Key points
- Choose a strategy based on goals, risk appetite, and business stage.
- Use superannuation and family trusts for tax-effective wealth building.
- Protect wealth with estate planning and key insurances like income and business protection.
If you are a business owner looking to create wealth you need to have the appropriate strategy before deciding on any wealth creating products.
The suitable wealth creation strategy will depend on your goals, personal circumstances, risk appetite and the stage of your business or businesses.
What is wealth creation?
Wealth creation is a long-term process of accumulating assets, investments and other money-making resources.
Wealth creation foundations for business owners
A comprehensive wealth strategy sets the foundations that help determine your investment decisions.
Being clear on what you want to do with your wealth, including your businesses, is the starting point. Your wealth creation strategy will be different if you are just starting out or approaching retirement. If you have a family business or are a primary producer you may wish to hand over the business to the next generation.
One of the best and most tax advantageous ways to create wealth for individuals and business owners is through superannuation. Setting up the right superannuation fund and concessional contributions helps minimise tax. However, superannuation rules continue to change and there are limits to the amount of tax effective contributions you can make. Most of your superannuation wealth will be locked away until you are around 60 years of age. This can be an issue of you plan to sell your business or businesses early.
The other effective wealth creation structure for business owners is a family trust. A family trust can help share the tax burden among several individuals. It also separates wealth from businesses which serves as another form of protection.
With the foundations set, you can then determine where you will invest your additional cashflow and potentially borrow to build wealth. Most wealth creating investments involve investing in other businesses via shares or in property. Knowing your risk profile is important because investments with a higher potential return carry greater risk.
Tools for business owners to protect their wealth creation strategy
Two important tools to help business owners to protect their wealth are estate planning and insurances. Your wealth creation and business goals and the stage of your business will again determine the relative importance of these tools.
Having proper estate planning documents in place, such as a will, sets out where you want your wealth to go.
Just like you insure your house or car, it is important to insure your income earning potential, your business and your wealth against unforeseen or unplanned circumstances. Key insurances include business protection, income protection and life insurance.
If you have a mature business, you may not need as much insurance as a younger business owner or someone just starting out in business. Some insurances are available via superannuation. You want to make sure you are not paying more than you need to for insurance.
Experienced wealth advisors and business advisors help create wealth for business owners
A good wealth advisor and business advisor will help you to maximise your wealth. How do you know which wealth creation advisors to choose? Make sure your wealth and business advisors have the experience and ability to help you to:
- understand your goals and what you want your wealth to enable and achieve
- establish, review and adjust a sound business and wealth creation strategy and plan to achieve your goals
- identify, assess and take proactive steps to minimise potential risks and their implications to reduce their impact on your wealth creation
- optimise your after tax dollars to invest in wealth creation
focus on appropriate growth opportunities by understanding and considering all the factors influencing your wealth – including savings, tax, investments, and interest rates.
