When I’m asked for my thoughts on entrepreneurial success, I’m reminded of a quote I read by Thomas A. Edison. Best known for inventing the light bulb, Edison was also a prolific entrepreneur who started businesses in many fields – from chemicals and radiography to mining and power distribution. His advice? “Good fortune happens when opportunity meets with preparation.”
For most entrepreneurs, the good fortune they’re looking for relates to their business and their personal wealth. Like Edison, they might be ambitious risk takers with the conviction to follow their passions, often in fields such as life sciences, fashion, pharmaceuticals, electronics or information technology. But the value of their company constitutes a sizeable share of their assets and its performance will impact directly on their own financial futures.
That’s why it’s all the more important that you take a holistic view of your overall circumstances when embarking on a new business venture – considering everything from financial planning, governance, and wealth structuring to taxation and succession planning. Here too, preparation is essential.
In my role as Julius Baer’s Head of Wealth Planning Americas and Family Governance expert within Family Office Services, I’m closely familiar with the wealth management complexities facing clients – particularly those who are embarking on new business ventures. The Americas has some the highest levels of entrepreneurial activity worldwide. According to the Global Entrepreneurship Monitor, five of the six countries globally that reported more than 1 in 4 adults starting a new business come from our region: Guatemala, Colombia, Panama, Chile, and Uruguay.
The regular sparring sessions I have with my clients on topics such as planning the future of their company, their life and their family’s lives have given me clear insights into how to manage the complexities of wealth planning. Below, I share with you my five main considerations for planning your wealth along the private and business life cycle:
1. Create a holistic and strategic plan
When my clients are starting a new venture, their priorities usually start with “business“ and “family”. “Personal finance” often only features further down their list. I advise them to think more broadly about their wealth situation – taking in topics such as diversification, business governance, taxation, relocation and succession – and to create a 360-degree view that addresses the financial goals they have for themselves, their family and their business. By making conscious decisions in this way, they can take appropriate steps to ensure that their wishes in providing for themselves and their family are properly reflected in the outcomes.
2. Select a trusted network of partners and advisors
Business owners often are more successful in making decisions if they have analysed all facts, options and circumstances together with experts. It’s crucial to build a network of trusted advisors that you can call upon. In addition to a wealth planning specialist and a tax advisor, look for a lawyer, an accountant and an independent advisor in your field of business. Sometimes also when the business matures, an independent director is of great benefit in helping owners to focus on the business more objectively. And remember: no advisor has all the answers – the territory that needs to be covered is just too complex for that. As wealth planners, our expertise is in taking a high-level view, but the key is to select, harmonise and manage a professional service team that can synthesise, analyse and coordinate the different moving parts.
3. Choose a suitable legal structure, place of incorporation and management
The decisions you take when setting up your company will steer its financial developments in the years that follow – so it’s essential to evaluate the needs and opportunities properly. For example, depending on your business activities, it might not be so easy to change your company’s domicile at a later stage, thus, to choose the right jurisdiction is paramount. Your choice of legal operating structure will depend on factors such as your goals and objectives, financial capacity, the share class, the circle of shareholders, double taxation treaties, and the way you plan to run your company.
As for the place of incorporation and management, consider factors such as the business activity, substance requirements, corporate income tax rates, and whether to rent or purchase the business premises.
4. Diversify your wealth & segregrate business activities from personal wealth
It’s typical for entrepreneurs to tie up much of their wealth in their business. When you’re focused on managing your new company’s ongoing operations, you sometimes forget the importance of diversifying your asset portfolio. In addition, a clear legal separation between your business assets and your personal wealth is also key in order to preserve your wealth from the intrinsic risks that running a business usually entail. And there are different ways to achieve this, for example, by holding the shares in your business in a different structure than your portfolio of liquid assets.
5. Review your circumstances regularly
As an entrepreneur, your world is constantly turning due to continuous changes in the legal, regulatory and tax environments – not to mention in your own life events. Nothing is forever so it’s important not to rest on your laurels and talk about ‘lasting outcomes’. Regular reviewing is key. As you grow your business, try to keep at least 6–12 months of your expenses in liquid reserves at all times and ensure that you have proper risk coverage and protections in the event of ill-health or disability. It’s also worth thinking about your matrimonial regime and inheritance regulations, especially if you have changed your residency or domicile due to your new business venture.