Planning for Business Owners

Growing a business is a difficult undertaking today as business owners must confront a myriad of tax laws and regulations while trying to effectively create products or services, manage their employees, develop and cultivate clients, and do so profitably.

Often times business owners are too absorbed in their business to tend to their own financial needs, and they may also overlook key planning considerations that could help their business grow and prosper. Also, the livelihood of a business owner can be imperilled when unexpected events occur that adversely affect the bottom line of the business.

Business Owner Needs


For many business owners, their business is their primary retirement asset. After many years of building a successful business they expect to convert it to retirement income by selling it. If they are relying on the business as their sole means of retirement they run the risk that it may not attain the value needed to produce their desired income.

This is why we recommend a business valuation well in advance of your potential exit. It can often be a prudent strategy to accumulate financial assets inside of the business that aren’t influenced by fluctuating markets and business cycles.

Businesses can increase and decrease in value and even fail. The timing is not always ideal to sell a business and reasons for a sale can arise unexpectedly. Many times the true value of the business lies in the talents and good will of the business owner(s) who won’t be around to run the business after he retires.

Business owners today must prepare for retirement with the same level of diversification recommended for any retirement plan.

Business owners have access to a number of qualified and non-qualified retirement plan options that can provide a cornerstone for their retirement income needs.

Business Succession

When a business partner dies or becomes disabled, the business loses a valuable asset and could suffer in the short term. The long term issue for surviving business owners is whether the business can survive when the partner’s family member takes their place or demands payment for their share of the business.

For the families of business partners, the business interest is often their biggest asset and they become the rightful owner of that interest at the death of the partner. They will want to receive their share of the business, either in direct compensation or through their participation as an active partner in the business.

If the surviving partner does not have the capital to compensate the family for their share, their options are limited and not very attractive. A business succession plan can provide for the orderly transfer of the business interest from the deceased’s family to the business.

Executive Compensation

In a small business setting, it could take years to discover or develop the productive talent needed to scale the business to the next level. Executives, management, and top sales people are hard to come by, and it is even more difficult for the business when they walk out the door in pursuit of another opportunity.

When key executives are presented with a strong monetary incentive package, they are more likely to stay and utilize their talents where they feel appreciated and appropriately rewarded. Structured incentive plans can help keep key executives in place and motivate them to higher levels of performance.

Plans such as Non-qualified Deferred Compensation, Executive Bonus, and Split Dollar Life Insurance are life insurance based plans that enable the business to offer current and future benefits to their key executives in exchange for their continued service for a specified period of time.

This provides a win-win for the business owner and their valued employee.

Key Employee Protection

One of the more devastating events a small business can suffer is the loss of a key employee. Oftentimes it’s a critical employee who brings a special talent to the business and is responsible for much of the success of the business owner. The loss of such a valuable asset could set the business back for a period of time, and at tremendous cost, while the business owner seeks to find a replacement, if one can be found at all.

In financial planning, we are taught to protect our most valuable assets – our home, our ability to earn income, our cars – against an unexpected loss. It’s no different for business owners as the loss of a valuable business asset could be devastating to the business.

Buying life insurance and disability coverage on a key employee makes good business sense. The amount of coverage should be enough to cover the costs of recruiting and paying a replacement, loss of earnings to the company, any redemption of stock or a salary continuation plan arrangement with the surviving family.

For more information on Business Owner Planning, please contact us today.