The Evolution of a Business Owner's WealthStack: Building a Stronger, Diversified Financial Foundation

As a business owner, you’ve likely invested countless hours and resources into growing your business. For many, the business represents the lion’s share of their wealth, but this can also mean exposure to significant risk. The key to long-term financial security lies in building a robust and diversified financial foundation, something we call your WealthStack.

Below, we will explore the concept of a WealthStack, how it evolves over time, and the advantages of strategically diversifying your assets to protect your family, your business, and your financial future.

First- What is your WealthStack?

Your WealthStack is a breakdown of your total assets into four key categories:

1. Liquid Assets: These are easily accessible assets like cash, savings, and investments in stocks and bonds.
2. Non-Liquid Assets: These include personal assets, collectibles, or private investments that aren’t easily converted into cash.
3. Real Estate Assets: Property holdings, both personal and investment-related.
4. Business Assets: For business owners, this often represents the majority of their wealth, encompassing everything from equipment to intellectual property.

The reality for most business owners is that their WealthStack is heavily skewed towards business assets, while other categories, particularly liquid assets, often remain underdeveloped.

The Problem of Concentrated Wealth

While having the majority of your wealth tied to your business can create significant growth potential, it also represents substantial risk. If the business faces challenges, your personal financial situation could be jeopardized. Business owners often face liquidity issues, making it difficult to access cash when needed for opportunities or emergencies.

The goal, therefore, is to diversify your WealthStack over time, gradually shifting more wealth into liquid assets, real estate, and non-liquid assets. This approach reduces your exposure to any one asset class and provides greater financial flexibility and security.

WealthStack Evolution Over Time

Let's explore how a business owner's WealthStack might evolve during their career, using a visual graph to illustrate the changes over time:

• Early Stage (Years 1-5):
  • Business owners typically have most of their assets tied up in the business, with little in the way of liquid assets.
  • The focus is often on growing the business and reinvesting profits, leaving little room for diversification.
  • Cash (liquid) assets are crucial during this stage. See our post from last month: Cold, Hard, Cash.

• Growth Stage (Years 5-15):
  • As the business grows and becomes more profitable, owners may begin to accumulate assets outside the business, especially liquid assets.
  • Diversification starts with small investments in stocks, bonds, and real estate. Over time, the continued investments stack up and really make a difference in your WealthStack

• Maturity Stage (Years 15+):
  • At this stage, the business is established, and the owner can focus more on balancing their WealthStack.
  • This might include selling off part of the business, investing the proceeds in more liquid assets, and building a real estate portfolio.
  • The goal is to create a more balanced WealthStack, with diversified assets offering both growth and security.

Benefits of Diversifying Your WealthStack

1. Protection Against Volatility: Diversifying your WealthStack helps safeguard your financial future. If your business faces challenges, having liquid and non-liquid assets provides a safety net. This is especially critical if a business downturn coincides with personal financial needs, like funding education or medical emergencies.
2. Enhanced Flexibility: As your WealthStack becomes more balanced, you gain the flexibility to pursue new opportunities. Whether it’s investing in a new venture, buying property, or simply taking advantage of market opportunities, a well-diversified portfolio allows you to be more agile.
3. Legacy Planning: A diverse WealthStack is not only beneficial to you but also to your family. By building wealth across multiple asset classes, you can ensure that your financial legacy is protected and passed on effectively. Diversification creates stability, so your family is less dependent on the success of the business.
4. Improved Liquidity: Over time, increasing the share of liquid assets in your WealthStack ensures that you have access to cash when needed without being forced to sell business assets or real estate under unfavorable conditions.

How We Help You Build a Stronger WealthStack

At Schulz Wealth, we specialize in helping business owners diversify and grow their WealthStack. We understand that each business owner’s situation is unique, and we work closely with you to create a tailored financial plan towards achieving your goals. Whether it’s identifying ways to extract wealth from your business or strategically investing in real estate or liquid assets, our goal is to help you achieve a more balanced and secure financial future.

Building and maintaining a successful business takes time and dedication, but so does ensuring long-term financial security. By focusing on diversifying your WealthStack, you can reduce risk, increase flexibility, and protect your family’s future. Over time, this strategy allows you to move from having wealth concentrated in your business to a more balanced and secure portfolio of assets. It’s never too early to start building a solid, diversified foundation that will serve you and your family well for years to come.

This approach not only strengthens your financial position today but ensures a stable and flexible future, no matter what challenges or opportunities arise.

Take care.

~ Austin Smith