Avoiding Personal Wealth Mistakes

Between overseeing daily operations and working on strategic long-term strategies, pest control operators have a lot on their plates. One task that can get put on the back burner is personal wealth planning. It’s an easy trap to fall into and it’s a potentially costly one.

Tony Anderson, CEO of ARS Wealth Advisors and a speaker at the PCT Virtual M&A Conference in August 2020, shared three mistakes small business owners should avoid when managing their personal wealth.

1. Holding On To Too Much Cash. For many small business owners, personal wealth management is challenging because their corporate structure (S Corps and LLCs) adds complexities to their personal finances. Oftentimes, small business owners struggle figuring out what to do with their cash, so they do nothing with it (a.k.a., “paralysis by analysis”), Anderson said. “They view it as their safety net, so that if something happens to their business at least they will have that cash to fall back on.”

In the minds of many small business owners, cash flowing in and sitting in a bank account provides them with a sense of comfort; investing fills them with uncertainty. “The problem with that is, especially in today’s environment with interest rates so low, cash earns them almost nothing. If you are still working and sitting on all this cash, that cash isn’t working for you; it’s not growing and it’s not compounding. And if you are retired and you are sitting on all that cash, not only is it not growing for you, but you are drawing on it. Then it is only a matter of time before you start drawing on that principal.”

Another reason small business owners sit on too much cash, Anderson said, is emotion. A lot of people sitting on cash are waiting to feel good, whether it is how they are feeling personally or how they are feeling about the stock market, to invest. “If you wait until you feel good to invest, typically you are going to end up buying high and selling low,” Anderson said.

2. Not Using a Financial Adviser. We live in a day and age where unlimited information is at people’s fingertips. Thus, the temptation for many small business owners is to be their own financial planner. Similar to a homeowner performing do-it-yourself-projects, they can be done, but they can be done better by a professional. A better option is for small business owners to work with financial advisers who understand the nuances of wealth building, said Anderson. “You want to choose a fiduciary adviser,” Anderson advises. “Fiduciary means that, by law, they are working in the best interest of their clients at all times.”

Anderson is a fiduciary adviser, and based on his experiences working with small business owners, he assembled a team that includes a CPA who understands taxes and accounting; a business attorney with expertise in contracts; and a trusted fiduciary adviser who navigates the investing environment.

“I recommend this for a couple reasons,” Anderson said. “One, small business owners are working and don’t have the time to devote to it. But it is critical because the end goal is to retire, and to retire you have to have enough money. Second, when you retire you have enough time (to invest) but is that really how you want to spend your time — sitting in front of a computer? Where advisers add value is by interpreting data, understanding how it works and customizing a plan for each client.”

3. Poor Estate Planning. In working with small business owners, Anderson said it is not uncommon to find owners who haven’t done estate planning. The two biggest reasons are: (1) procrastination — they know they need to do it but keep putting it off; and (2) it’s an unpleasant topic to discuss that can open up family wounds.

Another mistake Anderson sees is small business owners who take the time to establish a trust, but then fail to re-title assets into the name of the trust.

Just as the intricacies of how a small business is structured is critical, so too are the structural intricacies of estate planning.

“There are lots of ways to help minimize taxes, avoid probates and ensure that the majority of the assets the person accumulates that upon their passing goes to the people they want it to,” he says.

Anderson recommends that his clients review their financial and tax plans throughout the year and their estate plans every two to three years.

The author is senior digital editor & managing editor of PCT.