You’ve spent years building your business chasing business owner wealth. Revenue has grown. You’ve hired people. Bought equipment. Taken on bigger clients. Survived the difficult years and reinvested through the good ones.
On paper, you’re doing well.
But here’s a question we think more business owners should ask:
If you took the business away tomorrow, what wealth have you actually built outside of it?
Because having a successful business and being personally wealthy are not necessarily the same thing.
We see business owners with strong revenue, good profits and valuable businesses who still have most of their financial future tied to one asset: the business itself.
And that can be a risky position to be in.
Your business is an asset, but it shouldn’t necessarily be your only asset
When you’re growing a business, reinvesting makes sense.
There’s always something else the money could be used for.
- Another employee.
- A new vehicle.
- More stock.
- Better equipment.
- A bigger premises.
- Marketing.
- Technology.
- Expansion.
And because business owners are naturally focused on growth, it’s easy to keep putting money back into the business year after year.
But at some point, the question needs to change from:
“How do we grow the business?”
to:
“How is this business helping us build wealth outside the business?”
That distinction matters.
Your business should ideally become a vehicle for creating choices for you and your family, not simply something that consumes every available dollar indefinitely.
Turnover isn’t wealth
This is another reason we’re not particularly impressed by turnover on its own.
A business turning over $2 million isn’t automatically more financially successful than a business turning over $800,000.
What matters is what happens after the sales come in.
What profit does the business produce?
How much cash does it generate?
How much debt does it carry?
How dependent is it on the owner?
And importantly:
What is the owner actually getting out of it?
If revenue keeps climbing but so do wages, overheads, debt and stress, the business may be getting bigger without necessarily making its owners wealthier.
That’s why understanding your business cash flow and profitability is such an important part of the bigger wealth conversation.
Before you can deliberately build wealth from a business, you need to understand what the business can genuinely afford to provide.
As your business grows, your approach to business owner wealth should evolve with it, particularly when it comes to tax planning, business structures and longer-term family goals. Good tax planning can play an important role in business owner wealth, but tax should never be the only factor driving your financial decisions.
Are you reinvesting, or just leaving everything in the business?
There can be very good reasons to retain profits in a business.
You might be funding growth, building working capital, preparing for a large purchase or creating a healthy cash reserve.
But there’s a difference between deliberately retaining money for a reason and simply leaving everything in the business because you’ve never really decided what else should happen with it.
This is where forward planning becomes important.
Depending on your circumstances, that conversation might include:
- how much cash the business genuinely needs
- how much you need personally
- future tax liabilities
- debt reduction
- superannuation
- property or other investments
- business structures
- asset protection
- succession planning
- retirement goals
- the eventual sale or transition of the business.
The answer will be different for every family.
What matters is having the conversation. For established businesses, the conversation around business owner wealth often shifts from simply making more money to deciding how that money can best support the owners’ longer-term goals.
Don’t make every financial decision based on tax
This is a big one.
We regularly hear variations of:
“What can I buy to reduce my tax?”
Tax is important, and good tax planning absolutely matters.
But spending $100 purely to save a portion of that amount in tax doesn’t automatically make you wealthier.
Sometimes the better decision may be to make the profit, pay the appropriate tax and keep or invest what’s left.
That’s why tax planning should be part of a broader strategy rather than a mad rush to find deductions before 30 June.
The better question isn’t always:
“How can I pay less tax?”
Sometimes it’s:
“What decision leaves my family in the strongest financial position?”
Those two questions can produce very different answers.
Business owner wealth doesn’t happen automatically just because your business is profitable. It takes deliberate decisions about cash flow, tax, debt, superannuation and how profits are used over time.
Your home doesn’t tell the whole story either
For many business-owning families, a significant amount of personal wealth is tied up in the family home.
Again, there’s nothing inherently wrong with that.
But when you look at your family’s financial position, it can be useful to separate lifestyle assets from wealth-producing assets.
A beautiful home might be worth $2 million.
But if it has a significant mortgage and doesn’t generate income, it plays a very different role in your financial future from superannuation, investments, income-producing property or a valuable business that can eventually operate or be sold without you.
This isn’t about having more for the sake of having more.
It’s about understanding what you’re actually building.
The business won’t necessarily fund your retirement
This assumption deserves particular attention:
“I’ll sell the business one day and that will be my retirement.”
Maybe.
But that’s a pretty significant financial plan to base on a future event you can’t guarantee.
The business might be worth less than you expect.
The industry might change.
A key employee or customer might leave.
A buyer might not want a business that depends heavily on you.
Your health or family circumstances could change before you’re ready to sell.
Or you may simply decide you don’t want to sell.
A strong business succession plan can help reduce some of that risk. The Australian Government provides a useful guide to developing a succession plan, including planning for both expected and unexpected changes in ownership.
Building personal wealth outside the business can also mean that when the time eventually comes to step back, you have choices.
You aren’t relying entirely on one transaction to fund the next 20 or 30 years of your life.
For many people, business owner wealth is heavily concentrated in the business itself, which is why it’s important to think about what you’re building outside the business too.
What does your business actually need to provide for you?
This is one of our favourite conversations to have with business owners.
Not:
“How much revenue do you want next year?”
But:
“What do you actually want this business to do for you?”
Maybe you want to:
- pay off your home
- build an investment portfolio
- contribute more towards retirement
- help your children in the future
- travel more
- work fewer hours
- buy commercial property
- create another income stream
- eventually sell the business
- pass the business to the next generation.
Once you know what you’re trying to achieve personally, you can start working backwards.
What does the business need to produce to make that possible?
Suddenly, your business goals become much more meaningful than simply chasing another revenue target.
Your structure matters as your wealth grows
The structure that worked when you started the business may not necessarily be the structure that best supports you ten years later.
As businesses and family wealth grow, questions around companies, trusts, superannuation, ownership, asset protection and succession can become increasingly important.
This doesn’t mean changing structures every few years.
Quite the opposite.
Restructuring can have significant tax, legal and commercial consequences, so changes should be carefully considered.
But your structure should still be reviewed periodically to make sure it continues to support where you’re heading.
The Australian Taxation Office provides information about the different business structures and their tax implications, but your own circumstances should always be considered before making changes.
And depending on the issue, your accountant shouldn’t necessarily be the only person involved.
Your lawyer, financial adviser, finance broker and insurance adviser may all have a role to play.
Good wealth planning is often a team sport.
Start thinking beyond this financial year
For business owners, it’s incredibly easy to live from one deadline to another.
BAS.
Payroll.
Tax.
EOFY.
The next big contract.
The next employee.
The next problem that needs solving.
But every now and then, it’s worth zooming out.
Ask yourself:
If we keep doing exactly what we’re doing now, where will our family be financially in 5, 10 or 15 years?
That’s a very different question from whether you had a good year.
A strong business owner wealth strategy looks beyond what the business earns today and considers what you are building personally for the future.
And it’s where your accountant can add significantly more value than simply preparing the numbers after the year has finished.
At Amarose Accounting, we love working with business owners on the bigger picture, looking at cash flow, profitability, tax planning and forward-looking business advisory so today’s business success can support tomorrow’s goals.
You’ve built the business. Now think about what it’s building for you.
Building a successful business is an incredible achievement. The goal of business owner wealth isn’t simply to accumulate more money. It’s about creating financial security, flexibility and options beyond the day-to-day business.
But the business itself doesn’t have to be the end goal. Building business owner wealth is about more than growing revenue. It’s about turning the success of your business into long-term financial security and choices for you and your family.
It can be the engine that helps you build financial security, opportunities and choices for your family.
So perhaps the question isn’t simply:
“How successful is my business?”
It’s:
“What is my business helping us build?”
If you’re running a successful business but haven’t stepped back to look at how your business, tax position, cash flow and longer-term family goals fit together, get in touch with Amarose Accounting.
Sometimes the most valuable financial conversation isn’t about last year’s numbers.
It’s about what you’re building next.
This information is general in nature and does not take into account your individual circumstances. It does not constitute financial or legal advice. We recommend obtaining professional advice relevant to your circumstances before making tax, investment, superannuation, legal or financial decisions.