The business objectives of publicly held companies are reasonably clear and to some extent inflexible. They create shareholder value, maximise return on invested capital and contribute to their Corporate Social Responsibility obligations.
This is a far cry from a privately held business where there is room for entrepreneurs and owner-managers to structure their business to meet a broader set of objectives. These could include building the value of the business, maximising the cash flow to shareholders, managing for an exit or simply supporting a certain lifestyle.
However there is a down side. Whilst there are many benefits in owning and managing your business, it usually means that your personal financial position is inextricably linked to your business, your career progression is limited (to what your business can offer) and often there is a less than acceptable quality of life. It can also mean you live in a world where your business life and personal life boundaries are blurred.
What are the consequences of blurring business and personal goals?
Financial exposure
One of the biggest risks entrepreneurs and owner-managers face is the potential financial exposure if the business fails. Especially where personal assets have been used to secure business finance, or personal guarantees have been given.
However there are other situations where financial exposure can arise. Withdrawing funds from the business can be treated as a loan and, along with the ultimate need for repayment, can bring a variety of tax implications to bear. The blurring of the distinction between business funds and personal funds is an area where great care is needed.
Personal development
On a less tangible level, but equally significant, is the area of personal development. How can you progress your career and personal development if you are the boss; you tend not to involve yourself in external training, do not have a mentor and are basically accountable only to yourself.
It is possible for you to continue to grow professionally, but there is a risk that you will overlook your own development. In fact, there is a risk after a long period of self-employment that you will become less attractive to other employers.
It’s possible that the business side of life can overtake and subsume your personal life, to the point where you may not have any personal activities or interests at all. This of course, is not a sustainable situation and work effectiveness can decline, stress levels can rise, relationships can become strained and your health can suffer. The idea of a better quality of life can become a distant dream.
What are the warning signs?
Whilst it is possible for a good accounting system to manage personal payments coming out of the business, a better approach is to keep all monies separate. A disciplined approach to the petty cash tin and the business cheque account is needed to ensure they are not used for personal activities.
It’s not a good sign if you feel your friends and past work colleagues seem to be learning more than you are. If you feel you are a bit out of touch, take it as a warning sign that you need to structure some personal growth and development activities.
As for quality of life. Well we all know the warning signs here. Not sleeping well, putting on weight, being short tempered, not getting proper holidays, losing interest in things, only able to talk about the business… This would be familiar territory for many owner-managers and entrepreneurs, but take it for what it is – a big message.
What should you do?
There is a legal distinction between a business owner and a business no matter how interdependent they are. Keep a sense of separation. Lack of a business plan is often a sign of an owner manager who has no direction.
You need a plan for your life and a separate plan for the business. Blurring the line between the two can lead to confusion, misdirection and financial disorder.