Business Owner’s Biggest Risk

Business Owner’s Biggest Risk

For most business owners, their biggest risk has to be their business. Everyday there are sharks circling. From competition threatening to steal their clients to lawsuits from employees, the business owner is getting it from all sides. A business owner has to ensure that he is constantly in compliance with all of the various organizations and still has to make a profit to keep his best friend the banker at bay.


Yet the business owner still believes his business is his best investment. He may be right, but he could also be very wrong. I see many business owners where 80 to 95% of their net worth is tied up in their business. If something were to happen to this business, not only their way of life but almost everything they own can disappear. People from Jacksonville remember when the T2 explosion rocked the city a few years ago. In an instant that business literally went up in smoke.

Business owners who have everything in their business is the same as concentrating all of your investments in one stock. Everything is great if that one stock is doing well, but if that company fails, you are starting from scratch. Think of the employees from Worldcom and Enron that had all of their retirement money in the company stock.

What can a business owner do to mitigate this risk? The old adage “pay yourself first” is a great strategy. Start by putting money away for retirement. Starting a 401k program, or defined benefit program is a great way to save and protect assets for the business owner, yet I still see business owners with no retirement money. Their argument is “the business is my retirement.” This is great as long as there is a business when you retire. Remember all of those sharks.

Most business owners will tell me that they are putting all of their available cash back in the business, but doing this may be jeopardizing their financial future. I know of many businesses today that are hurting from the lack of ability to get loans. Many have failed over the last two years from lack of liquidity.

Most business owners do not even want to think of the possibility of failure, but I bet their spouses do. Having a contingency plan is important for every business owner and their family. There are many things to consider; a partner leaving, a lawsuit, market conditions and environmental changes are some. How will the spouse survive if something happens to the business owner? Business owners should fund or start their own retirement plan, ensure they have enough liquidity to make it through the tough times and try not to pour everything back into the business. My parting advice – have a plan in place to help mitigate some of these risks. If you don’t know how to make a plan, hire someone that does.