What follows is a short list for business owners to reference to develop and maintain their financial fitness. Usually, interest in an enterprise is a fairly large portion of an entrepreneur’s net worth. Therefore, doing proactive planning in these areas can result in a better financial life and legacy for the owner and his/her family.
- Breakeven Point/ Where Income Equals Expenses: know what it takes to run your household and your business; know what your personal and business breakeven points are and convey that to your family and to those managing your business! Living below your means provides you with greater financial flexibility.
- Cash Reserves/ “Dry Powder”: keep emergency reserves in a liquid account available to cover three to six months of personal living expenses. It’s also wise to try to conserve business cash for emergency purposes. Depending on the economic cycle, with very little notice, banks have been known to cancel, reduce or call lines of credit for some entrepreneurs. This means it is even more critical than ever to have cash reserves available for your business. Banks are also asking for personal guarantees for business credit lines or converting these short-term financing arrangements to term loans with principal and interest payments required. If you haven’t revisited your business credit arrangements with your business banker, don’t delay—heading off a surprise negative letter or call from your business bank is a proactive move!
- Tax Planning: know what tax bracket you are in and do proactive, year-round tax planning. Integrate your tax planning with your business and real estate holdings. Be aware of the tax loss carry back rules for business losses. With potential changes coming to the tax code, in 2017, it will be even more crucial to stay on top of your personal and business tax status.
- Insurance: maintain an appropriate risk management program, including the correct amounts and kinds of life insurance (with the proper beneficiaries named), disability, medical, liability/casualty/property, long-term care insurance on the personal front; for the business, have the correct kinds and amounts of liability, employment, product, completed job, errors and omissions, theft/embezzlement, vehicles/equipment, business continuation, and umbrella coverages. Insist on having a risk management review done annually for the business and at least every two years for your personal needs.
- Retirement Planning/Succession Planning: know when you want to be financially independent. Not only when, but at what income level. Develop a plan to reach your target by fully utilizing all retirement planning opportunities including ownership succession planning with your family or non-family executive(s). This process will also help determine what kind of succession planning is appropriate for you and your business. Will you need to sell your business in order to retire comfortably? If you need to sell your business, how much do you need to net– after tax from the sale– to provide for your retirement lifestyle? Doing retirement planning will provide the answer.
- Estate Planning: have an appropriate estate plan completed and review it periodically. Consider naming a special trustee (sometimes called a “trust protector”) who is extremely familiar with your business to handle that portion of your estate at your death.
- Investing: become more knowledgeable about investing and investment choices, diversify assets, and don’t continue to reinvest everything in your business or the real estate in which your business operates; have some liquid investments, too!
- Funding Retirement Plans: know what types of qualified plans work best for your business and employee population; establish the plan that is most appropriate and fund as much as you can by deferring the maximum amount of your compensation possible.
- Professional Advisory Team: have access to reliable, responsive professional advisors who communicate well with you, keep your best interests first and foremost, work cooperatively with each other and learn what questions to ask them.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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