- Have you ever considered your business as your retirement plan? If so, what does that mean? What is the current value of your business? How much do you want to get out of it for a comfortable retirement?
- Have you thought about how your business would run without you? What if that were to happen along the way, where you were disabled or died? What would happen to your business, your family, employees and their families?
You WILL exit your business one day-voluntarily or involuntarily-either way, you need a plan!
We here at Sandbrook Group are here to ask the hard questions—and to provide you with solid plans in either case!
As a business owner, you have taken on lots of responsibility—not just for yourself and your family, but for others as well. It’s a position you do not take lightly, but probably don’t think about on a day to day basis. After all, you’re too busy running the business! Small business owners wear many hats, and sometimes our teams don’t even realize how many small things (and big things!) we need to accomplish daily. After all, we are the “chief bottle washers”, right?!
So how do you protect your business legacy against the “what if’s” of life? Here is a short list to get you started:
- Major medical – this may be obvious, but we have business owners who do not carry health insurance! One illness or accident can sink your finances, and quickly. Although options are limited with the ACA, there is some planning you can do to keep costs down.
- Supplemental plans – with healthcare costs escalating, and insurance covering less and costing more, a supplemental plan such as accident, critical illness and cancer plans have gained popularity. These are many times very affordable and can be offered to your employees on a voluntary basis.
- Income replacement – also known as disability coverage, this is frequently overlooked coverage but extremely important to both the business owner and their employees. Statistics show that slightly more than 25 percent of today’s 20-year olds will become disabled at some point before they retire. And while about 8.9 million disabled workers got assistance from Uncle Sam in 2014, the chances of securing government benefits are not favorable. According to the US Government’s social security statistics, about one third of those who applied were awarded disability benefits, while the rest were denied. Not only that, but Social Security applications take a long time—months or even years! Can you or your employees cover living expenses during that time?
- Business Overhead – Did you know there is a type of disability plan that will pay your overhead – rent or mortgage, salaries, and other fixed costs if you are sick or hurt? It will even cover hiring someone to do your job!
- If you have partners in your business, or a second party who would be able and interested in buying your business, you can have a Buy-Sell Agreement. If you were permanently disabled, or die, this would trigger a buy-out insurance policy, providing the proceeds to purchase your share of the business. If you are an LLC, having a properly executed Operating Agreement is essential. This is like a Power of Attorney for the business – giving designated representatives access to financial and legal operations. Again, very overlooked by the business owner.
- Key employee – Maybe Sally has been running your business daily; she takes good care of your customers or clients and runs a tight ship with your employees. She is a trusted employee and has the “keys to the kingdom”. You don’t really know all she does daily, but she does it well. Until the day Sally doesn’t show up to work. No one has a clue what she does, how she does it or has access to her passwords and the like. This could decimate a business overnight; at the very least, cause stress and financial losses. A key person insurance plan would provide financial relief but making sure your office is cross trained and again, documentation, is essential.
Where do you land on this short list? Maybe you’ve thought about it but haven’t taken the time to execute on it. Tomorrow is not guaranteed to any of us. Too many times we hear of celebrities who die and had no Estate Planning in place. It happens far too frequently to business owners. There are tax implications as well as legal and financial issues that will take your loved one’s months, maybe years, to dig out of.
So, your business is your retirement plan? What does that look like? When we ask a business owner how much their business is worth, we get one of two responses:
1) They grab a number from the blue sky that has no basis
2) It’s the deer in the headlights look!
One of the first processes you can do is get a business valuation. This is NOT a market analysis of what you can sell your business for, but a baseline of the current value of that business. This is necessary for a Buy-Sell Agreement and helps the business owner who is scaling and growing their business to make sure their asset is headed in the right direction. How are you going to get where you want to go without knowing where you are?
There are three pillars you need to look at for a proper plan of succession—we call it the “3 P’s”, PROCESSES, PEOPLE & PROFITS. Your processes need to be in place and documented. Documentation is the other area of high neglect. Business owners “have it in their heads”, but that doesn’t do much good if they are not available or unable to get that out to the people picking up the pieces. This includes good HR policies, job descriptions and updated and current employee handbooks. It is wise to have each employee sign off on the Policies and Procedures and Employee Handbook—again, documentation!
Once the processes are clear and in place, many times the PEOPLE fall into place. If there are gaps in duties or performance, it will become obvious at that point and may need to train or even replace current employees or hire additional staff or let them go.
Getting your PROCESSES and PEOPLE in line with your core values and your mission will bring on the PROFITS! And after all, isn’t that what we all want- to provide well for our families and our employees? It also gives us the opportunity to GIVE BACK to our communities. After all, small businesses are the life blood of the American economy. So, let’s all get our foundations solid for life’s WHAT IF’s and get those profits soaring. We can all make a difference while protecting the business legacy we have all worked so hard for.
On our next blog we will dive deeper into the 3 P’s of Processes, People & Profits