Why a business plan isn’t a personal financial plan

It probably doesn’t come as a surprise to know that we tend to work with lots of business owners. They are happy to outsource many things to enable them to focus on their business.

Recently I was sitting down with a potential new client who whilst having a fairly successful profitable and income producing business, had not managed to accumulate much in the way of personal assets. When asking about the reason for that the response of ‘my business is my pension’ came up.

This is something that I have heard several times over the years.

When then asking how much they needed to sell the business for in the future to enable them to retire comfortably with their desired lifestyle the response was the fairly typical blank face.

They then proceeded to tell me all about their business and that they had a clear business plan and strategy for growth over the next three to five years that could result in the required capital event.

This is not to try and criticize them for their situation or make judgements, but rather an observation of a fairly typical situation.

Now it is fairly understandable for a business owner to think that their personal and business finances are the same given that there is often overlap between the two, but for clarity having a clear business plan is not the same as a personal financial plan.

I am sure that you have all heard the sad stories about successful businesses which failed and left the owners in poverty. Unfortunately we have also seen a few people in that situation during the past decade. According to Companies House they were 5.6 million private sector businesses at the end of January 2021 (source: gov.uk). However, of those only 28.8% have been registered for 10 years indicating that longevity of a business is difficult.

If only they had a personal financial plan to enable them to build financial independence in the future regardless of the long term outlook for the business.