The main reason people become self-employed is very simple: to have more control. For others, wealth creation is paramount, although small businesses are also more likely to fail and lose. Is it worth the hard work and the added risk?

If you are or dream of becoming a small business owner, here are some considerations and how it might apply to you.

Earn Less Now To Build Future Wealth

Every small business owner knows there are no 37.5 hours per week! The boss usually works longer hours than fellow salaried employees of the same age. Despite these long hours and responsibilities, small business owners generally have lower incomes.

Although they earn less, small business owners have a net worth based on the value of their business and, on average, have a higher net worth than workers of similar age and gender. However, their super balances are generally much lower than their salaried counterparts. The reason for this is simple: Many small business owners prefer to use surplus funds to grow their business if they have the option, in the expectation that the eventual sale will finance their retirement.

Protecting Your Investment

It is common for small business owners to use their home as collateral for business loans. This is a requirement of many lenders who want to ensure that the owner has a vested interest in the success of the business. For this reason, associated risk management is imperative. Life insurance can be used to protect income, home, and other personal assets in the event that the business owner dies or is unable to work to meet loan commitments.

Another area that small business owners often overlook is the need for key person insurance and overhead insurance. These policies are designed to protect the business and not the owner’s personal position. If the company can continue to fulfill its obligations, the corresponding personal risk for the owner is reduced.

When It’s Time To Sell

With less than one in three entrepreneurs having a succession plan, most of these entrepreneurs don’t plan their future well and with nearly 1. million small Australian businesses without employees, the owner is the company. This limits the company’s value as a salable asset, which means that when the time comes, many owners will have a hard time extracting the value of the capital they have built up in the company.

For owners selling their business, the proper use of capital gains tax (CGT) benefits for small businesses, for example, can significantly reduce the potential tax burden.

Don’t Go It Alone

A key trait of a small business owner is his ability to trust himself, but there is time for specialist advice. Financial advisors have the knowledge and skills to help in matters such as business structuring, personal property ownership strategies, and adequate insurance coverage.