Laying the Groundwork for Your Future
Brought to you by Regina Beatty, in conjunction with Mosaic Consulting, Sagemark Consulting, Private Wealth Services, a division of Lincoln Financial Advisors Corp., a registered investment advisor.
Drawing On Equity
To prepare for the future, business owners may draw equity from their companies to help meet long-term asset diversification and financial needs. Quite frequently, owners may have 80% to 90% of their personal wealth locked inside the equity of a closely held company. Thus, they might be rich on paper, but they may still feel cash poor. If it’s a mature company, they can tap into that equity and also have an exit strategy for whenever that time comes.
The challenge in drawing equity from a company is maintaining its financial vitality so the business can continue to grow and finance retirement and incentive plans for owners and key employees. These programs are often as much a factor in a company’s value as its profitability.
To build value, small business owners can develop “golden handcuffs,” such as nonqualified deferred-compensation plans, to creatively reward select employees. For example, they might provide longevity bonuses of up to $75,000 a year post-retirement to key employees who stay on to age 65. Unlike a 401(k), which must be offered to all employees, owners can pick and choose who will be covered by these more lucrative plans.
Taking Stock
When considering long-term capital needs, business owners may want to:
• Take inventory of personal assets and liabilities, income sources and expenses.
• Get a formal business valuation to know what your business is worth.
• Draw up a succession plan. Ask yourself if you want to transfer your business to partners, family members, employees or to outside parties.
• Plan a target date to leave your business. For example, would it be three, five or 10 years down the road?
Exiting Gracefully
Oftentimes small-business owners don’t have comprehensive exit strategies for transferring ownership, or they have outdated plans that fail to address tax law changes. This tends to occur because they typically reach out to their business advisors only when there’s a crisis or deadline, like when it’s April 15 and they have to file taxes.
To help make a smooth exit, business owners should have their advisor develop a buy-sell agreement, which is especially important when there are multiple owners. These agreements outline detailed succession plans should a business owner retire, become disabled, die or get divorced.
Everyone will exit their business voluntarily or otherwise. The question is, are you going to do it on your terms, or is it going to happen as a result of some catastrophic event? Exiting a business is often the biggest event in an owner’s life. You want to get it right because you only have one shot at it. And if you do it right, you’ll be able to reap the benefits of your life’s work and retire in style.
Regina Beatty,CRPC® is a registered representative and investment advisor representative of Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor,One Northgate Square, Greensburg, PA 15601. 724-834-8100., offering insurance through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients.
