Maximizing the Value of the Business: Three Financial Planning Principles that Can Help

In recognition of National Small Business Week, which took place earlier this month, Truepoint is sharing ideas about the unique wealth management challenges and opportunities faced by business owners.

Part 2: Tax Specialist Ginger Ittenbach on tax planning for business owners
Part 3: Wealth Advisor John Evans and Financial Planning Specialist Eric Ross on selling the business.


At Truepoint, we are fortunate to serve many business owners as clients. Their businesses are diverse – ranging from large, family-owned enterprises to mid-sized sole proprietorships; from consumer-focused companies to highly specialized firms operating in unique business-to-business niches.

But the one thing all of these leaders have in common is their desire to grow the profitability of their businesses – a motivation I certainly understand. With National Small Business Week starting this week, Truepoint will be sharing big-picture ideas and tactical tips that can help business owners navigate some of their financial challenges. I wanted to share a few of the insights I’ve gained in working with these individuals and families, as well as my own lessons learned as a business owner. Because this is a hugely broad topic on which countless books have been written, I’ll focus mainly on a few meaningful areas where financial planning strategies can help boost the value of a business.

1. A short-term focus can undercut long-term value

Many business owners and entrepreneurs tend to move fast in seizing opportunities and taking risks. While speed can provide some competitive advantage, quick decisions may not work out for the best in the long run. For instance, there is a strong temptation to commingle business and personal expenses to minimize taxable income in the near term. Typically, we see real estate, automobiles, life insurance and excessive travel and entertainment expenses funneled onto a company’s financials.

It’s tempting, I know, but those expenses have a habit of remaining attached to the business in ways that don’t necessarily serve the long-term financial health of the company. These “expense maximization” strategies may distort profitability, for example, and make it more difficult to objectively assess the financials or complete an accurate valuation of the business.

More broadly, a company’s financial model must be structured to reflect the primary goal of growing enterprise value, not the secondary or tertiary objective of maximizing the near-term cash flow of the owner(s). If you don’t keep score this way, you won’t necessarily know if the business is positioned for sustained success.

2. Look to diversify, but beware sizzle over substance

With their nose for opportunity and the confidence to act boldly, many business owners are eager to move quickly when compelling deals arise or when they feel an urge to start new ventures. But focusing relentlessly on what works and what a company does better than the competition typically yields far more long-term value than chasing trends or racing after the next big thing.

The same guidance applies in investing outside of the business where private investments and “sophisticated” strategies frequently under-perform their marketing promises. Because of their comfort with risk and desire to uncover unique opportunities, business owners are often intrigued by private ventures touted by their friends or peers. However, an enormous body of research shows that a more “mundane” approach, rooted in broad diversification, low-cost index funds, opportunistic portfolio rebalancing and a long-term investment perspective, is likely to deliver far superior performance.

Diversification is particularly important for business owners in that the vast majority of their wealth – and therefore their retirement resources – consists of company equity. As they grow older, they should seek to accumulate a basket of shares in publicly traded companies and to diversify globally and with low-cost index funds that broadly track the market. Again, the key here is balance.

3. Financial capital relies on human capital

In my view, it’s impossible to talk about maximizing the value of a business without talking about human capital. No matter your particular field, it really is all about the people, and the ability to create a team that is greater than the sum of its parts.

Conversations with clients have clarified for me how the best teams feature diverse skills and specialties. The difference maker is the effective collaboration of experts in support of common goals. We’ve followed this model at Truepoint, and our business owners appreciate that our tax, financial planning, estate and investment specialists are accessible through one firm. We also pride ourselves on our ability to work effectively with company accountants and other external advisors. In our experience with clients’ businesses, we’ve seen again and again how the strongest companies cultivate communities of support and rely on extended networks of partners, suppliers and even friends.

Communication is another hallmark of highly valuable companies. Certainly it’s important in our business, because clients need to be comfortable sharing information and thinking through their financial goals. Thanks to emotional factors, many people are reluctant to talk about their personal wealth, but such conversations are a clear indicator of long-term success. The point is, communicating a clear vision is absolutely necessary to maximizing both personal wealth and the value of business. And it may be critical to serving your customers. It certainly is to serving ours.

Bottom line: What works in business works in financial planning (and vice versa)

In the management sense, I’ve learned a great deal from our business owner clients, including both positive and negative lessons. We have become well acquainted with the unique challenges that business success brings. Along this journey, it’s become clear that proven management strategies and techniques can add considerable value in the financial planning and wealth management realm. We’ve also learned that the reverse is true; that’s why we aim to share those proven strategies and techniques in our everyday work with business owner clients.

Truepoint Wealth Counsel is a fee-only Registered Investment Adviser. Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A & 2B filed with the SEC, can be found at TruepointWealth.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice. The accuracy and completeness of information presented from third-party sources cannot be guaranteed.

We’d love to get to know more about you and
share with you how we can best help you.