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The Difference Between Building Wealth and Building Business Value

Building personal wealth as a business owner is not the same as growing your business valuation. Your personal and business finances are often closely linked, but focusing only on what your company is worth when assessing your long-term goals could be risky.

In the news

In June, Elon Musk made headlines by becoming the world’s first trillionaire when SpaceX was listed on NASDAQ. Within two weeks, he lost that status when technology stocks tumbled. He remains the world’s richest person, but the story is a powerful reminder: a high business valuation does not automatically mean you are building personal wealth as a business owner.

Business value and personal wealth are measured differently

Business value

  • Profitability
  • Cashflow
  • Recurring revenue
  • Strength of management team

Personal wealth

  • Your business (one part of the picture)
  • Properties
  • Savings
  • Pensions
  • Investments

Accumulating personal wealth that is not tied to your business could give you greater security and flexibility. Here are three risks of relying too heavily on your business alone.

3 risks that affect building personal wealth as a business owner

1

Business wealth is often illiquid

Wealth held in your business is often illiquid. You might reinvest profits to grow the business further, which is sound practice, but it could mean that wealth is not accessible when you need it most.

Picture this

You’ve faced some health issues and decide to retire five years earlier than planned. If you had intended to fund retirement by selling the business, you now need to find a buyer. That takes time and may not meet your expectations. You could be forced to delay retirement even though you’re ready to step back.

If you had built up personal wealth alongside the business, you could retire or reduce your hours while the sale is negotiated on your terms.

2

The value of your business could fall

Business value can fluctuate, and some of the factors that influence it are entirely outside your control. As the Musk story shows, concentrating your wealth in one area carries real risk. Diversifying your personal wealth gives you other assets to fall back on if your business loses value.

3

You could miss other opportunities to grow your wealth

Focusing on the business is natural, but it could mean you overlook other ways to grow your finances. If your retirement plan is simply to sell the business, you might never consider setting up a pension, even if it would be the right move for you. Separating business and personal financial thinking opens up far more options.

“A successful business does not automatically mean you are building personal wealth as a business owner, even though the two are connected.”

Let’s build your personal financial plan

If you’d like to talk to us about anything discussed in this article, please do reach out. We could help you create a tailored plan that considers both your business and your personal goals. Get in touch via our contact form or find us on Instagram at @emmelia_pws.

Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only. All information is correct at the time of writing and is subject to change in the future. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances. A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

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