This information is derived from Rehmann’s Private Client Advisory (PCA) experience, a uniquely tax-aware approach to growing and protecting wealth through a team of specialists curated for each PCA client’s needs.
As a business owner, you should always have a bearing on where you stand regarding your personal and business finances. The two are inextricably linked and contribute to your understanding of your entire financial picture, which is crucial to achieving your short- and long-term financial goals.
Yet many business owners — whether they’re laser-focused on launching or growing their business, or planning their exit from it — tend to focus heavily on their business and its finances rather than on their personal finances.
No judgment here. As finance and accounting specialists who’ve worked with hundreds of entrepreneurs and their families, we see how demanding every stage of business ownership is. We recognize the constant pressure to manage your business’s cash flow, the temptation to invest — and then reinvest — everything you’ve got into growing, improving, and expanding your company.
But we also see the other side: how vulnerable even the most savvy business owners can become if they neglect the personal side of financial planning. Over the course of years, the lack of attention adds up: They’ve missed opportunities to reduce their tax exposure. They’ve failed to optimize their financial growth. They’re unable to fully realize the legacy they’d hoped to one day leave behind.
Those that have tied the majority of their wealth into their business often find themselves in a particularly risky position — relying solely on their business for financial security, which can be frightening at any time, but increasingly so with age and a nearing retirement.
How do you strike the right balance to ensure your personal and business finances are working in harmony? The key lies in treating personal finance management with the same level of care as your business finances. By regularly evaluating and adjusting your personal and business financial strategies, you’ll not only create a roadmap for sustainable business growth, effective succession planning, and financial security for yourself and future generations; you’ll also empower yourself with the information necessary to choose the optimal path throughout your financial journey.
If you’ve got the business side of your financial house in order but could use some guidance on the personal side, you’re in the right place. In this article, you’ll learn what a personal financial statement is, how often you need to see one, and why they’re such a crucial tool in guiding you toward your business and personal goals.
What is a Personal Financial Statement?
A personal financial statement offers a comprehensive picture of your personal financial health by reporting your personal assets, liabilities, and net worth at a given point in time. Much more than “just” a financial document, a personal financial statement is an indispensable tool for making informed decisions and creating effective financial strategies.
The more detailed and accurate your records are, the more insights your personal financial statement can offer. However, much like a photograph, your personal financial statement reveals only a singular point in time. That’s why taking regular snapshots of your financial health (i.e., regularly generating personal financial statements) is so important; it enables you to identify and track significant actionable data points and trends over time, as well as take proactive measures.
Why Personal Financial Management is Critical
While your business and its profits are certainly a key driver in propelling you from your current financial position to where you aspire to be, your personal financial health plays a foundational role in supporting your business objectives. Here’s why it’s critical to manage your personal wealth with the same discipline as your business finances:
- Accurate Estate Planning: Asset valuation is essential to determining the total value of an estate. By understanding the full scope of your personal wealth, you can make more informed decisions about asset distribution, tax strategies, and legacy planning.
- Estate Plan Alignment: Ensures all assets are accounted for (titles and beneficiaries) and can be distributed according to plan.
- Minimizing disputes: A clear record and transparency can help prevent misunderstandings and conflicts between heirs and stakeholders during succession planning and after.
- Financial stability: A robust financial picture shows your ability to secure and repay loans, mortgages, or other reinvestments.
- Progress: Regularly updated statements reveal trends and progress, helping you stay on course toward your financial milestones and identify areas for improvement.
How Often Should a Personal Financial Statement Be Prepared?
For many business owners, an annual financial overview is a good place to start; even annual updates can help uncover trends within your accounts.
But what if your financial picture is much, much more complex? It would be best if you had these statements updated on a quarterly (or even monthly) basis and included personal income and expense reporting.
It’s common for business owners to have several personal and business bank accounts, a shifting investment portfolio, annuity payments, and even multiple businesses they may be involved with. Essentially, the greater the volume and complexity, the more critical it is to know your entire financial picture at all times.
Ultimately, the level of complexity in your finances will drive the frequency of your financial statement updates, but one thing is consistent: tracking both personal and business finances together will maximize their potential impact. Read on to find out why.
The Long-Lasting Benefits of Updated Personal Financial Statements
Creating and maintaining a personal net worth summary in addition to your business’s financial statements offers both immediate and enduring advantages.
Short-Term Gains
- Improved performance of your day-to-day cash flow management
- Enhanced clarity for day-to-day operational decisions
- Stronger alignment between personal spending habits and business profitability
Long-Term Gains
- A clearer roadmap for retirement, business transition, and succession planning
- Peace of mind and assurance that you’ve adequately prepared for retirement
- Insight into generational wealth transfer opportunities
- Structured asset protection for estate planning
By integrating personal financial summaries into regular financial check-ups, you can build a foundation for informed, forward-thinking strategies that actually benefit both you and your business.
Consider, for example, the practice of tracking expenses. By regularly evaluating your business and personal finances, you can identify which business-covered expenses, such as travel, will become personal costs once you retire.
Tracking both personal and business financials well before retirement also opens up options to increase your company’s value. Whether your plan involves passing the business to your children or selling it through private equity, starting early and developing a strategy can ensure the best possible outcome. This proactive approach not only enhances your business’s value but also aligns with your personal financial goals, ensuring a smoother transition into retirement.
Securing Your Legacy
Your financial decisions today can define your family’s future for generations to come. As a consequence of performing regular financial snapshots and intentionally adhering to a well-thought-out financial plan, you can build a strong foundation for your loved ones.
For many, passing the business down to the next generation is a key part of their legacy. Involving your children in the business builds leadership skills and can ensure everyone has a smoother transition when the time comes for them to take control.
Although succession planning includes preparing the business itself, it also includes the often-neglected personal assets and liabilities outside the business. Regular financial check-ins can help you identify growth opportunities and maximize value. The earlier you take steps to increase value, the more options you have at your disposal. Remember, you can never start planning too early for the next phase of your business.
within the company. This could be a family member or an employee who has proven themselves capable of taking on a leadership role. Providing them with mentorship and development opportunities can help ensure a smooth transition when the time comes.
Securing wealth for your legacy also involves estate planning. Agreements like trusts and wills can ensure your assets are protected and passed on according to your wishes. Even after these plans are established, it’s wise to regularly reassess these plans and, if needed, update your beneficiaries over time. These plans are designed to be amended as life events happen, such as weddings, divorces, unexpected passings, and births or adoptions. Such events may require you to make changes to your estate plan so your wealth is passed on accordingly.
Empower Your Financial Health
Balancing personal and business financial strategies doesn’t need to feel overwhelming. With consistent updates, an informed approach, and the help of trusted advisors who have both the experience and knowledge to look at your personal and business financials holistically and help guide you accordingly, you can make meaningful progress toward your financial goals.
By focusing on the bigger picture and ensuring that every aspect of your wealth — personal and professional — is managed with purpose, you can turn your vision into a reality that benefits you, your business, and your loved ones.
Take the next step in your financial success by understanding your complete financial picture. The more comprehensive and clear the view, the stronger the path forward.
About the Authors:
Erin Welker is a manager within Rehmann’s Finance and Accounting Solutions team. Erin specializes in providing comprehensive Family Office Solutions, assisting clients in maintaining their day-to-day finances with tailored support to meet their unique needs. With expertise in trust and estate settlement accounting, Erin offers guidance throughout the entire financial lifecycle.
Roxanne Dudicz is a principal on Rehmann’s Finance and Accounting Solutions team. She leverages her strengths in accounting to streamline operations, maximize efficiencies, and remove financial obstacles for businesses, nonprofit organizations, and high net-worth individuals. Regardless of the client type, Roxanne purposefully provides timely and key financial information, guidance, and support to help her clients operate their business and manage their personal finances.
STAY TUNED! Next Up: Adam Garvey, a principal and advisor with Rehmann’s Wealth Management team, will share the ins and outs of financial goal planning and will explore some of the strategies you can implement that set yourself up for long-term sustainable success.
