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Managing your business is different from managing your wealth

A business owner leading a team meeting.

Entrepreneurs are a special breed: ambitious, resourceful, and laser-focused on building a company. They tackle business challenges with confidence and commitment, ingenuity and drive. Undeterred by setbacks or naysayers, their efforts can snowball into substantial achievement and rewards and eventually culminate in a highly profitable liquidation event or sale.

Business owners who plan ahead for the sale, transfer, or succession of ownership can maximize wealth and secure affluence for the long term. Yet even entrepreneurs with an impressive bottom line who take steps to lay groundwork for a smooth transition are often caught unaware by the day-to-day realities of managing significant wealth.

At Balentine, we’ve worked with and advised countless entrepreneurs over the years; indeed, we too are entrepreneurs who have walked miles in our clients’ shoes. From this vantage point, we know managing the wealth created by one’s life’s endeavor is fundamentally different than managing the company which created the wealth. In order to set the stage for enduring financial success, you need three fundamental shifts in mindset.

Mindset shift #1: Risk

Fearful individuals rarely start a business. Instead, business founders and owners typically have great faith in themselves and their capabilities. Entrepreneurs welcome risk, concentrated in specific areas, as an integral part of creating value. They have an abundance of confidence. Unfazed by high stakes, they set about energetically and enthusiastically building a business, armed with the belief they can handle whatever challenge arises. Should a strategy, product, or market approach fail to yield positive results, they simply regroup and try something else.

Such a high degree of comfort with risk-taking can lead to problems after the transition of ownership, because it makes entrepreneurs overconfident in their own ability to manage their wealth. Many jump to the conclusion that having expertise in the area that created their wealth makes them expert in all areas. They could become over-active DIY investors, personally picking investments and ordering trades on a frequent basis to chase incremental gains, only to see those gains gobbled up by bigger losses. More often, they rent office space, hire staff, and consider every private equity deal that arrives unsolicited when word gets out about their new-found liquidity. In a hurry to “put the money to work” they miss red flags and gamble on unfamiliar industries, financial instruments, or one-off opportunities that have little chance of success—and proceed to lose a good bit of what they made from the company they ran for 20 to 30 years! Unfortunately, when high-risk choices turn sour, entrepreneurs can no longer tap their business’ original income stream to fund their lifestyle and financial needs.

Therefore, the first area in which you need to change your mindset is around risk. In life after business ownership, smart entrepreneurs acknowledge the realities of financial risk and know these risks are best managed carefully. Creating wealth requires concentrated risk taking while building a business, but maintaining wealth requires intelligent diversification of investments. Impressive returns generated by building a business can rarely be matched by investments designed to mitigate risk. Entrepreneurs who appreciate this reality typically plan ahead and are comfortable delegating management of their wealth to a seasoned, knowledgeable team which is well equipped to help them deal with their new risk profile.

Mindset shift #2: Control

The second dimension with which entrepreneurs struggle is perceived loss of control. For example, coming to work every day as a business owner myself and as the CEO of Balentine, I can do a great deal to affect outcomes. I can hire people. I can hold them accountable. I can change strategy. I can course correct. There is a lot within my control I can change. That level of control changes once entrepreneurs monetize the wealth they’ve created.

Watching your investments get tossed around on the market’s choppy waters and being unable to grab the wheel with your own hands or right your own ship can be painful. It is especially difficult when you invest in stocks and bonds that are priced daily. Typically, in a private business, your business is valued only once a year, but public markets and frenzied media map progress-to-plan minute by minute. The corresponding flood of data points really toys with entrepreneurs’ emotions.

Entrepreneurs who spent years making daily decisions as a CEO can become mesmerized and rattled by such market ups and downs. They are unprepared to take a long-term view of market cycles, expected returns from investment yield, and capital growth. Successfully managing wealth after a liquidation event is not just about tracking stocks or numbers on spreadsheets. It’s also about managing your own perceptions and experience as you ride through this journey in the marketplace.

That’s why we advise shifting your mindset to focus on what you can control:

  • Risk mitigation through intelligent diversification,
  • Accepting what expected returns are realistically possible from today’s starting point,
  • Embracing the reality that a long time horizon is required to achieve desired outcomes,
  • Maintaining flexibility to course correct by keeping sufficient investments in cash and liquid investments, and
  • Resisting the temptation to watch the daily noise around stock market fluctuations.

Mindset shift #3: Identity

Clients often tell me the most anxious part of transitioning out of a business is feeling like they’ve been sent to the “emotional hospice,” or the sense that they’ve lost their purpose and identity. For so long, the business was their life. It was the vehicle through which people knew them. It was the vehicle through which they accomplished goals and effected change.

When that’s been stripped away, they ask, “What am I going to do with my time now? It feels awful that I’ve created a lot of wealth and now I’ve got to sit and watch it go up and down with capital markets and not have anything to do or focus on.” This challenge has more do with psychology and less to do with balance sheets.

I encourage these individuals to shift their mindset concerning their identity and role. Rather than think of themselves as a business owner, they can think of themselves as a chairman of the board of their family’s wealth who has oversight over the CEO—in this case Balentine, which acts like CEO of their portfolio. Their role is to hold us accountable for results. Then, with the time that frees up, they can identify and pursue new goals, such as creating a legacy for the next generation. They might set up a charitable foundation as a vehicle for educating their children about the use and power of money. They might designate capital beyond their income needs to make a difference in their community. For example, one client has a son afflicted by a serious disease; that client spends a lot of time funding research to change the trajectory of the disease.

Managing a business and managing wealth each require their own kind of determination and grit. The good news is you can extrapolate skills you once used to manage a business and repurpose them to manage wealth by recalibrating risk, finding new avenues of control, and forging new purpose and identity. During the years of managing your business, you probably spent a lot of time developing a strategic plan and setting revenue and profitability targets. I encourage you to bring that same attitude to this new wealth phase, starting with articulating goals through a comprehensive financial planning process and delegating responsibility to a qualified team of advisers. With these mindset shifts, you can remain insulated from the “emotional hospice” and fully experience the fruits of your labor after the sale of your business, secure in the knowledge you have built a portfolio that is able to grow in value over time and replace the income you once generated, so your financial choices and goals can be met.

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