Business Owner Planning

Becoming a successful entrepreneur has replaced home ownership as the new definition of the American Dream. The compelling idea to the tens of thousands of individuals starting a small business every year is the allure of being master of one’s own professional success.

Being the boss can be exhilarating. But there are also significant risks to going out on your own. Unfortunately, the failure rate of small business is high, with only 50 percent of new businesses surviving for five years. What small business owners sometimes forget is that they need to adapt their own individual financial plans for the new realities and risks of being a business owner.

Comprehensive financial planning for an individual or couple generally involves tax planning, risk management, investment planning, retirement planning and gift and estate planning. When it comes to financial planning for the small business owner: the do-it-yourself drive that helped you start your business will not serve you well when it comes to managing the many financial issues created by that business.  This is where professional expertise often becomes necessary. 

Partnership Agreements

All partnerships end. The only question is when and what happens to the partners, employees and beneficiaries when they do. Proper planning can help ensure that if bad things happen, the business can have the financial strength to continue. Buy/Sell agreements are often written, but many are never funded. This brings a false sense of security that things will be okay. Reviewing your agreement to determine what would really happen and who really benefits from the Buy/Sell agreement; the surviving owner, or the surviving spouse/family. Developing and implementing agreements with funding mechanisms when things are calm enables them to be ready when they are needed.

 

Succession Planning

Only one-third of family owned businesses survive the transition to the second generation. A primary reason for this dismal survival rate lies in poor succession planning. Liquidating a business at pennies on the dollar is no way to end your life’s work. Carefully crafting a succession plan that protects your family, employees and customers can help.

Key Employee Retention/Insurance

Many businesses rely on key managers or salespeople for the majority of their profits. “Golden hand cuff” retention plans can help reward them and encourage them to stay.  A supplemental executive retirement plan is a nonqualified retirement plan for key company employees, such as executives, that provides benefits above and beyond those covered in other retirement plans. Additionally Key Person Life Insurance can help the business transition if they should pass away. The potentially tax-free death benefit is payable to the company and can be used to compensate for lost profits and the expense of finding and training a replacement.

Tax Advantaged Retirement Benefits Savings

The small business owner has the opportunity to be creative in designing a retirement plan, however, he/she must take the initiative to make it happen. The first step is to identify how many employees will benefit and whether they are key to the success of the business. Then determine the balance between the simplicity of a SEP (Simplified Employee Pension) vs the enhanced complexity and benefits of a 401(k) with Profit Sharing and Match combined with a Defined Benefit Pension, or a balance in between. Careful modeling can help you determine which one is right for your business.

Employee and Family Protection

Disability income insurance, Long-Term Care Insurance and life insurance are key benefits that many companies provide. These programs can be established for the key employees, key managers or all employees. There are many advantages to creating an environment where the employees know they are okay if bad things happen. This can enhance retention and enable employees to focus on their jobs. Program design is crucial to ensure that it meets the goals of the company.