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GORDON was asked to help families rebuild their portfolios after the 2000, 2007 & 2020 crashes. Some of them had lost it all as their wealth was held entirely in one place with no protection.
1) Most of your net worth is held in a single illiquid asset
ISSUE: What liquid assets would be left for you if your business lost its value tomorrow?
WHAT IF: If your business takes a serious hit, so does your personal financial health. And decisions to sell, hold or restructure become necessary and are made under duress.
COMPLICATIONS: It's now harder to qualify for a business loan. So securing a buyer's commitment to finance a sale or getting a sufficient line of credit is no longer certain.
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2) "Sell the business" is your primary retirement plan
ISSUE: What's your backup plan if the business isn't ready to sell on your timeline?
WHAT IF: What if there's no buyer when you're ready to sell? If you don't have a pool of assets outside of your business, you'll have to work longer or retire on far less.
COMPLICATIONS: If you're at least 50 and pay yourself more than $150k a year, a new rule changes how you can save. The "catch-up" savings that once lowered your tax bill must now be saved after tax, per 2022 SECURE 2.0, Section 603.
3) Your personal debt is quietly riding on your business cash flow
ISSUE: How many months could your bills be paid if your business income stopped?
WHAT IF: With an illness, lost contract or a slow season, bills can drift past their due date. Most business owners never stress-test this scenario since no one ever showed them how.
COMPLICATIONS: Any decision to refinance debt locks in today's higher rates, as building a reserve can take many months. Credit lines are more difficult to secure as lenders now carefully scrutinize variable income.
4) Your insurance hasn't kept pace with business growth
ISSUE: When was the last time you critically assessed your insurance coverage?
WHAT IF: If you are disabled or die, the coverage bought years ago can only fall short of what's needed to fund a buyout, replace income or keep the business running.
COMPLICATIONS: Age and health changes may trigger new underwriting with higher premiums, exclusions or denial of coverage. You'll need a current valuation to know your real number, and multiple partners may force the agreement to be restructured.
5) Your investments move in the same direction as your business
ISSUE: Would your personal market positions and business interests take the same hit in a bad year?
WHAT IF: A downturn hits your industry, while your stock portfolio is weighted toward the same business sector. So your stock holdings and business simultaneously take the same hit.
COMPLICATIONS: Diversifying away from your industry can trigger capital gains taxes. Creating a diversification strategy can also be difficult without professional guidance.
6) No written continuity plan if you can't run the business
ISSUE: What happens to your business and your personal finances if you suddenly become unavailable?
WHAT IF: Illness or injury can create a leadership void in which no one exists with the authority to make decisions. Your family can then be forced into expensive public court-supervised guardianship proceedings.
COMPLICATIONS: A rushed sale or frantic borrowing has consequences. Key employees and clients can be spooked by the sudden change and may look elsewhere. You may also lose leverage when negotiating a loan.
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Gordon Phillips is an Independent Wealth Preservation Consultant. He mentors us on how to sidestep the economic, political and lifestyle risks that threaten our financial health. Gordon works closely with his clients to build personal wealth funds and resilient retirement plans that also combat inflation and attack debt.