Putting enough money away: the owner treasury question

Most family business owners I know have two financial modes. Reinvest — put every extra dollar back into the business. Or distribute — take the quarterly distribution, buy the things, live the life. Almost nobody has a third mode: build a personal treasury that outlasts the business.

The logic of reinvesting feels obvious. You trust your business more than the stock market. Your ROI on a new truck or a key hire is better than your ROI on an index fund. And the business IS the retirement plan, right?

Here’s the problem with that logic. The business is an illiquid, concentrated, undiversified asset. You’re betting everything on one company in one industry in one region. If the business stumbles — or if the succession to the next generation doesn’t go as planned — your retirement stumbles with it.

A real owner treasury is money the business can’t touch. In your name, outside the business, diversified across asset classes, enough to support your family for ten-plus years without the business distributing anything.

How much? A rough rule of thumb: by age 55, you should have 3 to 5 times your current annual distribution in outside assets. By 65, 10 times. Most owners are at 0.5 to 1 times when they get to 60. That’s a problem they spent a lifetime making.

[REAL STORY: an owner who had most of their wealth in the business, what happened when a transition came up, or the opposite — an owner who’d built a real treasury and how it changed their options.]

The tactical part: pay yourself a real market salary, not just distributions. Take the distribution after. Build up a separate investment account. Work with an advisor who doesn’t report to you at the company. Keep the two worlds separate — business money and family money, in two different accounts, with two different strategies.

Your business should support your family. Your treasury should make sure it still can if the business changes hands, changes direction, or changes fortunes. Don’t confuse the two.