As a startup founder, you’re a high-energy, mission-driven firebrand, unafraid to risk it all for your ideas. Your personal finances are often tied up in your business and, because you go it alone, you face more complicated financial realities than leaders at traditional companies.
Sean Condon, wealth advisor at Windgate Wealth Management, offers several personal finance tips specifically for those brave souls who throw caution to the wind and launch startups against all odds.
Don’t put all your eggs in one business. It’s natural that you want to invest everything into your business. But it’s a risky move.
“When you pour everything into the business,” said Condon, a Certified Financial Planner, “you won’t have a safety net to catch you if you fall.”
And, because you’re probably a born entrepreneur, you’ll want to start on your next idea ASAP if this one takes a nosedive. Do all you can to create a cushion of savings so that, if disaster strikes, you don’t have to settle for a (kill-me-now) desk job.
Remember you’re a shareholder, too. Your personal finances skyrocket if and when your stock options do the same. But be advised of the tax implications.
“Just as you built a cushion for the worst-case scenario, plan here for the taxes that come with success,” said Condon.
Work with an expert here. For instance, you may want to exercise your options early (ask your advisor about a "Section 83(b) election") or establish an asset freeze trust when your company’s net worth is relatively low. When it later goes through the roof, you’ll avoid the headache of high taxes.
Know what your 401(k) can do for you. Among business owners, the 401(k) is mostly discussed as a must for attracting and retaining great employees. But remember — that 401(k) includes you, too, which translates to significant opportunity to grow your personal wealth.
Because you’re likely making the most money at your company, you can invest the most into your 401(k), reaping rewards down the line.
Separate business from personal. Too many founders use the salary they pay themselves to make rent or even just to make ends meet. This skews their priorities, keeping them focused on what the business does for them, not their customers. Thus, they’re less likely to take the strategic risks they need to grow.
Get your finances in order, and keep them distinct from your company’s. Being conservative with your personal accounts frees you up to be bold in your business. And that’s a competitive advantage.
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Windgate Wealth Management has been helping company founders and owners meet their personal finance goals for more than 25 years. Learn more here.