The 1% Solution

For most business owners, the value of your business is your most important asset, representing as much as 50% – 80% of your total net worth. The wealth in your business, however, is concentrated and illiquid. If you willingly pay a management fee to manage your personally owned liquid wealth, why not do the same for your private company wealth? Chris Mercer recommends you to treat your ownership interest as an investment.

The average wealth management fee is about 1% to have someone oversee your other liquid investments, so why not budget 1% of the value of your business to pay for managing the “pre-liquid” wealth of your business? This allocates the cash needed to pay for “One Percent Solution Activities.” Here are some of the activities you might want to consider*:

  • Annual Valuation and Performance Monitoring
  • Buy-Sell Agreement reviews and revisions
  • Estate Planning reviews and revisions
  • Life and Disability Insurance Funding
  • Ownership Transition Planning
  • Financial Planning
  • Outside Board Members
  • Corporate Finance for Private Business
  • Wealth management and consultant advisor fees

*This list and descriptions are found in “Unlocking Private Company Wealth.”

Your business is your most important asset, so a modest budget dedicated to protecting and unlocking this value is a small but critical expenditure. Chris writes and talks a lot about strategies you can employ to manage your business wealth. Which strategies are the best for you mostly depend on what you want for yourself and the stakeholders of the business. Those strategies also depend on what you can do. Your advisors should be working as a team to help you through this decision making process.

What does your business wealth look like compared to everything else you own? The more successful you are the more your business starts to unbalance your wealth.

A Picture of Your Total Wealth

We employ this pie chart at Marshall+Viliesis every day in our practice to help business owners focus on the importance of their business in terms of wealth, income and legacy. The One Percent Solution is not only about managing the pre-liquid wealth of your business but protecting it as well. There is a lot on the line. We agree with Chris that it does not have to be 1%. If you are more comfortable with less that is perfectly okay. The important thing is to create a budget to do something and get started.

“What do many, if not most, closely held and family owned business owners do to manage the wealth tied up in their closely held business? For many, the answer to the question is “not much.” It is time to focus on managing your private wealth.” – From Unlocking Private Company Wealth by Chris Mercer.

How would you grade yourself on how you manage the wealth of your business?

With just a quick phone call or Zoom meeting, we can start the conversation and offer guidance to how to allocate your own 1% solution to managing business wealth.

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