A Successful Business Owner's Dilemma: How to Invest Accumulated Cash ProfitsJanuary 1, 2008
Business owners have many legitimate complaints these days: taxes, regulations, competition (from home and abroad), can’t find good people. The list goes on and on. Als has and als will.
Yet the pride of the American capitalistic system is the successful family business. These entrepreneurs have found their through, around or over the seemingly endless obstacles to become successful business owners (SBOs).
For the purposes of this article, SBOs have excess funds to invest (other than back into the operation of their business, which produced the funds in the first place). Typically these excess funds are in one or more of three places:
1) The business,
2) Their (or spouse’s) name, or
3) Qualified plan (profit-sharing, 401(k), IRA or similar plan).
Over the years the quote that follows has been nicknamed the SBO’s lament: “I know how to make money in my business, but when it comes to making money with my investment money, either I don’t have time to watch it, don’t know how to watch it or rely on my investment advisor. When the market is up, my advisors do fine, but when it’s down, they do lousy.”
For the past couple of years, the lament usually ends with, “Now the market is lousy (or down, or uncertain). What should I do?”
Note: Yes, millions of Americans—other than SBOs—have the same investment dilemma as SBOs: “Where do I invest my money?”
Now, regular readers of this column know that the author is a tax planner, finding legal s to avoid all types of taxes—particularly estate taxes. To do this requires, among other things, getting my client’s personal balance sheet.
Here’s what I can tell you what the balance sheets reveal about the investments of SBOs (and also other estate-planning clients). Their success (or failure) in the stock market and a myriad of other investments, in general, mirrors the Dow Jones: happy on the up and painful on the down. Usually, real-estate investments are a winner.