As a small business owner the thought of a 9 to 5 workday seems ridiculous. Working for yourself means you have to have a greater level of commitment to achieve your dreams. Often this extra work to increase sales and productivity is successful, but retirement and succession planning for the business is put off until later. This can put your future and the future of your business at risk. Failure to make these plans can be “Business Killers.”
We’ll look at retirement plans first. There are many different plans available to small business owners. Depending on the size of your business different opportunities are available. If you are the only members of your business A SEP-IRA or Simple IRA may be the best choice. If you have a number of employees a Simple IRA or a Safe Harbor 401K plan may make more sense. These plans offer you and your employees the opportunity to put income aside to grow tax deferred. They also offer a number of investment vehicles to match your tolerance for risk and time horizon to retirement. IT also offers a benefit to employees seeking plan for their future. You should speak with an investment advisor and your CPA to determine the right programs for the size and needs of your business.
Succession plans are also important to determine what will happen to your business in the event of an untimely death or to plan for the future of your business and employees upon your retirement. These plans will protect your family and enable them to benefit from your years of hard work.
Here are a few things you need to keep in mind:
1. Know what your business is worth. A succession plan will involve either selling the business or passing it on to your heirs. This means you need to know a sale price or inheritance value. Once a value is determined, plans for selling the business can be made as can plans to provide funds for estate taxes that will be due.
2. Make sure your succession plans work with your estate plans. Leaving the business to your spouse can cut off other heirs from and inheritance. Don’t have all of your net worth tied up in a business. They are harder to sell and once you are gone, may not be worth as much as when you were alive and working in the business. Having outside investments and a retirement plan can provide liquidity, while the business is prepared for sale or until the heirs are able to run the business.
3. You need to include key employees in the succession plan. Often key employees are critical to the success of the business. They are often the best people to sell the business to. Discuss your plans with them. You will want to keep them involved. They are important to your success and if you are selling to a third party, they will add value to the sale.
4. Keep your plans up to date. There are many things that can cause tour plans to change. Tax laws, family changes and the size of your business are factors that may cause you to change your plan. Reviewing your plan will ensure it works when you need it to.
Your CPA, Banker, Investment Advisor and Attorney can all help you get the right plan in place. They will also have experience with plans that have worked for other business. These professionals have a vested interest in the continued success of your business. Keep them involved.
I have had help from a number of professional in putting this information together. Robert Centrello a CPA in Fishkill New York, Robert Priore and Investment Advisor from Edward Jones, and Gary Gogerty a partner with the law firm of Drake, Loeb, Heller, Kennedy, Gogerty, Gaba and Rodd, PLLC. You can click on their names to send them any questions you may have. Feel free to contact me at 845-562-8554 if I can be of help.
