Diversifying Your Business Success
Running a successful business that generates wealth is incredibly satisfying. If there's a downside to it, it's that much of that wealth is generally illiquid, unless you sell the business or invest outside of your business.
In this article we take a look at a fictional but representative example of how diversifying your business success outside of your business can help you achieve short- and long-term goals.
Doing Good by Growing the Good
Nancy Finster's business success allowed her to do a lot of good things. It provided a nest egg for her and her family, created local jobs, and offered services that benefited her community.
But Nancy sometimes felt she could be doing more, if only her wealth wasn’t tied up in her business. With no desire to sell, she wanted the ability to access the wealth she was building to achieve aspirational goals.
During a yearly review with her advisor team, Nancy learned that her business was worth more than $10 million. She told her advisors about her desire to buy a parcel of land to turn into a large community garden. She just didn't know how.
"You've spent so much good effort building your business," her advisors told her. "Now may be a good time to invest outside of the business to build your liquidity."
Outside Investing to Build Liquidity
Many business owners pour everything they have into their businesses. However, investing to build wealth outside of the business can create several benefits.
Liquidity. This can help you access cash for things like vacations, emergency financial support, and, in Nancy's case, fulfilling a dream of using her wealth to build a community garden.
Insulate against business risks. Having all of your wealth tied up in your business could position you for negative financial results if unexpected events occur. For example, many restaurateurs were harmed by the unexpected results of pandemic lockdowns. Investing outside the business can create release valves for your financial well-being.
Achieve short and long-term goals inside and outside your business. Diversifying your finances can give you access to more cash, more easily. This can allow you to do things like buying equipment instead of renting it, which can reduce overhead costs.
How you invest depends on your business goals, and there is no one-size-fits-all solution. Fortunately, your advisor team can help you examine different options that align with your goals to help you invest wisely outside your business.