As a business owner, you aim to evaluate every business decision based on the expected return of business advancement. Likewise, you should expect the same from your business advisers. Small-business owners spend many years focused solely on the growth of their business. Your attention has been fixed on establishing your name and reputation, and nurturing client relationships. As a successful small business, you are in a position to evaluate your business advisers and determine if you have outgrown the services they have provided you. Let’s look at four key areas where your advisers may be underperforming: accounting and tax consulting; benefits and compensation; financial planning, and succession planning.
Accounting and Tax Consulting
When you began your business, you may have hired an accountant to help with cash reconciliation accounts and the management of accounts receivable and payable. Now that you are consistently earning a profit, let’s say you want to turn your attention to capital improvements. You may need to take your tax consulting to the next level by planning capital expenditures to take advantage of accelerated depreciation that was extended with The American Taxpayer Relief Act of 2012. Through 2013, business may be able to take advantage of the extended Code Section 179 dollar limit of $500,000, which allows you to fully depreciate certain qualified purchases. For some purchases that you are not able or choose not to classify under section 179, businesses may be able to recover 50% of the cost of new, qualified property in the first year the depreciable item is placed in service. Taking advantage of these deductions in conjunction with available credits, such as Georgia’s Retraining Tax Credit, allows businesses to offset a substantial amount of income.
You may also need a business valuation to provide the best information to make informed decisions about the direction and future of your business. Business valuations are needed for various reasons, i.e., determining selling price, estate planning, gift taxation, divorce litigation, allocating purchase price among business assets, and buy/sell agreements, if you bring on additional owners. Your current business tax adviser may have worked with you to optimize deductions and reduce taxable income; therefore, your financial statements may not reflect the intrinsic value of your business. A C.P.A. who is a qualified business valuation expert can recast your financials away from tax-based accounting, to determine your business’s value.
Benefits and Compensation
Perhaps you are interested in offering a competitive benefits package that may include health and life insurance, defined contribution retirement plans, profit sharing plans and executive bonus compensation packages. A 401(k) plan is one of the most robust retirement savings programs available today, and as an employer, your business is entitled to a tax deduction for contributions to employees’ accounts. You may have been able to establish one through your payroll service, or you only established a solo-401(k) and now you have key employees you want to retain.
New rules regarding fee disclosure and fiduciary responsibility have complicated plan sponsorship for small businesses. As a plan sponsor, you should consider the plan costs in relation to the amount of assets, number of participants and the additional services you receive. Hiring an expert can help you reduce your fiduciary liability by making sure your plan is compliant with ERISA requirements, enhance employee education and improve investment selection through quality and diversification.
Additionally, employee benefit and retirement planning strategies are a very effective and tax friendly way of liquidating a business’s value to its owners over time. One of the most underutilized areas of business planning for closely held businesses is the use of stock option plans. Stock options can be used to create a market for your company’s stock, while helping high-net-worth owners reduce their estate over time by transferring ownership.
Financial Planning
Your business has been your primary wealth generator for years. If you have been investing for retirement during that time, special attention needs to be paid to the diversification between your personal and business assets. You may own shares of your own company as a way of providing additional compensation, or shares of publicly traded companies in the same industry because you are so familiar with it. Over exposure in any particular sector could create undue risk for your retirement savings. Additionally, for business owners, the lines can be blurred between personal financial goals and business financial goals. A financial adviser can design asset allocations that offer diversification between your personal and business assets.
While there may be a scientific method to determine how much money you should need in the future, there is an equally artistic method to balancing the level of risk to obtain the expected return rate on investments. An asset manager has experience working with both risk and returns, and can design a portfolio that should satisfy both.
Most business owners have their assets in various places, such as, their home and belongings, retirement plans, brokerage accounts, even real estate or other businesses. It takes financial planning to pull it all together to make it work in the most efficient way possible. This includes taxes, insurance and estate planning. Ideally, any important financial decision you make should be done in the context of your overall financial situation. A financial planner should look at the overall picture of your financial life to help ensure that everything is moving you in the best possible direction for your situation.
Succession Planning
For business owners, maximizing family wealth can take many forms. Whether the goal is to transfer the business interest to the next family generation or a charity; orchestrate an employee or partner-lead buyout; sell the business on the open market, or liquidate the business and dissolve it, business owners should seek to implement strategies that have the highest probability of turning their business’s value into maximum after-tax cash. You should design an exit plan that maximizes the attractiveness of your business to a potential buyer, or put in place a succession plan that provides legal and operational instructions for family members or key employees.
As a business owner, you should begin planning your exit and succession strategy for your business many years sooner than you think. Most business owners believe they should start planning about five years before they are ready to exit. However, there are many processes that may take longer than five years. If you limit yourself to five years you risk their effectiveness. For example, matching your exit plan with the appropriate business entity to take advantage of certain tax treatments could require years to implement. Secondly, you cannot control the many factors that affect the business’s price, including broad market conditions, interest rates, your industry’s health and other external forces that influence the availability of cash, the cost of capital, and the demand for businesses in your industry or market.
At Henssler Financial we believe business owners should Live Ready, which includes both their personal and business finances. Our experts provide overarching financial planning strategies to satisfy both your business and personal financial goals. Henssler Financial understands small-business owners are accustomed to a certain level of control, which makes the relationship with a trusted adviser that much more important. Our local experts are available to help you Live Ready for the next phase of your business success. If you need assistance, contact us: 770-429-9166 or experts@henssler.com.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
