of family income. These two elements are the foundation for determining a client’s risk parameters, the appropriate investment portfolio, and setting future retirement goals and expectations.
  4. It is in the fourth meeting where it all comes together. During this time, the plan has been drafted, options are discussed, and the picture is fully painted in order to tell the client, “Here’s how you go from point A to point B.”

JT: It’s shocking how many business owners – who get inundated with the day in and day out management and growth of their companies – have no idea what their businesses are actually worth. To that, when speaking with a business owner who admits that they are unsure of the value of their business, how do they intend on planning for retirement without knowing what is most their largest asset?

JM: The questions I start with are:

  • How much do you think your business is worth?
  • What is this based on?
  • Have you ever had a business valuation performed?

And then the conversation goes from there based upon the responses to those questions. Ultimately, in the end, the goal is for all of us to be confident in the value that we are placing on the business – more often than not, in order to be prudent, an independent, 3rd party business valuation is recommended.

The discussion is then followed by, “What is your exit strategy?” Then the following options need to be explored:

  • Is this a business that is going to be a family business or legacy?
  • Do you have children or siblings that are going to come into the business?
  • Do we need to come up with a strategy to monetize the business?

Just like you said, many small business owners are so busy trying to run their business that they don’t keep a long term perspective on a time in which the business won’t be their primary concern and responsibility.

JT: How do you use the value of the business for achieving retirement goals?

JM: We start with an estimated value of the Company now and then an anticipated value of the Company in the future. Depending on how the company is structured and how the client anticipates exiting the business are all factors that impact the anticipated growth rate utilized to determine the future economic benefit of the business at the time of retirement as well as our proactive approach in transitioning, gifting, and/or selling the business.

Everything needs to be thought out well in advance. From the planning point of view, we lay out the macro road map, but then as we start navigating each one of those roles – taxation, insurance, valuation, legal documentation – then you need to have a specialist and expert as part of the team to implement. As financial planners, we help the client minimize both personal and business taxes – making sure they are structured properly so they are taking full advantage of what the tax code allows. Similarly, in regards to exit planning, we need to discuss and determine how to best monetize their business while at the same time reducing taxation on any transfer of the business.

JT: What is the biggest pitfall you see for individuals compared to business owners?

JM: It is crucial to have a comprehensive financial plan that encompasses both their business and personal life and a true understanding of how those two things go together. As an employee, an individual focuses on their salary and benefits, college funding, retirement planning, and healthcare planning. But a business owner tends to focus on growing the business entity rather than their individual wealth primarily as a means to fund those things “one day down the line”.

I tend to see two scenarios – one where a business owner completely intertwines personal and business expenses, utilizing the business as their personal wallet. The other is where a business owner treats their business as if it’s on its own island and is not the largest component of their total wealth. To them, they utilize the business for a paycheck and don’t see the forest for the trees. That paycheck contributes to their personal spending and savings habits and doesn’t translate into much else today – and yet, it’s the proverbial basket in which they are placing all their nest eggs. These things need to be thought of individually, planned specifically, and managed as an overall portfolio.

JT: Well, as a nice way to tie things up, when exactly should a business owner start this conversation with their advisors?

JM: The best answer is to start immediately – as soon as you start the business. But we know too well that that is never the case and often the excitement of embarking on an entrepreneurial adventure overtakes the reality that it is just as important to always have an eye on your exit in order to maximize your efforts today. To any latecomers in the game, we say that you need at least a good 5 years out (10 years would be better ) from when you’d like to step away to really position your business to get full value – especially if you are basically looking for a full exit – selling the business and moving on.

We’d like to thank Jim for his insight and encourage all of our business owner readers to get their Financial Planner on the phone to chat through the discussion points highlighted in our conversation. As the saying goes, “A goal without a plan is just a wish.” And while we can all sit and wish to win the lottery, the truth of the matter is that proactive planning is the only way to mitigate the damage of life’s unexpected curveballs.

About Jim McCarthy CFP® and Directional Wealth Management, LLC

J_MCCARTHYJim McCarthy is an independent fee-based financial advisor, has been working as a financial professional for over 20 years.  During his career he has held executive positions in Finance and Accounting for major international organizations.  Jim has been helping clients build personalized investment programs since 2003.  Professionals, corporate executives and affluent families rely on him for creative financial strategies. Learn more at www.mywealthdirection.com.


Directional Wealth Management, LLC and Wall Street Financial Group, Inc. are separate entities. They are independently owned and operated. Only securities and advisory services offered through Wall Street Financial Group, Inc. Registered Investment Advisor. Member FINRA/SIPC.

Dan is the Founder of Quantive and Value Scout. He has two decades of experience in leading M&A transactions. Additionally oversees Quantive's valuation practice and has performed thousands of business valuations.



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