Business Advice Daily

Reprint and Repost Policy

by David Purcell

Owners are proud of their family owned businesses. To be successful, owners must plan thoroughly and work hard to carry out the plan. Successful business owners should be proud of their accomplishments.

Yet planning and hard work are frequently lacking in efforts to establish a viable blueprint for leaving the business behind. Reluctance to pursue proper succession planning is common. Combining family and business concerns is difficult.

If a proper estate plan is not in place, estate taxes must be paid within nine months of death. This does not give heirs a great deal of time to maneuver. Irreparable harm could result. Part or all of the business may have to be sold in order to pay estate taxes.

In a recent article by Diane E. Picard on the Financial Planning Interactive website, Gary Pittsford, a CFP in Indianapolis, recommends having a plan in place five years before the owner plans to exit the business. However, Martin M. Shenkman, an attorney and CPA, recommends creating a succession plan as soon as a business is started. Shenkman’s position considers that a false step into the path of an oncoming bus could rapidly accelerate the need for a succession plan. He has a point.

In fact, the best succession plan is basically an exit plan, and should be an integral part of a business plan. It should cover all possible eventualities of the business if it had to be turned over to someone else. This exit strategy should address retirement, death, disability, sale of the business, and any other possibilities that might impact the situation.

The succession plan should include life and disability insurance to ensure business operation if the owner dies or becomes disabled. Other strategies, such as an Employee Stock Ownership Plan (ESOP) or business alliances, could provide operating capital or management in extreme circumstances. The details of how the business should be sold or liquidated, if that becomes necessary, should be included.

According to Shenkman, the liquidation or selling option is frequently overlooked. Parent-owners often fail to consider that the children might prefer capital to pursue their own ambitions, rather than the mantle of family business manager.

Dealing with family succession can be more difficult than creating a business plan. Emotions come into play. Problems in family relationships impact planning. Reluctance to confront these problems openly is common.

Children might not want to take over a parent’s business. Siblings may disagree over who should run the business.

In her article, Picard quotes Roy Ballantine, a financial planner in New Hampshire, who stresses that business goals, values and objectives should be the controlling factors in business decisions, not kinship.

Owners are often reluctant to consider liquidation or sale of the business, even if the children are not interested in taking over. But sale or liquidation may be the best choice.

Some useful questions when considering a succession plan are:

* How many children have shown the desire to run the business?

* How many children actually are capable of running the business?

* Which child should be in charge if more than one is willing and able?

* What family problems might arise should the choice for leader actually succeed to that position?

* If only some of the children are interested and capable in managing the company, how will the other children be compensated in the estate plan?

* Should in-laws be considered in the succession mix?

* How should the transition take place while the owner remains capable and active?

* Are there other choices, such as a temporary or “bridge” manager, a current employee, a non-relative, or another entire business that might become the business manager?

* What is the best alternative and the priority for all alternatives in case of an unexpected disability or death of the owner?

Financial and estate planners underscore the need for open communication and family meetings in succession planning. Strategies, such as generation skipping and gifting, should be considered. Finance, corporate, tax and estate planning laws are all part of the succession equation.

Answering the basic questions, reviewing the alternatives and their impact, and a continuing dialogue among family members are crucial components in a plan for succession. With appropriate guidance, a business owner can create an effective succession plan to keep the family together and maximize the probability of continued business success.

 Subscribe RSS

Updates Via Email

Enter your email address:

• Leave a comment... (0)

Reprint and Repost Policy

by Matt Berkley

Here’s a quick heads-up for new business owners. Deciding all the ins and outs of your business insurance policy needn’t keep you up nights. Educating yourself on the basics and finding a skilled agent will give your company the edge it needs.

Sign With An Agent You Trust. The importance of finding a good insurance agent can’t be overstated, especially one who knows your specific industry and has the experience. A quality agent will lay all the important cards on the table and guide you through murky waters. Your life as a business owner will be that much easier knowing that the right person is guarding your flank. “Make sure to get a solid, reputable agent who you know you can count on for good advice, not just at renewal time or when you initially buy the coverage, but throughout the year as questions come up,” says Pat Reilly, assistant vice president with International Placement Services, Inc., national governor elect and former president of the St. Louis CPCU chapter.

“Business insurance isn’t something to be lightly handled over the phone,” notes Brooke Miller, of Brooke Miller State Farm. “You need an agent who’ll go out and look at the business and see if there are exposures a business owner might not be aware of, things that might not be covered if they didn’t add it to their policy.”

Do Your Homework. Reilly includes the following tips for ensuring the right coverage:

* Compile a comprehensive inventory of all your businesses equipment/assets.

* Weigh what your perceived risks are.

* Consider umbrella coverage. At the least, get a quote for excess liability.

* On the general liability side, only buy limits you’re comfortable with.

You Get What You Pay For. The bottom line is always a front line concern for entrepreneurs. Typically, most business owners will gravitate towards the lowest price available in terms of coverage, notes Mike LeBlanc, owner of Mike LeBlanc Insurance. “Business owners get focused on price as opposed to value,” he says, “but there’s no doubt that cheap insurance is just that: cheap.” By talking to their agents or doing some investigating, owners can ensure proper coverage for only a few dollars more each month.

Spot New Developments. Business insurance, by nature, is a conservative industry, but that’s not to say that the terrain goes unchanged. Maybe the newest offering will match your firm perfectly. LeBlanc explains that there are coverage items now available to small firms that for many years were only available to large employers. Endorsements, such as employment practices liability that covers employee harassment suits, have come down the funnel to be priced reasonably for small businesses.

Watch Your Classification. One common misstep is failing to classify your business appropriately, says Gary Teuscher, of Weiss Insurance. This is especially prevalent with new businesses. Insurance agents either make the mistake or intentionally misclassify businesses in order to get a quick commission under their belts. The real problem occurs a few months down the line when the insurance carrier inspects the business. Once the fraudulent classification is uncovered, businesses have only 30 days to establish a new policy.

Miller has seen too many business owners take a lackadaisical approach to their insurance until, that is, they actually need it. For those new to the game, her advice is for you to ask yourself the following:

* What do you want your business policy to do for you?

* What does it need to do for you?

* What do you really need?

* Are you overlooking something you need?

 Subscribe RSS

Updates Via Email

Enter your email address:

• Leave a comment... (0)

Reprint and Repost Policy

General Liability

General liability insures a business against accidents and injuries on its premises, and exposures related to its products/services. For example, a visiting salesperson slips in your office and breaks an ankle. General liability covers the claim against you.

However, let’s say the business is a window manufacturer, with hundreds of its windows installed in homes and businesses. If something goes wrong with them—and this is the confusing part—that is not related to poor workmanship, general liability also covers the damage that results. Naturally, insurance companies don’t want to pay for sloppy work. As a result, general liability tends to be rife with exclusions to the point that some companies wonder why they have it.

* Property/Casualty

Most property insurance is written on an all-risk basis, as opposed to a named-peril basis. The latter offers coverage for specific perils spelled out in the policy. If your loss comes from a peril not named, then it isn’t covered.

Business owners should get a breakdown of what the coverage offers. Then, go the extra step and carefully review the policy’s exclusions. All policies cover loss by fire, but what about such crises as hailstorms and explosions? You may want to buy coverage for all these risks. Perils not covered by a typical policy include: earthquakes and landslides; nuclear contamination; flooding and water-seepage; and maintenance-related losses, such as wear-and-tear and pollution.

* Workers’ Compensation

Workers’ compensation is required by law in all states for businesses with five or more employees in Missouri. Each state says that employers are liable for all injuries to workers, regardless of fault. In exchange for this blanket coverage, workers give up the right to sue their employers, except in cases of extreme negligence.

One way to reduce workers’ compensation premiums is by reducing accidents. Even in office settings, injuries, such as carpal tunnel syndrome and slips and falls, can increase your premiums.

* Automobile

A business auto policy covers property and liability risks that can come with the ownership or use of cars and trucks. The primary strategy for saving money with auto insurance is increasing the deductible.

 Subscribe RSS

Updates Via Email

Enter your email address:

• Leave a comment... (0)

Reprint and Repost Policy

by Peter Racen

Managing money is a lifetime challenge—one that can be made easier with planning. Retirement planning is especially important to ensure that those “golden years” are pleasurable and financially secure.

Traditionally, American’s have relied on the “three-legged stool” approach to income planning for retirement: Social Security, a company pension and personal savings. Not a bad strategy when all three “legs” can be relied upon. But, for many, one or more of those legs may be weak or missing altogether. The uncertain outlook for Social Security and traditional company-sponsored pension plans calls for a dramatic paradigm shift when it comes to planning for retirement.

In addition, the continued controversy as to how best to overhaul Social Security, some 97,000 pension plans in the U.S. were terminated between 1986 and 2003, leaving only about 32,500 plans remaining. The three-legged stool of retirement income is not as sturdy as it once was. Instead, a “pedestal” approach focusing on personal savings is becoming the safer, more reliable path to a secure retirement.

Building up personal savings and other assets is clearly more important now than ever. Yet, personal savings presents a different challenge because it involves saving income “left over” after meeting current financial obligations. And, the greater the number of years before retirement, the more difficult it is for some people to recognize their current need to save for it.

Additionally, there are multiple retirement savings and investment options to choose from. The most appropriate choices will be based on your particular situation. Some popular savings vehicles include investment products, such as IRAs, 401(k)s, self-employed plans and annuities. Permanent life insurance, in addition to providing an immediate source of funds to your survivors when you pass, may be another tool to help you enhance your income during your retirement years.

How Life Insurance Fits Into Retirement

As you look ahead to retirement, consider the role your life insurance will play in your overall financial plan. Retirement does not necessarily put an end to your need for life insurance, although it does mean that you should re-evaluate your insurance coverage.

If you are near retirement and still have dependents that would suffer a financial hardship if you die, you may want to continue or even increase your life insurance coverage. It can also provide for a number of estate planning needs that may exist or even afford you a cost-effective way to leave a legacy through charitable giving.

On the other hand, you may no longer have dependents or have amassed adequate resources to care for your survivors. If you don’t have any other financial goals that could be funded by your life insurance now or in the future, the amount of life insurance protection you need may lessen.

What, then, do you do with your whole life insurance policy? For starters, you may want to explore the “living benefits” that your policy’s cash value may offer. Here are several options:

* Keep the policy in force under a provision called “extended term.” Under this option, you pay no more premiums (thereby making those dollars available for other purposes) yet continue to be insured for the full policy amount. The policy’s accumulated cash value, in effect, pays the premiums for a specified amount of time, after which the insurance protection will end.

* Keep the policy in force indefinitely by converting it to a paid-up policy. You pay no more premiums, but the amount of insurance may be significantly reduced. The accumulated cash value remains intact so you retain the option of accessing it if necessary.

* “Annuitize” the policy by exchanging its accumulated cash value for a payment plan with the company. This option can provide a lifetime of income.

* Access the cash value through loans and/or by taking partial withdrawals or surrenders. A loan does reduce the death benefit and cash value of the policy. You also have the option of surrendering the policy outright to receive the total net cash value.

Each of the above alternatives can trigger different tax consequences so you should consult your tax advisor regarding your individual circumstances.

Indeed, it’s a good idea to analyze your retirement plan and supplement it where needed to meet your financial goals. Regardless of the type of life insurance policy you have, it is a good idea to review your coverage and options with your insurance representative on a regular basis and especially as you approach retirement age. This is one way to be sure your policy can continue meeting your needs throughout your working and nonworking years.