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Put Your Business Succession Plans in Order |
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by Reprinted with permission of Investment Representative Celine Richardson of EdwardJones
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Friday, 07 December 2007 |
 If you own a small business, you probably laugh at the notion of a "9 to 5" workday. Unfortunately, many small-business owners work so hard, and are so focused on the "here and now"- increasing sales, controlling costs, attracting new customers, etc. - that they forget to plan for their own retirement and for the fate of their business.
Don't make those mistakes. No matter how hectic your schedule, take the time to set up a retirement plan for yourself and a succession plan for your business.
Let's consider retirement plans
first. These days, small-business owners such as yourself have several
good retirement plans from which to choose as well as other options
that may provide even more opportunity. If your business has no
employees except you (and possibly,your spouse), you can choose
a SEP IRA, an "owner-only" 401(k) or an "owner-only" defined benefit
plan. If you have employees, you might want to explore a SIMPLE
IRA or a "Safe Harbor" 401(k). All these plans have at least two
things in common. First, your earnings can potentially grow tax-deferred.
Second, you can fund any of these plans with virtually any type
of investment: stocks, bonds, certificates of deposit, government
securities and more. You can even create a mix of investments to
reflect your time horizon and risk tolerance.
Beyond these similarities, though,
these plans have different requirements and features, so, to find
the one that's right for you, consult with a financial advisor who
is experienced in helping business owners.
Once you've established your retirement
plan, it's time to think about succession planning. Here are a few
general recommendations to keep in mind:
- Always know what your business is worth. Your succession plan
may involve either selling the business or passing it to your
heirs, so it's essential you know the sales price or its inheritance
value. Once you have this information, you can help draw up
plans for selling the business or helping your family pay estate
taxes.
- Integrate your succession plans with your estate plans. Many
small-business owners just plan on leaving the business to their
spouse - a move that could cut off other heirs from an inheritance.
This can be particularly troublesome if all your net worth is
tied up in the business - a situation you'll want to avoid by
having some outside investments, in addition to one of the retirement
plans mentioned above.
- Include key employees in your planning. If you'd like to keep
some key employees on after the business is transferred, let
them know your plans while you're still in charge. Of course,
if you plan on selling your business to one of them, you'll
need to invest and organize the proceeds in such a way that
they can be efficiently passed on to your family.
- Plan for "what if?" A good succession plan must also include
plans for contingencies. To cite just one possible complication,
what if you want to leave your business to an adult child, but
that child dies before you? You may need to take many "what
ifs" into account when you construct your plans.
You invest your heart and soul
into your business. To protect that investment, work with your financial,
tax and legal advisors to create the appropriate retirement and
succession plans. Even as busy as you are, it will be time well
spent.
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