BY ERIC SNELL
If you own a business, you may well follow a
“do it now” philosophy — which is, of course,
necessary to keep things running smoothly. Still,
you also need to think about tomorrow — which
means you’ll want to take action on your own
retirement and business succession plans.
Fortunately, you’ve got some attractive options
in these areas. For example, you could choose
a retirement plan that offers at least two key
advantages: potential tax-deferred earnings and
a wide array of investment options. Plus, some
retirement plans allow you to make tax-deductible
contributions.
In selecting a retirement plan, you’ll need to
consider several factors, including the size of
your business and the number of employees.
If
your business has no full-time employees other
than yourself and your spouse, you may consider
a Simplified Employee Pension (SEP) plan or
an owner-only 401(k), sometimes known as an
individual or solo 401(k). Or, if your goal is to
contribute as much as possible, you may want
to consider an owner-only defined benefit plan.
If you have employees, you might want to
investigate a simple IRA or even a 401(k) plan.
Your financial advisor, working with plan design
professionals and your tax advisor, can help you
analyze the options and choose the plan that fits
with your combined personal and business goals.
Now, let’s turn to business succession plans.
Ultimately, your choice of a succession plan
strategy will depend on many factors, such as the
value of your business, your need for the proceeds
from the sale of the business for your retirement,
your successor, and how well your business can
continue without you.
If your goal is to keep the business within the
family, you’ll need to consider how much control
you wish to retain (and for how long), whether
you wish to gift or sell, how you balance your
estate among your heirs, and who can reasonably
succeed you in running the business.
Many succession planning techniques are available,
including an outright sale to a third party, a
sale to your employees or management (at once or
over time), or the transfer of your business within
your family through sales or gifts during your life, at your death or any combination thereof.
Many succession plans include a buy-sell agreement.
Upon your death, such an agreement could
allow a business partner or a key employee to buy
the business from your surviving spouse or whoever
inherits your business interests. To provide
the funds needed for the partner or employee
(or even one of your children) to purchase the
business, an insurance policy could be purchased.
Your estate plan — including your will and any
living trust — should address what happens with
the business, in case you still own part or all of it
at your death. The best-laid succession plans may
go awry if the unexpected occurs.
All these business succession options can be
complex, so before choosing any of them, you
will need to consult with your legal and financial
advisors.
Whether it’s selecting a retirement plan or a
succession strategy, you’ll want to take your time
and make the choices that are appropriate for
your individual situation.
You work extremely hard to run your business
— so do whatever it takes to help maximize your
benefits from it.
Snell is a financial advisor with Edward Jones
Financial in Saratoga Springs.
Photo Courtesy Edward Jones Financial