Planning and Protection for Business Owners
As a business owner, you drive every aspect of your enterprise’s success.
Planning ahead to protect what's important to your business
It is often easy to blur the lines between your business goals and your personal goals for you and your family. Working with a Barnum financial professional who is knowledgeable in both the strategies you need to put in place to grow, protect, and transition both your business and in personal financial planning can help you be successful on both fronts.
Here are some of the areas you should address as a business owner:
Leaving the business you have worked so hard to nurture is inevitable. To best preserve the value you have created, it is critical that you have a written strategy for you, your family, and your employees to help assure that when you are no longer in charge, everyone knows what will happen next.
Barnum has a number of financial professionals who specialize in helping business owners develop an effective plan customized to your needs and desires, including your goals for the business, who will own and run it, and the financial implications of a buyout.
There are several exit options you can consider. Inside exit options include a sale or gift to family members, sale to an existing ownership partner or key employee, management buyout, and an Employee Stock Ownership Plan (ESOP). Outside exit options include a sale to a third-party, private equity sale, and liquidation of the business. All have pros and cons which your Barnum financial professional can help you weigh in the context of the business itself and your personal financial situation.
Saving for Retirement
There are two types of qualified retirement plans specifically designed for small businesses: a Simplified Employee Pension (SEP) and a Savings Incentive Match Plan for Employees (SIMPLE). Both are attractive alternatives because they’re easy to set up and inexpensive to administer. There is no complicated paperwork to file with the Internal Revenue Service (IRS). Because they are both qualified retirement plans, they can provide significant tax advantages for both you and your employees.
An SEP IRA is a written plan designed to allow your company to make contributions toward retirement for you and your eligible employees. Each is individually owned and controlled. Any type of business can establish an SEP IRA, including sole proprietorships, corporations (including S corporations), and non-profit organizations. Contributions are made directly into each IRA.
Designed for employers with fewer than 100 employees, a SIMPLE IRA is a written salary reduction arrangement that allows employees to make elective contributions into individual IRAs that are set up for the benefit of each eligible employee. They are not subject to complex discrimination testing or annual reporting requirements.
Key Person Insurance
Life or disability income insurance can compensate your business if certain key employees die or become disabled. The business pays the premiums and is the beneficiary of the policy. The coverage can help offset the potential adverse impacts of losing the critical contributions of a key employee. There is no set formula for putting a dollar value on the impact of the death or disability of a key employee. A Barnum financial professional who specializes in working with small businesses can help you decide based on your unique business situation.
Factoring in Your Estate Plan
Your exit strategy can have a significant impact on your estate plan. This is especially true when ownership is being passed on to some, but not all, of your family members. Your Barnum financial professional can identify a combination of financial vehicles and strategies to distribute non-business assets to help address any inequities. The goal is to have your exit plan and estate plan work together to keep the business viable and ensure family harmony.
Most business owners have a very high percentage of their net worth tied up in their business. That is why it is important to know the current value of your business. It is an important factor in developing your exit plan and your retirement income strategy.
One of the most important components of the value of your business is it’s income replacement value, the value you need the business to be worth to maintain the standard of living you want in retirement. Your Barnum financial professional can hep you determine these values, identify if you may have a retirement income value gap, and develop strategies to try to close or eliminate that gap.