Guest Blog from GRCA Member, Domani Wealth
Even in a time of Coronavirus, spring cleaning isn’t just for scrubbing windows and walls. If you’re a business owner or in management, this time of year is also a good time to take a look at how “clean” your business planning is and how prepared you are for the future.
Top 5 tips for businesses
Tip 1 – Update any buy-sell agreements annually.
If there is more than one owner of your business, is there a current buy-sell agreement in place? This is a wise step and can help protect all owners, as well as the business and its customers and staff, in the event of a premature death or disability of one of the owners. Secondly, is the valuation section of the agreement being updated annually? Having a current value in place and an agreed-upon manner of funding can help ownership transitions go more smoothly, with better timing and efficiency.
Tip 2 – Discuss the liquidity needs of your business, have cash in your business available should you need it, but don’t hold excess capital.
A strong cash balance can help keep your business thriving. Keeping excess capital there for safety, however, can increase your risk as a business owner, as those funds could instead be a target of future lawsuits against your business. Preparing a cash flow budget showing sources and needs for cash over the next few years can help determine whether excess capital might exist in the business.
Tip 3 – Have a succession plan in place.
This may include an organizational chart listing all the functions of your business, i.e. sales, production, accounting, etc. and noting who is currently in charge of those functions. This documentation should also note if those leaders were unable to continue in their role, who would be their likely successor. The chart should be reviewed and updated annually.
Additionally, as part of a succession plan, your company may also consider life insurance for its key employees with the owner and beneficiary being your company. Insurance proceeds can help pay for the recruitment and hiring of a replacement should a key employee pass away. Also, make sure you, as the business owner, have a power of attorney named in case you become disabled. Also ask yourself if that power of attorney holder is knowledgeable about your business or otherwise knows the key employees and advisors to the company.
Tip 4 – Take advantage of tax breaks.
If your business taxes are completed for the prior year, review with your tax accountant opportunities and planning ideas that can help minimize the federal, state, and local tax burden for your business. It may seem like a small thing or something you don’t feel like you have time to do, but given the continual tax law changes, new regulations and court decisions, you might be surprised the benefit this step can create.
Tip 5 – Be aware of recent law changes.
The Setting Every Community Up for Retirement (SECURE) Act was passed in late 2019 and has several implications for businesses. It would be prudent to review the updates with your Retirement Plan Administrator to see if there are any additional benefits resulting from this legislation change. The new law affects part-time employee access to retirement plans, tax breaks for small businesses offering retirement plans, and accessibility to multiple employer plans.
Top 5 tips for business owners
Many business owners focus on “Spring Cleaning” for their company, but may not do so with their personal finances. As a business owner, having a well thought out personal financial plan can help preserve your legacy.
Review your existing life and disability insurance coverage to determine their adequacy, financial strength, ownership and beneficiary designations. Although we often focus on life insurance needs in the event of death, don’t overlook the possibility of becoming disabled, significantly impacting your earnings potential over time. This can influence your retirement and family lifestyle more than you may think.
Don’t make your business your only retirement plan. Diversifying your assets may be a more prudent strategy.
Evaluate with your tax accountant planning opportunities that can minimize your individual tax burden. Taking a hard look at your present tax situation in tandem with your financial goals may uncover some useful strategies for your benefit.
Speak to your attorney or advisor as to whether all of your estate planning documents and asset titling are well coordinated with respect to both current law and meeting your family’s planning goals.
Have your A-team set up: accountant, attorney and advisor. Make sure you have their contact information in the same place and available to your family should they need it.
Planning for both your business and your personal success is directly linked and critically important. Reviewing key issues related to both should be done at least annually. Spring is a great time to refresh and renew. Make the most of it.