With the day to day pressures of owning and managing a business it is easy to think short term, to cope with what’s going on in the here and now.  As business owners ourselves we understand this.  Many advisers to business owners and senior managers focus on the short term: how to reduce tax, how to extract profits from the company, how to structure pay efficiently.  It’s all important work. 

However, it is all too easy to focus on short term efficiency and miss the longer term bigger picture.  For example, are you likely to sell your business at some point?  If so, for how much?  A typical answer I receive from business owners is “as much as possible.”  That makes sense; after all of that hard work we want our efforts to be worth something.  Money seems to be the main motivator with this answer.

I suggest that a more precise answer is: “the amount which, when added to my other assets, will enable me to live the life I want, doing what’s important to me, without the fear of ever running out of money.”  No prizes for being succinct but it provides much more clarity.  The figure based on this different question might be lower than “as much as possible” and therefore achievable sooner.  Equally, the value may be higher and require a change in business direction or strategy.  Lifestyle is the main driver of this value; it’s not just about the money.

So, how do you answer the question “how much is enough?”

A good starting point is to write a list of all the things you would like to do in your life and when you would like to do them.  Let’s assume you’re going to live to age 100; some of us have longer than others but the principle is the same. 

What would you like to do with your partner or your children?  Where in the world would you like to see?  Would you continue working and if so, at what and how often and for how long?  What hobbies would you continue and would there be new ones?  You get the picture.  We call this Lifeplanning and it’s the first step towards answering “how much is enough?”

Next comes Financial Planning and that might not be what you think it is.  It has nothing to do with pensions or investments or any other financial product.  It’s more fun than that.  Financial Planning is about working out the likely cost of the rest of your life, doing what’s important and meaningful to you.  The cost of your life is likely to change as you go through it and you need to forecast these changes.  For example, will you be jumping on and off aircraft at age 80 as much as you might at age 50?  Possibly not but do please get in touch if you’re an 80 year old sky diver.

The foundation of a proper Financial Plan is a lifetime cash flow forecast, based on the life you want to enjoy.  It takes into account your current and likely future assets, income and expenditure.  It will help you to work out your Number.  Your Number is simply the amount of money that enables you to achieve and maintain your desired lifestyle, without the fear of the money running out or building up to the point where you never have chance to spend it.  If you don’t know your Number how will you know when you’ve reached it?  The two steps outlined above – Lifeplanning and Financial Planning – will reveal your Number to you.

Step three – and only after the first two steps - is to seek professional Independent Financial Advice.  If the first two steps have been done well, then the advice at step three will be relevant, appropriate and in context.  It will be linked to your cash flow forecast and it will be focused on your lifestyle rather than based on guesswork.  This will enable you to take fewer financial risks.

We call this three step process Lifestyle Financial Planning.

If you’re a business owner and you know your Number then you can expect greater clarity, better focus and higher motivation.  You’ll have a clear picture of what it is you’re trying to achieve and by when.  You’ll know why you’re working like you do.  All important if you are to cope with the short term challenges of managing a business.

Simon Yates is an owner, director and Certified Financial Planner practitioner at Yates & Co in Chester.  He uses his financial planning skills to help people to identify, achieve and protect their lifestyles.  He is a founding member of Alternative Financial AdvisersTM a national panel of advisers who specialise in Lifestyle Financial Planning.