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3 Realities That Make Personal Finance Different for Entrepreneurs The standard investing advice that makes good sense for employed people doesn't fit the circumstances of business owners.

By Garrett Gunderson Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.


In my experience, financial planners and entrepreneurs see the world from completely different perspectives. And they each think the other is a little bit crazy.

For example, financial planners think entrepreneurs love risk; whereas entrepreneurs wonder why anyone would take the risk of putting money into the stock of companies you don't know, understand or control. It is difficult enough to keep up with everything going on in the boardroom of one company, let alone a diversified portfolio with hundreds of companies.

Here's another example: financial planners look at where your finances will be when you hit age 65, whether that's in 10, 20, 30 years or more. Entrepreneurs, by contrast, focus on cash flow over the next few weeks, months and a handful of years at most.

It's predicaments like these that prevent entrepreneurs from ever getting their finances in order at all.

When entrepreneurs do reach out to financial planners for help, they're given the same advice as everyone else -- take money out of your business and invest it in a qualified plan like an IRA or 401(k). Never mind that entrepreneurs have risks, tools and advantages that "everyone else" does not.

The typical financial planner may not appreciate this, but for entrepreneurs, personal finance is a whole different animal. The rules are different and there's more at stake.

Related: 2 Little-Known Retirement Savings Plans Tailored for Entrepreneurs

1. The entrepreneurs faces more risk.

As a business owner, you face far more risk than the typical W-2 employee. If someone gets hurt at your physical location, you could be liable. If an employee is running an errand and gets in an accident, you're responsible. Fortunately, liability insurance is affordable, but a financial planner who's used to working with W-2 employees may not even know to recommend it.

Another important risk-management tool is liquidity. Financial planners often overlook liquidity because there's no commission for recommending it, but liquidity is critical for business owners.

For example, when W-2 employees are low on money, at least they only have themselves and maybe their family to worry about. When business owners are low on money, they have to worry about themselves, their family and everyone on their payroll.

That's just one reason why prematurely taking money out of your business to invest in the markets can be dangerous. It's wiser to first build a "war chest" where you store cash that's immediately accessible if you need it. hat way if your business hits hard times, you won't have to finance payroll on your American Express at 18 percent interest. Even a simple savings account will do the trick.

2. The entrepreneur has more tools.

A financial planner is quick to tell you that investing in IRAs and 401(k)s is tax-deferred, so you won't have to pay taxes until you withdraw the money in retirement. And it's true that a W-2 employee can put pre-tax money into these qualified plans.

But it also comes with some serious drawbacks, like being limited to investing $5,500 per year in an IRA (or $6,500 if you're age 50 or older). There are also strict rules for withdrawing money before age 59 ½, including a 10 percent penalty on top of taxes.

Business owners have a much better tool that W-2 employees do not. They can reinvest profits right back into their business, pre-tax, with next to no limitations. That's because all legitimate business expenses are also tax deductions.

Related: 4 Things Small Business Owners Must Do to Retire Comfortably

3. The entrepreneur has more advantages.

W-2 employees looking for a retirement plan are typically only presented with IRAs or 401(k)s heavily invested in mutual funds. That means their retirement is out of their control and in the hands of the markets. They have no real way to make their wealth go up or down other than spinning the roulette wheel again to choose new mutual funds.

Entrepreneurs already have a retirement plan that they control. It's their business.

Their business also happens to be the most reliable place to build wealth. Bill Gates' wealth is inside Microsoft. Warren Buffett's wealth is inside Berkshire Hathaway. It's the same with Facebook's Mark Zuckerberg and a string of other billionaires and millionaires. Businesses are where true wealth is built, not in 401(k)s or IRAs.

For most entrepreneurs, it's best to reinvest and keep money inside of your business. You build business equity if you ever want to sell for a large payday, or you can hire more people to take over your day-to-day roles so you can retire in your business, rather than from your business. (This is also a great way to keep your tax deductions in retirement, which many people lose.)

Entrepreneurs may never need an IRA or 401(k) because their business is their retirement plan, but a financial planner won't get a commission for telling you that. Entrepreneurs deserve a financial plan that recognizes their business is their best wealth creator and belongs at the center of their plan. They deserve a financial strategy that takes into account their unique circumstances. Where's yours?

Related: 5 Ways to Inspire Millennial Teams to Plan for Retirement

Garrett Gunderson

CEO of

Garrett B. Gunderson has dedicated his career to debunking the many widely accepted myths and fabrications that undermine the prosperity and joy of millions of hard-working, honest business owners. Gunderson’s company, Wealth Factory, empowers its members to build sustainable wealth through financial efficiency and organization leading to clarity, peace of mind and financial confidence. You may recognize him from his appearances as a guest contributor on CNBC, Fox News, ABC, and many others.

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