One of the most significant risks of entrepreneurship is asset concentration. For most closely held business owners, the value of their business can represent, on average, 80% (or even more) of their total net worth.

Now, a profitable, ongoing concern can be an excellent investment – after all, we are all our greatest assets.

But, as I’m sure we are all aware, a lack of diversity among your tangible assets can become a severe financial pitfall.

For many closely held business owners, a certain degree of asset concentration in the value of your business may be unavoidable. However, there are always strategies to mitigate, to some extent, the risks involved.

And it’s never too soon or too late to start protecting yourself, your family, and, as a result, your business.

Pay Yourself First!

You wouldn’t dream of not paying your employees – and that should start with paying yourself. Who dedicates more time and more effort to your business?

Who’s created all those jobs and those paychecks?

You, the business owner – that’s who!

If you don’t pay yourself first, you won’t have the resources to invest outside your business.

Retirement Plans

Qualified retirement plans are essential to your financial planning and allow you to invest in assets outside your business.

We recommend setting up a 401(k) for your business and contributing the maximum amount possible. For 2024, that maximum contribution is $23,000 per participant, and if you are over 50, you can contribute an extra $7,500 “catch-up.” Employer contributions for 2024 can be up to $46,000 – 200% of the employee contribution before the catch-up amount.

Usually, an employer “matching” contribution is far less than 200% – most often, it will be half of the employee contribution – up to a match of 3% of the employee’s earnings if they contribute 6%.

Even if you are your business’ sole employee, you can set up a 401(k) with a federal employer identification number (EIN).

You can also open an IRA if you don’t already have one. And if you do have one, keep contributing!

The IRA contribution limit is $7,000 for 2024, plus an additional “catch-up” contribution of $1,000 allowed for those over 50.

A Roth IRA, or converting an existing IRA to a Roth account, may be a promising avenue for diversifying your assets depending on your income, IRA balance, and circumstances.

But – to contribute to these retirement plans, you must have earned income – again, pay yourself!

Non-Retirement Plan Investments

If you are paying yourself regularly, and your business is profitable enough to allow you to both comfortably maintain your household and make the maximum allowable retirement plan contributions with cash to spare:

First, congratulations!

Second, put that additional cash to work for you, in wise investments chosen with an eye to your business, personal circumstances, goals, and risk tolerance.

There’s no single “right” strategy – and at Rigby Financial Group, you won’t find a cookie-cutter approach. There is no such thing as “one size fits all.” Every business is as unique as its owner – we know and celebrate that fact and tailor specific strategies and solutions to the needs of each individual and business we serve.

For decades, we’ve assisted our clients with business, financial, and retirement planning. If you have any questions about how to mitigate your risk exposure and diversify your assets so that you have at least a little more of your net worth spread over various investment vehicles, we’re a great place to get answers.

Let our experts assist you in devising the strategy that best fits your current situation and your long-term personal and professional goals.

Please click here to email us directly – we are here to help you.

Until next time –

Peace,

Eric