The Next Phase: Protecting and Capitalizing on What You Started


Through hard work and perseverance, you’ve taken a vision and turned it into reality. You’ve built a successful business and created wealth. Now, it’s time for the next phase – capitalizing on what you started.

Entrepreneurs and small business owners like you devote their lives to making their businesses work better, faster, and smarter but are often so busy dealing with day-to-day demands they frequently postpone planning for the future.

I have two words: don’t wait. Now is the time to create a comprehensive financial plan to help take your business to the next level, allowing you to grow and protect your business, while potentially maximizing its value. Here are some ways you can get started.

Know the value of your business.

If you’re like many small business owners, as much as 90% of your net worth is tied up in your business. It’s a source of income, benefits, and retirement cash flow. It’s nearly impossible to begin meaningful business and personal financial planning without an understanding of what your business is truly worth.

This is especially important as you think about retirement. Many business owners don’t know what their business is worth, and subsequently, don’t know how to convert that into liquid dollars they can live on in retirement. Will it be enough (after taxes) to sustain your accustomed lifestyle for decades to come?

Consider the benefit of retirement and executive compensation plans.

Qualified retirement plans, such as a 401(k), are a tremendous employee retention tool when your financial situation can support this commitment. Plans should have respectable investment options, be flexible, maximize tax deductible contributions, be administered in compliance and offer fiduciary protection.

A retirement plan can also offer a tax-efficient way for you to accumulate wealth outside of your business, giving you more security as you near retirement.

Similarly, with the right executive compensation plan, you can effectively reward superior performance, provide valuable incentives, and attract and retain top talent – whether it’s one or more key persons, or a select group of executives. Life insurance, for example, can be an attractive benefit, especially policies that offer opportunity to tap the cash value.

Protect against contingencies.

Whether you own 100% of your business or have partners, you need to consider what would happen if you were suddenly forced to leave the business due to illness or death. With partners, it is essential to have an up-to-date buy/sell agreement that addresses these contingencies and spells out a plan to buy back the interests of departing partners. This protects both the business and the families involved.

Tapping the wealth in your company.

I often ask business owners with whom I work, “Do you work for your company? Or does your company work for you?” There are many ways to extract income from a business besides salary and bonuses. Your financial security depends on converting your business assets to cash in the most tax-advantaged manner. The best ways generate a current tax deduction against business income, are not currently taxable to recipients, and allow investment earnings to compound and grow tax-deferred.

Create an exit strategy.

Deciding when and how to transfer your business is one of the most important decisions you will make. There are a variety of succession paths available, make sure you plan to choose the one that is best for you. If selling your business, instead of passing it along to the next generation is a part of your plan, a financial advisor can help you maximize the sale of your company and may also provide access to capital if further investment is needed to improve its value.

Remember, there is no one-size fits all approach to structuring and operating a successful business. Issues of capital structure, tax reduction and entity selection interact uniquely with your own goals and vision. Your ultimate success will be measured by the creation and implementation of a comprehensive plan that improves the probability of attaining your vision, values and goals.


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