Goering Center news: Is your small business house in order?

By Chris Brennan

Most small business owners are preoccupied with growing their businesses. They’re dedicated to cultivating existing relationships while constantly trying to establish new ones. With the business demanding most — if not all — of their attention, small business owners oftentimes allow their own finances and the business decisions they’re making that dramatically impact their own financial well-being to go by the wayside. Committing themselves to addressing some (hopefully all) of the matters below is paramount and could very well be the determining factor in whether or not a small business owner’s retirement ends up being how he or she has always envisioned it.

Can you be doing more within the limitations of a qualified retirement plan? Most employers have a 401(k) for themselves and their employees. Are you also making profit sharing contributions?  Have you considered incorporating a defined benefit plan? The right retirement plan(s) could afford a business owner the ability to defer a significant amount of income (and savings for retirement) between now and retirement.

Many small business owners spend a lot of time wearing many different hats. At one point in time they had to, probably because they couldn’t afford to do things any differently.  But doing so now is at a detriment to the business and their own financial well-being. The business will be better off, and the financial results will likely be more bountiful, if he or she does what is best for the business (i.e., managing client relationships and/or employees) while allowing others on the team to contribute.

Do you have a buy-sell agreement in place? What will happen to your business in the event of an unanticipated death or disability? Will the surviving partners/key employees have the financial wherewithal to acquire the business from your beneficiaries? If an agreement is in place, how was the business valuation arrived at? And is it still current? A well-orchestrated buy-sell agreement could provide the security you desire for your family while ensuring the continuity you want for your employees.

Do you have the right incentive programs in place to retain the talent you already employ? The costs associated with a resignation (i.e., lost productivity and recruiting) can be burdensome; and may very well be avoidable with a properly-constructed annual incentive plan or deferred compensation program. Small business owners, rightfully so, spend a lot of time trying to fill vacant positions; are they also spending a comparable amount of time (and resources) trying to make sure their key employees are happy and motivated to perform?

Do you have an exit plan?  Is it realistic? And is it dependent upon the economy being strong? Far too many small business owners plan on selling their businesses to the perfect buyer in an idyllic economic environment.  What happens if the prospective buying is no longer a realistic option? Or what happens if access to credit is restricted due to a slowdown in the economy? Many small business owners envision a retirement that is funded by the sale of their business at an optimistic valuation; if proper planning (i.e., saving) isn’t done beforehand, a retirement can become overly reliant on what may very well be an unrealistic proposition.

The aforementioned concerns are impacting many small business owners throughout the Tristate area. If you’re one of many small business owners wondering how you might address some or all of these matters, you ought to reach out to a trusted advisor who should be able to help (or put you in touch with another professional who can). Doing so today, as opposed to 5 or 10 years from now (when it may be too late) is advisable, and perhaps more importantly, necessary.

Chris Brennan is a Principal at John D. Dovich & Associates, a Goering Center member organization. Reach Chris at chris@jdovich.com.