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 Bob Doyle, president of Doyle Wealth Management Inc. in St. Petersburg, Fla., is sympathetic to the fact that a business can be so engrossing that an owner can make personal financial decisions that aren't the most prudent
-- he noted that he's a small business owner himself.
"Our largest asset is probably the value of our business," he said. "But I have a 401(k), IRAs, investment accounts."
Doyle likened an owner's pouring all his or her funds into the business to owning only one stock
-- something that most investors know is just foolhardy. "Just as I wouldn't put all my money in Exxon Mobil stock, I wouldn't put all my money into Doyle Wealth Management," he said.
He also warned against raiding retirement accounts, which many owners do rather than trying to borrow from family and friends or when bank loans aren't available. If the business goes south, so do retirement savings
-- not to mention the fact that the government will take a big bite out of early retirement account withdrawals, charging hefty taxes and penalties.
Many small business owners do realize they need to focus on their personal as well as business finances, although it can be a struggle at first to do both.
Felicia Palmer and her husband, Steven Samuel, started their business, 4Control Media Inc., as a hobby, so they didn't mind putting their spare cash into it. But when it turned into a full-time business, one that they needed for their livelihood, their attitude changed
-- they wanted the business to support them, not vice-versa.
"Once we realized our spending was starting to be significant, we said, 'This is a real business and if we're not operating it as a business, we're fooling ourselves,'" Palmer said. "We can't keep spending money and not get anything back."
When the Jersey City, N.J.-based business became profitable and "we had consistent and steady revenues, we started the process of getting our own personal money in order," Palmer said.
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 That has included opening IRAs and 401(k)s, investing in mutual funds and making sure they are adequately insured
-- including disability insurance, so they'll have income if something happens to one or both of them.
"If times go bad again, we need to be sure we're OK," she said.
Kathy Sacks, who owns Sacks Public Relations in Phoenix, recalled being nervous when she and her husband Brian used their home equity to help fund the magazine they started when they were in their 20s.
"We broke all the rules -- you're not supposed to put your personal finances on the line and we did," she said.
The strategy did work for the couple, as they were able to sell their magazine at a nice profit. But that success also encouraged them to keep breaking some of the rules; they each have a business now, and are treating the companies, which also include Brian's media business bizSanDiego, as investments rather than diverting money into more traditional portfolios. Their home, however, is no longer tied to the companies.
"I know there's risks associated with this ..." Sacks said. But, she explained, "We just feel like, given the experience of having sold our first business, we see value in investing in the business, building it and selling it or coming up with some other exit strategy."
Still, Sacks noted that she and her husband, both in their early 30s, don't have children yet. As they get older, she said, they may decide to diversify their investments.
Despite such success stories, advisers still caution against putting everything into the business
-- as Doyle put it, "just like they wouldn't take money from a 401(k) to buy a high-flying Internet startup." He noted the high failure rate among new businesses
-- and, as many small business owners learned after the Sept. 11, 2001, terror attacks, any company can suddenly become vulnerable.
[Associated Press;
by Joyce M. Rosenberg] |
